<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1998
Registration No. 333-41835
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
AMENDMENT NO. 3
TO
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>
Geschaf3ftshaus 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
Geschaf3ftshaus 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 ADDITIONAL REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Proposed
Proposed Maximum Amount
Amount Maximum Aggregate of
Title of Each Class of to be Offering Price Offering Registration
Securities to be Registered Registered per Share(1) Price Fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share.. 408,164(2) $6.125 $2,500,000 $737.50
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) based on the average bid and ask price of the Common Stock
quoted on the Nasdaq National Market on January 27, 1998.
(2) Represents the maximum number of shares of Common Stock that may be issued
in lieu of cash interest payments assuming a market value of the Common
Stock of $6.125.
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 JANUARY 29, 1998
PROSPECTUS
[GRAPHIC OMITTED]
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 $1.9 million 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 the 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 by Multimedia, 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. See "Description of
the Notes." The Common Stock is currently traded on the Nasdaq National Market
under the symbol "IATA." On January 27, 1998, the last reported sale price for
the Common Stock on the Nasdaq National Market was $6 1/8 per share.
The Notes are unsecured and subordinate to all existing and future Senior
Indebtedness (as defined herein). At January 27, 1998, Senior Indebtedness was
approximately $2.9 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 "yellow
sheets," an interdealer quotation service for taxable bonds. 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 7 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 Company 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>
IAT is working with Olympus to develop and market systems for the
tele-microscopy using Texas Instrument's TMS320C80 programable digital signal
processor. These systems allow health care professionals in remote locations to
view and manipulate microscope slides, saving valuable time in patient
diagnosis and treatment.
One photograph depicting a person looking into a microscope which is
connected to a computer depicting the microscope slide, one photograph
depicting two computers with screens depicting microscopic slides and two
photographs each depicting persons with computers with screens depicting a
printing press.
MAN Roland, a sunbsidiary of MAN, a multinational German conglomerate,
uses an IAT customized solution to maintain and inspect high output printing
presses. Vision and Live systems are also being used in the tele-surveillance
by Grundig, a multinational German conglomerate, as well as for document
analysis by the Police Department of Zurich Switzerland.
-------------------
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
103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
<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 shares of capital stock of the general partner of FSE and 80% of
the 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 defined herein) 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 conferencing 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 visual 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 $40.9 million and
$27.0 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
Instruments' ("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
1
<PAGE>
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 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 $12.5 million in the research and
development of its visual communications technology (including approximately
$4.5 million received from 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's net sales were approximately $1.2 million and
$500,000, respectively, and IAT had 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 performance 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
and sales force to enhance the marketing of FSE's PCs to OEMs.
o The Company intends to concentrate on expanding its presence in Europe
and to seek 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
technologies or companies 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.
The Offering
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 conversion price of
$ per share, subject to adjustment in certain
circumstances. See "Description of the
Notes--Conversion of the Notes."
Redemption at the Option
of Multi-media.......... The Notes are not redeemable prior to ,
2000. Thereafter, 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 Holders Upon a Change
of Control.............. Upon a Change of Control (as defined in "Description
of the 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 repurchase. See "Description
of the Notes--Change of Control."
Increase in Interest Upon
Delisting............... In the event the Company is Delisted (as defined
in "Description of the Notes"), the interest rate
applicable to the principal amount of the Notes will
be increased from 10% per annum to 15% per annum
until the earlier of (i) the relisting of the Common
Stock on a National Exchange (as defined in
"Description of the Notes") or (ii)
3
<PAGE>
repayment of the Notes. Such increased interest
payments may be made, at the option of the Company,
in cash, Common Stock or a combination thereof. See
"Description of the Notes--Increase in Interest
upon Delisting."
Subordination............ The Notes are unsecured and subordinate to all
existing and future Senior Indebtedness (as defined
in "Description of the Notes") of Multimedia and
effectively subordinated to all indebtedness and
other liabilities of the subsidiaries of Multimedia.
At January 27, 1998, Senior Indebtedness was
approximately $2.9 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--
Subordination."
Deposit.................. At the closing for this Offering, Multimedia will
use approximately $1.9 million of the net proceeds
of this Offering to purchase a portfolio of
securities that 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 (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
obligations 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 $8.1 million. Multimedia plans to use
approximately $1.9 million to purchase the Pledged
Securities, approximately $930,000 to fund the
remaining portion of the purchase price of FSE and
the remaining approximately $5.3 million of the 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 "yellow sheets," an
interdealer quotation service for taxable bonds. 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.
4
<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 $10.0 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.
5
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-------------------------------------------------------
Pro Forma,
As Adjusted for the
IAT FSE Acquisition and
Historical FSE Historical the Offering
-------------- ---------------- ---------------------
(unaudited)
<S> <C> <C> <C>
Statement of Operations
Data:
(In thousands, except per share 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 1,657
======= ======= =======
Net income (loss) ............. $(5,108) $ 661 $(6,328)
======= ======= =======
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)
<CAPTION>
Nine Months Ended September 30, 1997
-----------------------------------------------------
Pro Forma,
As Adjusted for the
IAT FSE Acquisition and
Historical FSE Historical the Offering
------------- ---------------- --------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Statement of Operations
Data:
(In thousands, except per share 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 $ 1,246
======= ======= =======
Net income (loss) ............. $(4,303) $ 455 $(5,245)
======= ======= =======
Net loss per common share ..... $ (0.54) $ (0.65)
======= =======
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)
<S> <C> <C> <C> <C>
Balance Sheet Data:
(In thousands)
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,
$6,328, $4,303 and $5,245, 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, (iii)
145,000 shares of Common Stock issuable upon exercise of outstanding
options granted outside of the Plan and (iv) shares of Common Stock
issuable upon exercise of the Underwriter's Warrants.
6
<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 pro forma as adjusted capitalization.
The Indenture does not limit the incurrence of additional debt by the Company
and its subsidiaries senior in right of repayment to the Notes.
The Company's current indebtedness as of January 27, 1998, 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 $1.9 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 such indebtedness 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 will be more vulnerable to economic
downturns, less able to withstand competitive pressures and less flexible 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, to pay
interest on or to refinance its debt and to make repurchase or redemption
payments on the Notes, if any, 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 requirements for working capital, capital expenditures and
scheduled interest and principal payments through 1998, depending on cash
requirements for future acquisitions. Although the Company is evaluating and
is engaged in discussions in connection with
7
<PAGE>
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.
History of Operating Losses; Future Charges to Operations and Losses. IAT
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 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 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 substantially 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 and amortization of
the expenses incurred in connection of this Offering in the amount of
approximately $1.4 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
approximately $5.2 million. Even assuming FSE's business continues to be
profitable, the Company is likely to incur further net 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 $1.9 million 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 $5.3
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 the Indenture or
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
8
<PAGE>
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 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 January 27, 1998,
Senior Indebtedness was approximately $2.9 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.
9
<PAGE>
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 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 future acquisitions. Although the Company intends to use a portion of the
net proceeds of the Offering for future acquisitions, it may require
additional funds to complete an acquisition and will require additional funds
for additional 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 further adversely
affect the Company's future results of operations and may result in increased
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 industry 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,
10
<PAGE>
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 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. With the exception of the research
and development of the Company's wavelet technology and hardware for Vision
and Live and the Wonderboard, research and development has historically been
performed by 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. While these
negotiations are ongoing and the terms of any proposed transactions have not
been finalized, in the event the restructuring of IAT Germany is consummated,
there can be no assurance that IAT Germany will continue to perform research
and development for IAT on a contractual basis, or at all. If IAT is unable to
contract with IAT Germany, IAT will need to obtain research and development
for its products from other providers and there can be no assurance that the
Company would be successfull in negotiating contracts with such providers or
obtaining the necessary research and development to continue to develop and
enhance the performance of its products to maintain their technological and
competitive advantages. The failure to obtain research and development from
other providers on terms favorable to the Company, or at all, would have a
material adverse effect on the Company's business, financial condition and
result of operations. In addition, there can be no assurance that the Company
will have sufficient resources to make research and development and sales and
marketing investments or that the Company will be able to make the
technological advances and adaptations necessary to remain competitive.
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 which 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
contributions of Jacob Agam, the Company's Co-Chairman. 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, 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
11
<PAGE>
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 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".
To remain competitive, IAT will need to continue to invest in research
and development and sales and marketing. With the exception of the research
and development of the Company's wavelet technology and hardware for Vision
and Live and the Wonderboard, research and development has historically been
performed by 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. While these
negotiations are ongoing and the terms of any proposed transactions have not
been finalized, in the event the restructuring of IAT Germany is consummated,
there can be no assurance that IAT Germany will continue to perform research
and development for IAT on a contractual basis, or at all. If IAT is unable to
contract with IAT Germany, IAT will need to obtain research and development
for its products from other providers and there can be no assurance that the
Company would be successfull in negotiating contracts with such providers or
obtaining the necessary research and development to continue to develop and
enhance the performance of its products to maintain their technological and
competitive advantages. The failure to obtain research and development from
other providers on terms favorable to the Company, or at all, would have a
material adverse effect on the Company's business, financial condition and
result of operations.
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 the components and peripherals it
utilizes in its Trinology PCs and sells to its customers, the PC industry
periodically experiences shortages of certain components and peripherals. Many
of the suppliers that FSE relies upon for PC components and peripherals are
located in countries outside of Germany. The availabilty of such PC components
and peripherals is affected by factors such as world-wide demand for components
and peripherals, seasonal reductions in business activities and political and
economic downturns in the countries in which such suppliers are located. 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. During the three month period ended December 31, 1997,
FSE
12
<PAGE>
experienced a shortage of certain components, including monitors, which the
Company believes contributed to an anticipated decrease in revenues during
such period as compared to the three month period ended December 31, 1996 and
may contribute to a decrease in revenues in future periods. See "Business --
Suppliers and Production."
Certain critical components and parts used in IAT's products, including
the C8x chip, are procured from a single source. The C8x chip 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 through purchase orders. The failure
of a supplier, 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 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 and wavelet
technology 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 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 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 these
trademarks. However,
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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 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. 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. Pursuant to an
investor rights agreement dated October 24, 1996 (the "Investor Rights
Agreement") between Vertical Financial Holdings Establishment ("Vertical"),
the holder of approximately 15.2% of the outstanding Common Stock, and
Multimedia, Vertical has the right to nominate two persons as members of the
management slate for election to the Board of Directors of Multimedia so long
as Vertical holds at least 10% of the outstanding Common Stock. Pursuant to
the Indenture, in the event that Vertical ceases to have the right to nominate
two persons as members of the management slate for election to the Board of
Directors of Multimedia a Change of Control will occur. Therefore, in the
event that Vertical sells or otherwise disposes of shares of Common Stock in
an amount that would
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reduce its ownership of Common Stock below 10% of the outstanding Common
Stock, a Change of Control will occur. Although Vertical has agreed not to
sell or otherwise dispose of its shares of Common Stock until March 27, 2000
without the consent of the Underwriter, there can be no assurance that
Vertical will not sell or otherwise dispose of its shares of Common Stock
after such time or that Vertical will not sell or otherwise dispose of such
shares before March 27, 2000 with the consent of the Underwriter. 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 for the repurchase 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, and the failure to repurchase
the Notes would have a material adverse effect on the Company's business,
financial condition and results of operations. 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 depreciations 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 business, financial condition and results of
operations. For example, the average exchange rate for the U.S. dollar
increased by 20.8% and 16.2% as compared to the Swiss Franc and the Deutsche
Mark, respectively, for the nine month period ended September 30, 1997 as
compared to the nine month period ended September 30, 1996, which resulted in
a decrease in revenues and net income at IAT and FSE, as reported in U.S.
dollars, in the nine month period ended September 30, 1997. 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 and economic downturns, 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
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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 Proposed 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 the United States. 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 and other employees 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 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, and
FSE's operating results specifically, have been subject to seasonality and to
significant quarterly and annual fluctuations. For the years ended December 31,
1995 and 1996, approximately 30% of FSE's revenues were generated during the
fourth calendar quarter. For the year ended December 31, 1997, based upon
preliminary internal estimates, FSE anticipates that approximately 27% of its
reveunes will be generated during the fourth calendar quarter, reflecting an
anticipated decrease in FSE's revenues for the fourth quarter of 1997 compared
to the fourth quarter of 1996. See "Managements Discussion and Analyses of
Financia Condition and Results of Operations -- Recent Developments."
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
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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. FSE's revenues and net income are subject to fluctuations in the
value of the Deutsche Mark against the U.S. dollar and FSE currently engages
in limited hedging transactions which are not material to its operations, to
offset the risk of currency fluctuations. There can be no assurance that such
hedging activities will not be increased or discontinued in the future or that
such transactions will offset the risk of currency fluctuations. See "--
Foreign Markets."
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 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, if implemented, 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 be lower than
in the fourth quarter of 1996 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 certain
quarters the Company's results of operations will be below results for the
corresponding quarter of the prior fiscal year or for the preceding quarters
of the then current fiscal year or the expectations of 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, pursuant to the
Investor Rights Agreement so long as Vertical holds at least 10% of the
outstanding 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 the
outstanding Common Stock, 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. In addition, pursuant to the Indenture, in the event
that Vertical ceases to have the right to nominate two persons as members of
the management slate for election to the Board of Directors of Multimedia a
Change of Control
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will occur. Therefore, in the event that Vertical sells or otherwise disposes
of shares of Common Stock in an amount that would reduce its ownership of
Common Stock below 10% of the outstanding Common Stock, a Change of Control
will occur and the Company will be obligated to repurchase the Notes. See
"-- Repurchase of Notes."
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," "Certain Transactions," "Principal Stockholders,"
"Description of Capital Stock" and "Description of the Notes."
Absence of a Public Market for the Notes. The Notes will be traded in the
over-the-counter market in the "yellow sheets," an interdealer quotation
service for taxable bonds. 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,
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 revenue 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 "pink sheets" or the National Association of
Securities Dealers, Inc.'s "Electronic Bulletin Board." Consequently, the
liquidity of the Company's
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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 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 if the Company meets 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 Underwriter 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. Of the Company's
officers and directors who were not officers or directors of the Company at the
time of the IPO, Mr. Wasserman has entered into the Lock-Up Agreement, Mr.
Hallauer has entered into the Lock-Up Agreement only with respect to 25,000
shares of Common Stock issuable upon exercise of his stock options and the
Company expects that Dr. Suminet will enter into a lock-up agreement subsequent
to the closing of the Offering.
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<PAGE>
In addition, Vertical, Messrs. Walther, Vogt, Grissemann, Holthuizen, Sippel and
Suter have entered into agreements with the Underwriter pursuant to which each
of them has agreed not to sell or otherwise dispose of any shares of Common
Stock until March 27, 2000, without the consent of the Underwriter. Multimedia
and Messrs. Sippel, Suter and Holthuizen have entered into an agreement dated as
of December 22, 1997 pursuant to which Messrs. Sippel, Suter and Holthuizen
agreed to sell 50,000, 50,000 and 20,000 shares of Common Stock, respectively
subject to their respective Lock-Up Agreements, the Stockholders' Agreement and
applicable laws. Vertical has consented to such sales pursuant to the
Stockholders' Agreement. See "Certain Transactions -- Transactions Undertaken
Prior to Organization and Formation of the Company."
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
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 in the Registration
Statement of which this Prospectus is a part. 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 $8.1 million
($9.4 million if the Underwriters' over-allotment option is exercised in
full). Multimedia intends to use approximately $1.9 million 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 $5.3 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 and,
eventually, assuming affiliation with a United States-based entity,
establishing an office and a sales and marketing staff for visual
communications products in the United States.
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."
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 January 27, 1998, such rate was DM 1.7898 = $1.00 and SF 1.4498 =
$1.00, respectively.
<PAGE>
<TABLE>
<CAPTION>
Nine Months
ended
September 30, Year Ended December 31,
------------------------ ------------------------
1997 1996
------------------------ ------------------------
DM SF DM SF
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Exchange rate at end of period ......... 1.7431 1.4590 1.5411 1.3427
Average exchange rate during
period(a) ............................. 1.6964 1.4484 1.5044 1.2358
Highest exchange rate during
period ................................ 1.7428 1.4890 1.5665 1.3505
Lowest exchange rate during
period ................................ 1.5418 1.3432 1.4313 1.1507
<CAPTION>
1995 1994
------------------------ ------------------------
DM SF DM SF
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Exchange rate at end of period ......... 1.4345 1.1540 1.5495 1.3100
Average exchange rate during
period(a) ............................. 1.4371 1.1820 1.6216 1.3367
Highest exchange rate during
period ................................ 1.5591 1.3141 1.7658 1.4861
Lowest exchange rate during
period ................................ 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.
21
<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>
1998 First Quarter (through January 27, 1998) .......... 6 9/32 6
1997 Fourth Quarter .................................... 7 3/8 6 1/8
1997 Third Quarter ..................................... 6 3/4 4
1997 Second Quarter .................................... 7 3/4 6
1997 First Quarter (from March 26, 1997) ............... 8 7/8 8 1/2
</TABLE>
On January 27, 1998, the closing price of the Common Stock on the Nasdaq
National Market was $6 1/8 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 ........................... $ 425,690 $ 709,491 $ 709,491
Convertible Notes ...................................... -- -- 10,000,000
------------- ------------- -------------
Total long-term debt ................................... 425,690 709,491 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 issued pro forma and pro forma as
adjusted(1) ......................................... 96,050 97,519 97,519
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 .................................. $ 10,344,985 $ 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
and (iv) shares of Common Stock issuable upon exercise of the Underwriter's
Warrants. See "Certain Transactions."
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 por-
tion .............................................. 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
=========== ==========
PRO FORMA
PRO FORMA FOR THE FSE
PRO FORMA FOR THE FSE ACQUISITION
ADJUSTMENTS ACQUISITION AS ADJUSTED
------------------- ------------- -----------------
Assets
Cash and cash equivalents .......................... $ (3,016,623)A $ 5,743,436 $11,968,436F,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 19,238,823
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 4,213,030F,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 por-
tion .............................................. -- 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
=============
PRO FORMA
PRO FORMA FOR THE FSE
PRO FORMA FOR THE FSE ACQUISITION
ADJUSTMENTS ACQUISITION AS ADJUSTED
---------------- ----------------- -----------------
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) (1,656,809)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) (6,025,013)
Provision for income taxes .............. 108,825 K 302,808 302,808
---------- ------------- ------------
Net income (loss) ....................... $ (801,987) $ (5,249,483) $ (6,327,821)
========== ============= ============
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
=============
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) (1,246,375)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) (5,042,432)
Provision for income taxes ................. 69,554 K 202,187 202,187
---------- ------------ -------------
Net income (loss) .......................... $ (486,657) $ (4,334,055) $(5,244,619)
========== ============ =============
Net loss per share of common stock ......... $ (0.53) $ (0.65)
============ =============
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 (valued at
approximately $900,000 on the date of issuance) and approximately $3,016,000
in cash including closing costs paid at closing and amounts to be paid on
March 13, 1998 in connection with the acquisition.
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 issuance.
(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 .......................... 1,900,000
Net cash received ....................... 8,100,000
27
<PAGE>
(G) The Indenture and the Pledge and Escrow Agreement require the Company to
place in escrow an amount equal to two years of interest payments;
therefore, the as adjusted amounts include an approximate $1.9 million
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:
<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 ................................................ 380,000 285,000
Elimination of pro forma interest expense for borrowings
used for FSE acquisition ............................. (301,662) --
---------- ----------
Total ................................................ $1,078,338 $1,035,000
========== ==========
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 capital stock of the general partner of FSE and 80% of
the limited partnership interests of FSE, a German limited partnership.
29
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
IAT
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------- -------------- -------------- -------------- --------------
(unaudited)
<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 adminis-trative
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 out-
standing ................................. 3,564 3,649 4,002 4,839 5,752
=========== ======== ======== ======== ========
Ratio of earnings to fixed charges ........ (2) (2) (2) (2) (2)
============ =========== =========== =========== ===========
<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 adminis-trative
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 out-
standing ................................. 5,752 7,971
======== ========
Ratio of earnings to fixed charges ........ (2) (2)
=========== ===========
</TABLE>
<PAGE>
- ------------
(1) Represents gain on restructuring.
(2) Earnings, as adjusted, were inadequate to cover fixed charges by $2,199 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.
FSE
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months ended September 30,
1996 1996 1997
--------------------- ---------------------------- ---------------------------
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 $ 211 782 $ 455
====== ======== ====== ======= ====== =======
</TABLE>
30
<PAGE>
IAT
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996
------------- ---------- ---------- ---------- ----------
(unaudited)
<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, (iii) 145,000 shares of Common Stock issuable upon
exercise of outstanding options granted outside of the Plan and (iv)
shares of Common Stock issuable upon exercise of Underwriter's Warrants.
FSE
<TABLE>
<CAPTION>
As of December 31, As of September 30,
1996 1997
-------------------- ----------------------
(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 Condensed Consolidated Information Financial and Notes
to such financial information 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 conferencing 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 visual 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. 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.
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 remained relatively constant at
$1,968,000 compared to $1,952,000 for the nine month period ended September
30, 1996. These costs reflect (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 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 a 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 ended September 30, 1996.
The increase was primarily a result of Multimedia becoming a public company in
33
<PAGE>
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 to
the FSE acquisition would have been $2,425,000.
Interest. IAT's interest expense for the nine month period ended
September 30, 1997 increased by 22.0% to $169,000 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 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
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
employees engaged in research and development 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. $100,000 of this increase was 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. $106,000 of this increase
was a result of the weakening of the U.S. Dollar compared to the Swiss Franc.
Personnel costs increased by $186,000 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 DM 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's 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 a decrease in market prices in general and
the strengthening of the U.S. dollar against the Deutsche Mark.
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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 was 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, which change resulted from 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 to $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.
Recent Developments
Although final numbers are not yet available, based upon preliminary
internal estimates, the Company anticipates that pro forma consolidated revenues
for the three months ended December 31, 1997 decreased compared to the pro forma
consolidated revenues for the three months ended December 31, 1996 reflecting
decreased revenues of both IAT and FSE. The Company believes that the
anticipated decrease in revenues at FSE for the three months ended December 31,
1997 will primarily reflect a shortage of certain components and peripherals, a
substantial decrease in the price of FSE's products and a decrease in the value
of the Deutsche Mark compared to the U.S. dollar compared to the three months
ended December 31, 1996, all of which Factors may also cause, decrease in
revenues in future periods. As a result of the anticipated decrease in pro forma
revenues of IAT and FSE for the quarter ended December 31, 1997, the Company
expects to have a pro forma consolidated net loss for the quarter and year ended
December 31, 1997.
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 $1,260,000 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.
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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 proceeds of the IPO 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. During the nine month period ended September
30, 1996 cash was provided by loans from stockholders ($1,118,000), an
increase in short term bank loans ($682,000) and net proceeds from the
issuance of Common Stock ($1,540,000).
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 8.0% 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 $525,000 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 capital stock 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
($3,711,360). The first installment in the amount of DM 3.2 million
($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
($927,840). The second installment of DM 1.6 million ($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
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
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$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's net cash used in investing activities totaled $550,000 for the nine
month period ended September 30, 1997 compared to $826,000 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 19,
1997 Multimedia repaid approximately $300,000 to a certain limited 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 by Dr. Simmet 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
requirements for working capital, capital expenditures and scheduled interest
and principal payments through 1998, depending on cash requirements for future
acquisitions, if any.
At the closing of this Offering, Multimedia will use approximately $1.9
million 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. While these negotiations are ongoing and
the terms of any proposed transactions have not been finalized, in the event
the restructuring of IAT Germany is consummated, there can be no assurance
that IAT Germany will continue to perform research and development for IAT on
a contractual basis, or at all. If IAT is unable to contract with IAT Germany,
IAT will need to seek research and developent for its products from other
providers and there can be no assurance that the Company would be successful
in negotiating contracts with such providers or obtaining the necessary
research and development to continue to develop and enhance the performance of
its products to maintain their technological and competitive advantages. The
failure to obtain research and development from other providers on terms
favorable to the Company, or at all, would have a material adverse effect on
the Company's business, financial condition and result of operations. See
"Risk Factors -- Competition" and "Risk Factors -- Dependence on New Products
and Rapidly Developing Technologies."
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.
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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 conferencing 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 visual 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 $40.9 million and
$27.0 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 $12.5 million in the research and
development of its visual communications technology (including approximately
$4.5 million received from 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's net sales were approximately $1.2 million and
$500,000, respectively, and IAT had 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
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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 performance 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
and sales force to enhance the marketing of FSE's PCs to OEMs.
o The Company intends to concentrate on expanding its presence in Europe
and to seek 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
technologies or companies 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 visual 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 representation and/or higher frame rates. In addition, many of
these customers need solutions which allow
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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 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 current and
future technological needs. Once the customer's needs are established, FSE
begins the process of
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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 or 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 one to five years depending on the particular component and peripheral.
FSE also maintains (i) a free service hotline to answer questions concerning
the basic operation of the Trinology PCs and to address any technical support
questions and (ii) a "support mailbox" for its customers, through which
customers 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 IAT's products into FSE's PCs and can
use FSE's sales force to market IAT's products to VARs and retail customers.
The Company plans to use IAT'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 upgraded by an improved version
of the Company's Wonderboard which will be offered at 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 aiding in the diagnosis of
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 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 communications 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 aid the health care professional at the
receiving system in diagnosing 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 boards. 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 Wonderboard 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 VARs 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 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. IAT intends to utilize
its employees to develop new versions and to enhance the performance of its
wavelet techonology.
Professor Seiler and Dr. Viktor Vogt have also formed a corporation
organized under German law, which is not expected to compete with the Company,
to develop new products and other inventions of Professor Seiler. Professor
Seiler and Dr. Viktor Vogt are expected to own approximately 26% and 49% of
this corporation, respectively, with the remaining 25% ownership to be
determined. While Professor Seiler may devote substantial time to this new
venture, Dr. Viktor Vogt will continue to devote substantially all of his
business time to the Company. IAT may license its wavelet technology or a
portion of its technology to the new company.
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 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 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 Company together with DT and IBM Germany developed MIKS
Interactive Kiosks. The MIKS Interactive Kiosks consist 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 and has terminated its
relationship with DT and IBM Germany with respect to the MIKS Interactive
Kiosks, 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 by 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 4.0% of its revenues in 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
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their investment in visual communications technology. Systems using
programmable digital signal processors, such as the C8x chip 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.
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 decreases.
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 Vision and Live kits utilizing its third generation technology
to OEMs and VARs at the end of 1997 to integrate into 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 4%, 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 " -- 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 systems 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 " -- IAT --
Uinon and Live."
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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 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. Many of the suppliers that FSE relies upon for PC components and
peripherals are located in countries outside of Germany. The availability of
such PC components and peripherals is affected by factors such as world-wide
demand for components and peripherals, seasonal reductions in business
activities and political and economic downturns in the countries in which such
suppliers are located. 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 chip, are procured from a single
source. The Company believes that the C8x chip 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 chip 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.
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 companies 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.
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, and elsewhere and to vigorously protect
these trademarks. However, there can be no assurance that patents or
trademarks will be granted or, if
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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 pressures are
not mitigated by increases in revenues, cost reductions or changes in product
mix, FSE's profits
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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 industry 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, IAT will need to continue to invest in research
and development and sales and marketing. With the exception of the research
and development of the Company's wavelet technology and hardware for Vision
and Live and the Wonderboard, research and development has historically been
performed by 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. While these
negotiations are ongoing and the terms of any proposed transactions have been
finalized. In the event the restructuring of IAT Germany is consummated, there
can be no assurance that IAT Germany will continue to perform research and
development for IAT on a contractual basis, or at all. If IAT is unable to
contract with IAT Germany, IAT will need to seek research and development for
its products from other providers and there can be no assurance that the
Company would be successful in negotiating contracts with such providers or
obtaining the necessary research and development to continue to develop and
enhance the performance of its products and to maintain their technological
and competitive advantages. The failure to obtain research and development
from other providers on terms favorable to the Company, or at all would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, there can be no assurance that the Company
will have sufficient resources to make research and development and sales and
marketing investments
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or that the Company will be able to make the technological advances and
adaptations necessary to remain competitive. 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 which 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 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 (valued at approximately
$900,000 on the date of issuance), were issued to Dr. Simmet. The second
installment of DM 1.6 million (approximately $927,840) is payable in cash to
Dr. Simmet on or before March 13, 1998. 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. As collateral
for the payment of the second installment of the purchase price, Multimedia
has issued a bank guaranty to Dr. Simmet (the "Guarantee Agreement"). The
Guarantee Agreement 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 13, 1997 in the amount of approximately
$1,000,000 (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
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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 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
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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 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.
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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 with respect to
the MIKS Interactive Kiosks, 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 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.
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<PAGE>
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.
Employees
As of January 27, 1998, the Company had a total of 46 full-time employees
of which 34 and 12 are located in Germany and in Switzerland respectively. Of
these employees, 24 are employed in engineering and product development, 11 in
sales and marketing, and 11 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 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 Pirmasens
residents. 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 ......................... 50 Co-Chairman of the Board, Chief Executive Officer and President
Jacob Agam .......................... 42 Co-Chairman of the Board
Klaus Grissemann (2) ................ 54 Chief Financial Officer and Director
Reiner Hallauer (1)(2) .............. 58 Managing Director, IAT Germany, Bremen and Director
Volker Walther (1)(2) ............... 36 Director
Arnold J. Wasserman (1)(2) .......... 59 Director
Franz Muller ........................ 46 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 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
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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.
The Company has agreed, if requested by the Underwriter, to nominate a
designee of the Underwriter to the Company's Board of Directors for a period of
five years from the date of this Prospectus. See "Underwriting."
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
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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.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1997, Mr. Grissemann, the
Company's Chief Financial Officer, served as a member of the Compensation
Committee.
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 three most highly compensated
executive officers other than Dr. Vogt whose annual salary and bonus exceeds
$100,000 (the "Named Executive Officers"), during the fiscal year ended
December 31, 1997:
SUMMARY COMPENSATION TABLE
for the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Annual Compensation(1)
------------------------------------------
Other Annual
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
- ----------------------------- ------ ---------------- -------- --------------
<S> <C> <C> <C> <C>
Viktor Vogt ................. 1997 136,458(2) 10,000 16,965(3)
Co-Chairman and 9,387(4)
Chief Executive Officer 1996 120,833(2) -- 15,178(3)
9,325(4)
1995 120,833(2) 6,944 13,955(3)
9,325(4)
Klaus Grissemann(5) ......... 1997 142,083 8,792(4)
Chief Financial Officer 1996 136,163 -- 8,792(4)
1995 114,635 -- 3,663(4)
Franz Muller ................ 1997 95,632(2) -- 7,774(3)
Chief Technical Officer 8,633(4)
1996 87,299 -- 7,729(3)
8,633(4)
1995 87,299 -- 5,374(3)
8,633(4)
Alfred Simmet(6) ............ 1997 22,066 -- --
Chief Operating
Officer of FSE
<CAPTION>
Long-Term Compensation
-------------------------------------------------
Awards Payouts
----------------------- ------------------------
Restricted
Stock Options/ LTIP All Other
Name and Award(s) SARs Payouts Compensation
Principal Position ($) (#) ($) ($)
- ----------------------------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Viktor Vogt .................
Co-Chairman and
Chief Executive Officer -- -- -- --
-- -- -- --
Klaus Grissemann(5) .........
Chief Financial Officer -- -- -- --
-- -- -- --
Franz Muller ................ -- -- -- --
Chief Technical Officer
-- -- -- --
-- -- -- --
Alfred Simmet(6) ............ -- -- -- --
Chief Operating
Officer of FSE
</TABLE>
<PAGE>
- ------------
(1) Compensation is paid in Swiss Francs and Deutsche Mark and is converted
into U.S. dollars at the exchange rate of $1.00 = 1.44 SF and $1.00 =
1.775DM on December 18, 1997.
(2) Includes a non-accountable expense allowance of SF 12,000 (approximately
$8,333).
(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."
(6) Mr. Simmet became Chief Operating Officer of FSE on November 13, 1997 in
connection with the acquisition of FSE. The compensation reflected in the
Summary Compensation table is for the period from November 13, 1997 to
December 31, 1997.
58
<PAGE>
Compensation of Directors
Directors of Multimedia currently do not receive any compensation but the
Company reimburses Messrs. Walther, 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 that Dr. Vogt receives 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
$8,333) 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 $538) 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 $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.
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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. 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 was stipulated in a separate stock purchase
agreement and took place on December 15, 1997. 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
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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, until June 26, 2001 upon 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. Mr. Wasserman waived the exercise of such rights in connection
with this Offering.
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, until
June 26, 2001 upon 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. Hallauer
waived the exercise of such rights in connection with this Offering.
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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
Holthuizen 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) 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 1996 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 net 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 in the Registration Statement of
which this Prospectus is a part. Walther Glas and Messrs. Vogt and Sippel have
entered into agreements with the Underwriter pursuant to which they have
agreed not to sell, pledge or otherwise dispose of their shares of Common
Stock until March 27, 2000 without the consent of the Underwriter and they
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 the
Underwriter 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
Holthuizen 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 SF 1,300,000 (approximately $900,000 at
current exchange rates), and Multimedia agreed with Swiss Bank Corporation to
repay IAT AG's credit line in monthly installments of approximately $140,000,
the first installment of which was made on October 31, 1997. In connection
with the agreement between Multimedia and Swiss Bank Corporation pursuant to
which Multimedia is repaying IAT AG's credit line installments, Multimedia was
assigned the rights of Swiss Bank Corporation under the guarantees of Messrs.
Sippel, Suter and Holthuizen. Multimedia and Messrs. Sippel, Suter and
Holthuizen have entered into an amended and restated agreement dated as of
December 22, 1997 pursuant to which Messrs. Sippel, Suter and Holthuizen
agreed to sell 50,000, 50,000 and 20,000 shares of Common Stock, respectively,
subject to their respective Lock-up Agreements, the Stockholders' Agreement
and applicable laws and that the proceeds of such sale have been pledged to
Multimedia to secure their performance under the guarantees. Vertical has
consented to such sales pursuant to the Stockholders' Agreement. Any proceeds
in excess of their obligation under the guarantees will be delivered to
Messrs. Sippel, Suter and Holthuizen. In addition, Messrs. Sippel, Suter and
Holthuizen have agreed to waive their claims against the Company under the
guarantees upon temination of their obligations under the amended and restated
agreement and have agreed not to form a "group" as such term is defined in the
Exchange Act and the rules and regulations promulgated thereunder. 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 1,875,000 shares of Series A Preferred Stock
(giving effect to the 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
$.80 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.
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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 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. Pursuant to the
Indenture, in the event that Vertical ceases to have the right to nominate two
persons as members of the management slate for election to the Board of
Directors of Multimedia a Change of Control will occur. Therefore, in the
event that Vertical sells or otherwise disposes of shares of Common Stock in
an amount that would reduce its ownership of Common Stock below 10% of the
outstanding Common Stock, a Change of Control will occur and the Company will
be obligated to repurchase the Notes. Although Vertical has agreed not to sell
or otherwise dispose of its shares of Common Stock until March 27, 2000
without the consent of the Underwriter, there can be no assurance that
Vertical will not sell or otherwise dispose of its shares of Common Stock
after such time or that Vertical will not sell or otherwise dispose of such
shares before March 27, 2000 with the consent of the Underwriter. 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.
Vertical has waived its rights to have its securities registered on the
Registration Statement of which this Prospectus is a part. See "Description of
Notes -- Change of Control."
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
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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 the Underwriter 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 the Underwriter 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.
Agreement between Dr. Viktor Vogt and Professor Seiler
Professor Seiler and Dr. Viktor Vogt have also formed a corporation
organized under German law, which is not expected to compete with the Company,
to develop new products and other inventions of Professor Seiler. Professor
Seiler and Dr. Viktor Vogt each expect to own approximately 26% and 49% of
this corporation, respectively, with the remaining 25% ownership to be
determined. While Professor Seiler may devote substantial time to this new
venture, Dr. Viktor Vogt will continue to devote substantially all of his
business time to the Company. IAT may license its wavelet technology or a
portion of its technology to the new company.
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FSE Acquisition
In November 1997 Multimedia acquired 100% of the capital stock 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 approximately $1,000,000 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 bank 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) 8.97%
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) ....................................... 52,000(9) *%
Arnold Wasserman(2) ...................................... 40,000(10) *%
Alfred Simmet(2) ......................................... 146,949 1.51%
Significant Stockholders
Vertical Financial Holdings Establishment(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%
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.
(7) Includes 52,500 shares held by Volker Walther and 831,985 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 and 25,000 shares of Common Stock issuable
upon exercise of options which become exercisable on February 25, 1998.
(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.
(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."
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
The Bank of New York 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 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 (v) 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. 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, 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.
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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 Multimedia, 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 and 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 and the Trustee for the benefit of the
Holders of the Notes will have a first priority lien on the Pledged Securities
or cash 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%
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.
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Change of 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"), but
excluding the Company, any subsidiary of the Company, any employee benefit
plan of the Company or a subsidiary of the Company and Vertical or its
affiliates) 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 or the collective
assets of the Company and its subsidiaries to any Person or related group of
Persons; (iv) Vertical ceases to have the right to nominate two persons as
members of the management slate for election to the Board of Directors of
Multimedia or ceases to have the right to elect a Co-Chairman or the Chairman
of Multimedia; (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%.
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.
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.
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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.
Increase in Interest Upon Delisting
In the event the Company is unable to maintain the listing of the Common
Stock (a "Delisting") on The Nasdaq National Market, the New York Stock
Exchange or the American Stock Exchange (each a "National Exchange"),
effective as of the effective date of the Delisting, the interest rate
applicable to the Principal amount of the Notes as set forth on the face of
the Notes and in the Indenture will be increased from 10% per annum to 15% per
annum and the unpaid Principal amount of the Notes will bear interest at a
rate of 15% per annum from the effective date of such Delisting until the
earlier of (i) the relisting of the Common Stock on a National Exchange or
(ii) such Principal is paid or made available for payment as set forth in the
Indenture. In the event the interest rate applicable to the Principal amount
of the Notes is increased as set forth in the Indenture, (i) the first 10% of
interest payable on the Principal amount of the Notes on each Interest Payment
Date will continue to be payable and paid in cash and (ii) the additional 5%
of interest payable on the Principal amount of the Notes on each Interest
Payment Date (the "Excess Interest Amount"), at the option of the Company,
will be payable and paid (x) in cash, (y) by issuing that number of fully paid
and nonassessable shares of Common Stock which have been registered under the
Securities Act having in the aggregate a Fair Market Value on such Interest
Payment Date equal to the Excess Interest Amount due on such Interest Payment
Date or (z) in any combination thereof. Fractional shares of Common Stock will
not be issued as payment of the Excess Interest Amount. A person otherwise
entitled to a fractional share of Common Stock upon payment of the Excess
Interest Amount will receive cash equal to the equivalent fraction of the Fair
Market Value of a share of Common Stock on the Interest Payment Date.
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
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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) 150
days thereafter (or earlier if such Payment Blockage Notice is terminated by
written notice to the 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 120 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.
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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, 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 January 27, 1998, Senior Indebtedness was approximately $2.9 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
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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 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
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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.
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
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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 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 "yellow
sheets," an interdealer quotation service for taxable bonds. 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 preferred
stock. As of the date of this Prospectus, Multimedia 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 preferred
stock (the "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. Therefore, the restrictions imposed by such statute 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
As of the date of this Prospectus, Multimedia 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
Underwriter until at least 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. Of the
Company's officers and directors who were not officers or directors of the
Company at the time of the IPO, Mr. Wasserman has entered into the Lock-Up
Agreement, Mr. Hallauer has entered into the Lock-Up Agreement only with respect
to 25,000 shares of Common Stock issuable upon exercise of his stock options and
the Company expects that Dr. Suminet will enter into a lock-up agreement
subsequent to the closing of the Offering. In addition, Vertical, Messrs.
Walther, Vogt, Grissemann, Holthuizen, Sippel and Suter have entered into
agreements with the Underwriter pursuant to which each of them has agreed not to
sell or otherwise dispose of any shares of Common Stock until March 27, 2000,
without the consent of the Underwriter. The Underwriter 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. 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. Multimedia and Messrs. Sippel, Suter and Holthuizen have entered into an
agreement dated as of December 22, 1997 pursuant to which Messrs. Sippel, Suter
and Holthuizen agreed to sell 50,000, 50,000 and 20,000 shares of Common Stock,
respectively subject to their respective Lock-Up Agreements, the Stockholders'
Agreement and applicable laws. Vertical has consented to such sales pursuant to
the Stockholders' Agreement. See "Certain Transactions -- Transactions
Undertaken Prior to Organization and Formation of the Company."
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."
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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.
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 the Underwriter 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 in 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
Due to the provision of the Indenture which provides for the possibility of
increased interest payments in the event of a Delisting, it is possible that
United States Holders of the Notes could accrue original issue discount ("OID").
The Company intends to take the position that the possibility that it will be
delisted is remote. Accordingly, under the rules regarding OID, the Company may
assume that the contingency will not occur and it will treat the Notes as not
having OID. Thus, the stated interest on the Notes 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.
In the event that the Company is Delisted, the Notes on the date of
Delisting will be treated as retired at their adjusted issue price and then
reissued at the same price (the "Reissued Notes"), solely for purposes of
determining whether the Reissued Notes have OID. The adjusted issue price of
the Notes will be their principal amount. The deemed retirement of the Notes
under these rules will not result in a taxable event for their United States
Holders.
Depending on the circumstances on the date of deemed reissuance, the
Reissued Notes may be treated as (1) having no OID, (2) having OID or (3)
contingent payment debt instruments. In general, the Company's treatment of
the Reissued Notes will be binding on every United States Holder, unless a
Holder properly discloses that it is treating the Reissued Notes differently.
The Company cannot predict at this time whether the Reissued Notes will be
considered to have OID or be treated as contingent payment debt instruments.
This determination will depend on the likelihood of relisting and the length
of time remaining until the maturity date of the Reissued Notes.
The Reissued Notes would not be treated as having OID, if, for instance,
the possibility that the Company will be relisted is remote. In that event, a
United States Holder would be required to include as ordinary income both the
stated interest on the Notes of 10% and the Excess Interest Amount payable
(whether in cash, Common Stock or a combination of both) from the date of deemed
reissuance of the Notes of 5%, in accordance with such United States Holder's
method of accounting for United States federal income tax purposes.
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The Reissued Notes would have OID, if, for example, it were significantly
more likely than not as of the date of Delisting that the Company would be
relisted on a particular date ("Expected Date of Relisting") OID for each
Reissued Note is the difference between its issue price and its stated
redemption price at maturity. The issue price of a Reissued Note, in the case of
the original United States Holders, will be the principal amount of the Note.
The stated redemption price at maturity of a Reissued Note is the sum of all
payments provided by the Reissued Note other than qualified stated interest,
which in this case is 10%. The amount of OSD will be in the Excess Investment
Amount that will accrue from the date of Delisting until the xxxxx Date of
Relisting. Qualified stated interest will be taxable to a United States Holder
of a Reissued Note as ordinary interest income at the time it is received or
accrues, in accordance with such Holder's method of accounting for United States
federal income tax purposes.
A United States Holder of a Reissued Note that has OID (unless it is de
minimis) will also be required to include in gross income, regardless of such
Holder's method of accounting for tax purposes, the sum of the daily portions of
OID for each day during the taxable year such Holder holds such note. The daily
portion is determined by allocating to each day of the accrual period a ratable
portion of the excess of (i) the adjusted issue price (as defined below) of the
Reissued Note at the beginning of the accrual period multiplied by the yield to
maturity of the Reissued Note (determined by compounding at the close of each
accrual period and adjusted for the length of the accrual period) over (ii) the
amount payable as stated interest on the Reissued Note during such accrual
period. Holders of Reissued Notes may accrue OID using an accrual period of any
length, and such accrual period may vary in length over the term of the Reissued
Note, provided that each accrual period must be not longer than one year and
each scheduled payment of principal or interest must occur either on the final
day of an accrual period or on the first day of an accrual period. The adjusted
issue price of a Reissued Note at the start of any accrual period is the issue
price of the Reissued Note increased by the amount of OID accrued during all
prior accrual periods and decreased by any payment other than a payment of
qualified stated interest. If a Reissued Note has OID, in addition to stated
interest, a United States Holder will include in income as interest an amount
less than the Excess Interest Amount while it accrues, but will include
increasing amounts in income after the Excess Interest Amount has ceased to
accrue.
If the Company is not relisted on the Expected Date of Relisting used to
determine OID, the Reissued Notes will again be treated as retired and reissued
according to the same analysis set forth in this section.
As indicated above, the Reissued Notes may also be treated as contingent
payment debt instruments. The Reissued Notes would be considered contingent
payment debt instruments if the likelihood that the Company will be relisted
were not remote but the likelihood of relisting were not significantly more
likely than not to occur on a particular date. In the event that the Reissued
Notes are contingent payment debt instruments, a United States Holder will be
required to accrue interest income based on the comparable yield of the
Reissued Notes. The comparable yield of the Reissued Notes would be the fixed
rate at which the Company would issue fixed rate debt with terms and
conditions similar to those of the Reissued Notes.
In addition, the Company will be required to establish a projected payment
schedule for the Reissued Notes that includes both the noncontingent payments
and the expected value of the contingent payments, as of the date of Delisting.
To the extent that the amount payable by the Company when a contingency is
resolved differs from the expected amount set forth in the projected payment
schedule, a United States Holder would be required for the taxable year to take
any additional amount into income as interest and, generally, to reduce interest
income accruing under the Note by any shortfall (whether or not the contingent
payments are made in cash, common stock or a combination of both). Furthermore,
gain realized by United States Holders of the Reissued Notes may be
recharacterized as ordinary interest income rather than as capital gain under
the contingent payment debt instrument rules and, therefore, at present U.S.
federal income tax rates, would be subject to higher tax rates for United States
Holders who are individuals. If the Company maintains proper documentation, the
Company's determination of the comparable yield and projected payment schedule
of the Reissued Notes will be respected, unless either is unreasonable.
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.
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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.
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
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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.
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 NASD, at such
price less a concession 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
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until at least 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. Of the Company's officers and directors who were not officers
or directors of the Comapny at the time of the IPO, Mr. Wasserman has entered
into the Lock-Up Agreement, Mr. Hollover has entered into the Lock-Up Agreement
only with respect to 25,000 shares of common stock issuable upon exercise of his
stock options and the Company expects that Dr. Summit will enter into a lock-up
agreement subsequent to the closing of the Offering. In addition, Vertical,
Messrs. Walther, Vogt, Grissemann, Holthuizen, Sippel and Suter have entered
into agreements with the Underwriter pursuant to which each of them has agreed
not to sell or otherwise dispose of any shares of Common Stock until March 27,
2000 without the consent of the Underwriter.
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 Underwriter or to members
of the selling 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.
The Underwriter acted as an underwriter in the Company's IPO and received
commissions of approximately $882,500 and a non-accountable expense allowance
of $502,500 in connection with such offering. In addition, the Underwriter
received warrants to purchase up to an aggregate of 335,000 shares of Common
Stock. See "Description of Capital Stock."
The Underwriter has the right to designate one individual for nomination
to the Company's Board of Directors for a period of five years from the date
of this Prospectus, although it has not yet selected any such designee. Such
designee may be a director, officer, partner, employee or affiliate of the
Underwriter.
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 "yellow
sheets," an interdealer quotation service for taxable bonds. 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 Notes 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.
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The rules of the Commission generally prohibit the Underwriter and other
members of the selling group from making a market in the Common Stock during
the "cooling off" period immediately preceding the commencement of sales in
the Offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit the Underwriter or other member of the selling group to continue to make
a market in the Common Stock subject to the conditions, among others, that its
bid not exceed the highest bid by a market maker not connected with the
Offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, the Underwriter and other
members of the selling group may engage in passive market making in the Common
Stock during the cooling off period.
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.
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.
89
<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.
Rothstein, Kass & Company, P.C.
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>
Years Ended December 31,
-------------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales .................................. $ 1,053,148 $ 1,510,076 $ 1,193,302
Cost of sales .............................. 699,701 967,909 811,771
------------- ------------- -------------
Gross margin ............................... 353,447 542,167 381,531
------------- ------------- -------------
Operating expenses:
Research and development costs:
Expenses incurred .................... 2,269,191 2,531,093 2,728,815
Less participations received ......... 2,206,888 868,335 398,177
------------- ------------- -------------
Research and development costs,
net ................................. 62,303 1,662,758 2,330,638
Selling expenses ........................ 739,385 1,265,697 1,462,191
General and administrative expenses ..... 798,766 1,374,379 1,494,858
------------- ------------- -------------
1,600,454 4,302,834 5,287,687
------------- ------------- -------------
Operating loss ............................. (1,247,007) (3,760,667) (4,906,156)
------------- ------------- -------------
Other income (expense):
Interest income .........................
Interest expense ........................ (124,776) (128,804) (213,136)
Other income ............................ 36,586 30,127 10,814
Minority interest in net loss of
subsidiaries ........................... 129,167
------------- ------------- -------------
(88,190) 30,490 (202,322)
------------- ------------- -------------
Net loss ................................... $ (1,335,197) $ (3,730,177) $ (5,108,478)
============= ============= =============
Loss per share of common stock ............. $ (.33) $ (.77) $ (.89)
============= ============= =============
Weighted average number of common
shares outstanding ........................ 4,001,715 4,838,958 5,751,715
============= ============= =============
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1996 1997
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales .................................. $ 961,257 $ 537,561
Cost of sales .............................. 689,952 328,613
------------- -------------
Gross margin ............................... 271,305 208,948
------------- -------------
Operating expenses:
Research and development costs:
Expenses incurred .................... 1,952,079 1,967,604
Less participations received ......... 272,071 94,070
------------- -------------
Research and development costs,
net ................................. 1,680,008 1,873,534
Selling expenses ........................ 1,156,324 1,474,334
General and administrative expenses ..... 1,041,894 1,374,210
------------- -------------
3,878,226 4,722,078
------------- -------------
Operating loss ............................. (3,606,921) (4,513,130)
------------- -------------
Other income (expense):
Interest income ......................... 362,322
Interest expense ........................ (138,922) (169,454)
Other income ............................ 12,862 17,428
Minority interest in net loss of
subsidiaries ...........................
(126,060) 210,296
------------- -------------
Net loss ................................... $ (3,732,981) $ (4,302,834)
============= =============
Loss per share of common stock ............. $ (.65) $ (.54)
============= =============
Weighted average number of common
shares outstanding ........................ 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
========= ======== ===========
<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, collateralized
by accounts receivable balances and guaranteed 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.
Semiannual 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 the Company to purchase
all, or a portion, of the Series A shares at any time following the second
anniversary
F-10
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
F-11
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
F-12
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
In exchange for Multimedia assuming the obligations of IAT AG under the
Swiss bank note, (see Note 5), the bank transferred the guarantees by certain
stockholders of the Company of this debt to the Company. In December 1997 the
Company exercised its rights under the guarantees, and required the guarantors
to agree to sell an aggregate of 120,000 shares of the Company's common stock
held collectively by the guarantors. The proceeds of such sale will be
contributed to the Company, up to the amount of the Swiss bank note.
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.
Rothstein, Kass & Company, P.C.
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>
Net sales ................................................. 36,266,391 64,235,750 61,648,921
Cost of sales ............................................. 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 ................................................ 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 ................................................ 258,913
Reclassification of amount due to limited partner ......... (258,913)
--------
Balances December 31, 1994 ................................ 100,000 0 0
Net income ................................................ 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 ................................................ 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 ................................................... 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 inflow (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. Strauss .................................... (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-Strauss-Elektronik" by Mr. Frank Strauss. In 1991 the net assets and
business of the proprietorship were transferred by Mr. Strauss to the GmbH
"FSE Computer Handelsgesellschaft GmbH" in exchange for 100 percent of the
GmbH-ownership interests. On December 21, 1995 Mr. Strauss 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 GmbH, 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-Strauss-Elektronik" to FSE Computer Handelsgesellschaft GmbH by Mr.
Frank Strauss 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 GmbH 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. Strauss 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 GmbH 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>
<CAPTION>
<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. Strauss 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. Strauss, 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.
F-26
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE FINANCIAL STATEMENTS
15) Financial Commitments: -- (Continued):
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.
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 on
November 18, 1997, 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 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 8,845,489
========= =========
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>
Net sales revenue ..................................... 43,292,061 46,356,386
Cost of sales ......................................... 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 ............................................ 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 ................................................ 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 ................................................ 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 .............................................................. 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-Strauss-Elektronik" by Mr. Frank Strauss. In 1991 the net assets and
business of the proprietorship were transferred by Mr. Straub to the GmbH "FSE
Computer Handelsgesellschaft GmbH" in exchange for 100 percent of the
GmbH-ownership interests. On December 21, 1995 Mr. Strauss 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 GmbH, 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-Strauss-Elektronik" to FSE Computer Handelsgesellschaft GmbH by Mr.
Frank Strauss 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 GmbH 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. Strauss 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. Strauss 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.
F-35
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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
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. Strauss 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
=======
F-37
<PAGE>
FSE COMPUTER-HANDEL GmbH & CO. KG, PIRMASENS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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.
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 on
November 18, 1997, 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>
[One photograph depicting a man standing next to a jet engine with a
computer with a screen depicting a portion of the jet engine and a person and
one photograph depicting a woman and a computer with a screen depicting a
portion of a turbine blade with a man in the background next to a turbine.]
<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 ....................................... 7
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 ............................. 66
Description of Notes ............................... 69
Description of Capital Stock ....................... 79
Shares Eligible for Future Sale .................... 81
Certain Federal Income Tax Considerations .......... 83
Underwriting ....................................... 86
Legal Matters ...................................... 87
Experts ............................................ 87
Additional Information ............................. 88
Index to Financial Statements ...................... F-1
===============================================================================
<PAGE>
===============================================================================
[GRAPHIC OMITTED]
IAT MULTIMEDIA, INC.
10% Convertible Subordinated
Notes due 2003
------------
PROSPECTUS
------------
ROYCE INVESTMENT
GROUP, INC.
, 1998
===============================================================================
<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 $300,000) are as follows:
Amount
----------
SEC Registration Fee ..................... 4,000
NASD Filing Fee .......................... 1,777
Printing and Engraving Expenses .......... 120,000
Accounting Fees and Expenses ............. 75,000
Legal Fees and Expenses .................. 300,000
Trustee's Fees and Expenses .............. 15,000
Miscellaneous Expenses ................... 84,223
-------
Total .................................... $600,000
========
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.
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.
II-1
<PAGE>
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
4.8 Form of Proceeds Pledge and Escrow Agreement
*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. (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 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 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 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
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
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
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 Contract, dated as of November 13, 1997, by and between FSE Computer Handel- Ver-
waltungs 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
*10.37 Letter of Intent, dated November 18, 1997, by and between Olympus Co. (Europe) GmbH and IAT
Deutschland GmbH
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
*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
*10.42 Agreement dated as of December 22, 1997 by and among Richard Suter,
Klaus-Dirk Sippel and Cornelius Holthuizen, IAT AG and IAT Multimedia, Inc.
10.43 Amended and Restated Agreement dated as of December 22, 1997 by and among
Richard Suter, Klaus-Dirk Sippel and Cornelius Holthuizen, IAT AG and
IAT Multimedia, Inc.
10.44 Amendment No. 1 to Stock Option Agreement for Arnold J. Wasserman
10.45 Amendment No. 1 to Stock Option Agreement for Reiner Hallauer
10.46 Form of M&A Agreement
11.1++ Statement re computation of per share earnings
*21.1 List of Subsidiaries of Registrant
23.1 Consent of Rothstein Kass & Company
23.2 Consent of Rothstein Kass & Company
*25 Statement of eligibility of Trustee
</TABLE>
- ------------
* Previously filed.
+ 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 28th of January, 1998.
MULTIMEDIA, INC.
By: /s/ Viktor Vogt
----------------------------------------
Viktor Vogt
Chief Executive Officer and
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Viktor Vogt Co-Chairman of the Board of Directors and January 28, 1998
- --------------------- Chief Executive Officer and President
Viktor Vogt (Principal Executive Officer)
* Co-Chairman of the Board of Directors January 28, 1998
- ---------------------
Jacob Agam
* Chief Financial Officer and Director (Principal January 28, 1998
- --------------------- Accounting and Financial Officer)
Klaus Grissemann
* Director January 28, 1998
- ---------------------
Volker Walther
* Director January 28, 1998
- ---------------------
Reiner Hallauer
* Director January 28, 1998
- ---------------------
Arnold Wasserman
/s/ Viktor Vogt
- ---------------------
*by Viktor Vogt as
attorney-in-fact
</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 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
4.8 Form of Proceeds Pledge and Escrow Agreement
*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.
(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 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 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 Instruments
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
*10.42 Agreement dated as of December 22, 1997 by and among Richard Suter,
Klaus-Dirk Sippel and Cornelius Holthuizen, IAT AG and IAT Multimedia, Inc.
10.43 Amended and Restated Agreement dated as of December 22, 1997 by and among
Richard Suter, Klaus-Dirk Sippel and Cornelius Holthuizen, IAT AG and
IAT Multimedia, Inc.
10.44 Amendment No. 1 to Stock Option Agreement for Arnold J. Wasserman
10.45 Amendment No. 1 to Stock Option Agreement for Reiner Hallauer
10.46 Form of M&A Agreement
11.1++ Statement re computation of per share earnings
*21.1 List of Subsidiaries of Registrant
23.1 Consent of Rothstein Kass & Company
23.2 Consent of Rothstein Kass & Company
*25 Statement of eligibility of Trustee
</TABLE>
- ------------
* Previously filed.
+ 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>
$10,000,000
10% Convertible Subordinated Notes Due 2003
IAT MULTIMEDIA, INC.
UNDERWRITING AGREEMENT
Royce Investment Group, Inc. _____________, 1998
199 Crossways Park Drive
Woodbury, New York 11797
IAT Multimedia, Inc., a Delaware corporation ( "IAT" or the
"Company"), proposes to issue and sell to Royce Investment Group, Inc. (the
"Underwriter" or "you"), an aggregate of $10,000,000 principal amount of the
Company's 10% Convertible Subordinated Notes due 2003 (the "Notes") to be
issued pursuant to the provisions of an indenture dated as of the date hereof
(the "Indenture") between the Company and The Bank of New York, as trustee
(the "Trustee"). The Notes will be convertible into shares (the "Underlying
Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), at the holder's option at any time after ________, 1999 and prior to
the close of business on ___________, 2003 ("the Maturity Date"), at a
conversion price of $______ per share (the "Conversion Price"). In addition,
IAT proposes to grant to the Underwriter the option referred to in Section
2(b) to purchase all or any part of an additional aggregate of $1,500,000
principal amount of Notes. The term "Underlying Shares" as used herein shall
also include the shares of Common Stock issuable by the Company as payment of
the Excess Interest Amount (as defined in the Indenture).
The $10,000,000 aggregate principal amount of Notes are
hereafter referred to as the "First Notes" and the additional $1,500,000
aggregate principal amount of Notes are hereafter referred to as the "Option
Notes." The First Notes together with the Option Notes are hereafter referred
to as the "Notes."
You have advised IAT that you desire to purchase the Notes.
IAT confirms the agreements made by it with respect to the purchase of the
Notes by you, as follows:
1. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement (File No. 333-41835)
on Form S-1 relating to the public offering of the Notes, including a form of
prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared by IAT in conformity with the applicable
requirements of the Securities Act of 1933, as amended (the "Act"), the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules
and regulations of the Securities and Exchange Commission (the "Commission")
under the Act and the Trust Indenture Act, and has been filed with the
Commission under the Act, and one or more amendments to such registration
statement may have been so filed. For purposes hereof, "Rules
-1-
<PAGE>
and Regulations" means the rules and regulations adopted by the Commission
under the Act or the Trust Indenture Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable. After the execution of
this Agreement, IAT will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, either (A) if IAT relies on Rule 434
under the Act, a Term Sheet (as hereinafter defined) relating to the Notes
that shall identify the Preliminary Prospectus (as hereinafter defined) that
it supplements containing such information as is required or permitted by
Rules 434, 430A and 424(b) under the Act or (B) if IAT does not rely on Rule
434 under the Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment shall have
been filed, in such registration statement), with such changes or insertions
as are required by Rule 430A under the Act or permitted by Rule 424(b) under
the Act and in the case of either clause (i)(A) or (i)(B) of this sentence, as
have been provided to and approved by the Underwriter prior to the execution
of this Agreement, or (ii) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Underwriter prior to the execution of this Agreement.
As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the
Act and included in the Prospectus (as hereinafter defined), if the Company
has filed or files a registration statement under Rule 462(b) of the Rules and
Regulations ("Rule 462(b)") to register additional Notes (a "462(b)
Registration Statement"), then the term "Registration Statement" shall be
deemed to include the 462(b) Registration Statement, the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means (A) if IAT relies on Rule 434 under the Act, the Term Sheet
relating to the Notes that is first filed pursuant to Rule 424(b)(7) under the
Act, together with the Preliminary Prospectus identified therein that such
Term Sheet supplements; (B) if IAT does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act or (C) if IAT does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the Act, such
term means the prospectus included in the Registration Statement; except that
if such registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and
prior to the Option Closing Date (as hereinafter defined), the terms
"Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall
include the prospectus as so supplemented, or both, as the case may be; and
the term "Term Sheet" means any term sheet that satisfies the requirements of
Rule 434 under the Act. Any reference to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
-2-
<PAGE>
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or the
qualification of the Trustee. At the time the Registration Statement becomes
effective and at all times subsequent thereto up to and on the Closing Date
(as hereinafter defined) or the Option Closing Date, as the case may be, (i)
the Registration Statement and Prospectus will in all respects conform to the
applicable requirements of the Act, the Trust Indenture Act and the Rules and
Regulations; and (ii) neither the Registration Statement nor the Prospectus
will include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make statements
therein not misleading; provided, however, that IAT makes no representations,
warranties or agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in conformity with,
written information furnished to IAT by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus in the last paragraph on the front
cover, on page 2 with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Underwriter under the
heading "Legal Matters" constitute the only information furnished in writing
by or on behalf of the Underwriter for inclusion in the Registration Statement
and Prospectus, as the case may be.
(c) IAT is subject to Section 13 or 15(d) of the
Exchange Act. All documents filed with the Commission by IAT since March 26,
1997, when they were filed with the Commission (or, if any amendment with
respect to any such document was filed, when such amendment was filed),
complied, and all documents or amendments thereto hereafter filed with the
Commission will at the time of such filing comply, in all material respects
with the requirements of the Exchange Act and the Rules and Regulations, as
applicable. Any documents filed with the Commission subsequent to the date of
the Prospectus shall, when filed with the Commission, conform in all material
respects to the requirements of the Exchange Act and the Rules and
Regulations, as applicable.
(d) Each of IAT, FSE Computer-Handel GmbH & Co. KG
("FSE"), FSE Computer-Handel Verwaltungs GmbH ("Handel"), IAT AG ("IAT AG")
and IAT Deutschland GmbH Interactive Media Systeme ("IAT Germany" and together
with FSE, Handel and IAT AG, the "Subsidiaries"), has been duly incorporated
or organized, as the case may be, and is validly existing as a corporation,
limited liability company or limited partnership, as the case may be, in good
standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, with full power and authority, corporate and
other, to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation,
limited liability company or limited partnership, as the case may be, and is
in good standing in all other jurisdictions in which the nature of its
business or the character or location of its properties requires such
qualification, except where failure to so qualify will not materially affect
IAT's and the Subsidiaries', business, properties or financial condition,
taken as a whole.
(e) The authorized, issued and outstanding capital
stock of IAT as of September 30, 1997 is as set forth in the Prospectus under
"Capitalization"; the shares of issued
-3-
<PAGE>
and outstanding capital stock of IAT set forth thereunder have been duly
authorized, validly issued and are fully paid and non-assessable; and except
as set forth in the Prospectus, no options, warrants, or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of IAT have
been granted or entered into by IAT; and the capital stock conforms to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(f) The Notes will be issued pursuant to the terms
and conditions of the Indenture, and the Indenture will conform in all
material respects to the description thereof contained in the Registration
Statement. At the Closing Date, the Indenture will conform to the requirements
of the Trust Indenture Act and the Rules and Regulations applicable to an
indenture which is qualified thereunder. The Notes have been duly authorized,
and when validly authenticated, issued, delivered and paid for in the manner
contemplated by the Indenture, will be duly authorized, validly issued, fully
paid and non-assessable and free of outstanding obligations of the Company and
entitled to the benefits of the Indenture. Neither the filing of the
Registration Statement nor the offering or sale of the Notes as contemplated
in this Agreement gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any shares of
Common Stock, except as described in the Registration Statement. The
Underlying Shares and the Shares of Common Stock issuable upon the exercise of
the Stock Purchase Warrant (as hereinafter defined) have been reserved for
issuance upon the conversion of the Notes or upon payment of the Excess
Interest Amount and the exercise of the Stock Purchase Warrant, respectively,
and upon such issuance, will be duly authorized, validly issued, fully paid
and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof.
(g) The Company has full corporate right, power
and authority to authorize, issue, deliver and sell the Notes and the Stock
Purchase Warrant, to enter into this Agreement, the Indenture, the pledge and
escrow agreement between IAT and the Trustee ("Escrow Agreement") and the
Merger and Acquisition Agreement between the Company and you (the "M/A
Agreement") and to consummate the transactions provided for in such
agreements. This Agreement has been duly and properly authorized, executed and
delivered by the Company. This Agreement constitutes, and when the Company has
duly executed and delivered the Indenture (assuming the due execution and
delivery thereof by the Trustee), the Escrow Agreement (assuming the due
execution and delivery thereof by the Trustee), the M/A Agreement (assuming
the due execution and delivery thereof by the Underwriter) and the Stock
Purchase Warrant will each constitute, a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
except to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity). No consent, approval, authorization or order
of, and no filing with, any court, arbitrator, regulatory body, government
agency or other body, the Company of this Agreement, the Indenture, Escrow
Agreement or the Stock Purchase Warrant or the transactions contemplated
hereby or thereby, except such as may be required for the registration of the
Notes
-4-
<PAGE>
under the Act, by the National Association of Securities Dealers, Inc. (the
"NASD"), the Nasdaq Stock Market, Inc. or state securities laws.
(h) IAT does not own, directly or indirectly, any
capital stock or other equity ownership or proprietary interests in any other
corporation, association, trust, partnership, joint venture or other entity,
except that IAT owns all of the capital stock of IAT AG and Handel, 74.9% of
the capital stock of IAT Germany and 80% of the limited partnership interest
in FSE, in each case free and clear of all liens, security interests and
encumbrances.
(i) Except as described in the Prospectus, neither
the Company nor any of the Subsidiaries is in violation, breach or default of
or under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or by which the Company or any of the Subsidiaries may be bound or to
which the property or assets of the Company or any of the Subsidiaries is
subject, which violation, breach or default would have a material adverse
effect on either the Company and the Subsidiaries taken as a whole; and
consummation of the transactions herein contemplated and the fulfillment of
the terms of this Agreement will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition or any lien, charge or
encumbrance upon any of the property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
Subsidiary is party or by which the assets of the Company or any of the
Subsidiaries is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws (or other
organizational documents) of the Company or any of the Subsidiaries, as
amended, or any statute or any order, rule or regulation applicable to the
Company or any of the Subsidiaries of any court or of any regulatory authority
or other governmental body having jurisdiction over the Company or any of the
Subsidiaries.
(j) Except as described in the Prospectus, each of
IAT and the Subsidiaries has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not
materially significant in relation to its business; all of the material leases
and subleases under which IAT or any of the Subsidiaries is the lessor or
sublessor of properties or assets or under which IAT or any of the
Subsidiaries hold properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, neither IAT nor any of the Subsidiaries is in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to
rights of IAT or any of the Subsidiaries as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting
or questioning the right of IAT or any of the Subsidiaries to continued
possession of the leased or subleased premises or assets under any such lease
or sublease except as described or referred to in the Prospectus; and each of
IAT and the Subsidiaries owns or leases all such properties described in the
Prospectus as are necessary to their respective operations as now conducted
and,
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except as otherwise stated in the Prospectus, as proposed to be conducted as set
forth in the Prospectus.
(k) Rothstein, Kass & Company, P.C., who has given
its reports on certain financial statements of the Company and FSE filed and
to be filed with the Commission as a part of the Registration Statement, which
are incorporated in the Prospectus, are with respect to the Company and FSE,
independent public accountants as required by the Act and the Rules and
Regulations.
(l) The financial statements of the Company and
FSE, together with related notes, set forth in the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
present fairly the financial position and results of operations and changes in
cash flow position of IAT and the Subsidiaries (other than FSE and Handel) and
FSE, as the case may be, on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply
(subject in the case of financial statements for interim periods, to normal
and recurring year-end adjustments). Said statements and related notes have
been prepared in accordance with generally accepted accounting principles in
the United States applied on a basis which is consistent during the periods
involved. The information set forth under the captions "Capitalization," "Pro
Forma Consolidated Financial Information" and "Selected Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein. The pro forma financial information included in
the Prospectus (or the Preliminary Prospectus) has been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements, and, in the opinion of the Company, includes all adjustments
necessary to present fairly the pro forma financial condition and results of
operations at the respective dates and for the respective periods indicated
and, in the opinion of the Company, all assumptions used in preparing such pro
forma financial statements are reasonable.
(m) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
neither IAT nor any of the Subsidiaries has incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business, or
entered into any transaction not in the ordinary course of business, in either
case which is material to the business of IAT and the Subsidiaries taken as a
whole, and there has not been any change in the capital stock of, or any
incurrence of short-term or long-term debt by, the Company or any issuance of
options, warrants or other rights to purchase the capital stock of the Company
or any adverse change or any development involving, so far as the Company can
now reasonably foresee a prospective adverse change in the condition
(financial or other), net worth, results of operations, business, key
personnel or properties of it which would be material to the business or
financial condition of IAT and the Subsidiaries taken as a whole, and neither
IAT nor any of the Subsidiaries has become a party to, and neither the
business nor the property of IAT or any of the Subsidiaries has become the
subject of, any material litigation whether or not in the ordinary course of
business.
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<PAGE>
(n) Except as set forth in the Prospectus, there
is not now pending or, to the knowledge of IAT and FSE, threatened, any
action, suit or proceeding to which IAT or any of the Subsidiaries is a party
before or by any court or governmental agency or body, nor are there any
actions, suits or proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion or race, in either case,
which might result in any material adverse change in the condition (financial
or other), business prospects, net worth, or properties of IAT and the
Subsidiaries taken as a whole; and no labor disputes involving the employees
of IAT or any of the Subsidiaries exist or are imminent which might be
expected to materially adversely affect the conduct of the business, property
or operations or the financial condition or results of operations of IAT and
the Subsidiaries taken as a whole.
(o) Except as disclosed in the Prospectus, IAT and
each of the Subsidiaries have filed, or have duly obtained extensions of the
time for filing of, all necessary income and franchise tax returns with all
federal, state, local and foreign governmental agencies and have paid all
taxes shown as due thereon; and there is no material tax deficiency which has
been or to the knowledge of IAT and FSE might be asserted against IAT or any
of the Subsidiaries.
(p) IAT and each of the Subsidiaries have
sufficient licenses, permits and other governmental authorizations currently
required for the conduct of their business or the ownership of their
properties as described in the Prospectus and are in all material respects
complying therewith. To the best knowledge of IAT and FSE, none of the
activities or business of IAT or any of the Subsidiaries are in violation of,
or cause IAT or any of the Subsidiaries to violate, any law, rule, regulation
or order of the United States, Switzerland or Germany or any state, county or
locality, or of any agency or body of the United States, Switzerland or
Germany or of any state, county or locality, the violation of which would have
a material adverse impact upon the condition (financial or otherwise),
business, property, prospective results of operations, or net worth of IAT and
the Subsidiaries taken as a whole.
(q) IAT and the Subsidiaries own or possess the
right to use all patents, trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the Prospectus as are necessary for the
conduct of their respective businesses, and neither IAT nor any of the
Subsidiaries is aware of any claim to the contrary or any challenge by any
other person to the rights of IAT and the Subsidiaries with respect to the
foregoing, except as disclosed in the Prospectus. To the knowledge of IAT and
FSE, the business of IAT and the Subsidiaries as now conducted does not and
will not infringe or conflict in any material respect with patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses or
other intellectual property or franchise right of any other person, except as
disclosed in the Prospectus. Except as described in the Prospectus, no claim
has been made against IAT or any of the Subsidiaries alleging the infringement
by IAT or any of the Subsidiaries of any patent, trademark, service mark,
trade name, copyright, trade secret, license in or other intellectual property
right or franchise right of any person.
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<PAGE>
(r) Neither IAT nor any of the Subsidiaries has,
directly or indirectly, at any time (i) made any contributions to any
candidate for political office, or failed to disclose fully any such
contribution in violation of law or (ii) made any payment to any state,
federal or foreign governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law. Each of IAT's and the
Subsidiaries' internal accounting controls and procedures are sufficient to
cause each of IAT and the Subsidiaries to comply in all material respects with
the Foreign Corrupt Practices Act of 1977, as amended.
(s) On the Closing Dates (hereinafter defined),
all transfer or other taxes, (including franchise, capital stock or other tax,
other than income taxes, imposed by any jurisdiction), if any, which are
required to be paid in connection with the sale and transfer of the Notes to
the Underwriter hereunder will have been fully paid or provided for by IAT and
all laws imposing such taxes will have been fully complied with.
(t) All contracts and other documents of IAT or
any of the Subsidiaries which are, under the Rules and Regulations, required
to be filed as exhibits to the Registration Statement have been so filed.
(u) Neither IAT nor any of the Subsidiaries has
taken nor will take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock to facilitate the sale or resale of the Notes hereby.
(v) Neither IAT nor any of the Subsidiaries has
entered into any agreement pursuant to which any person is entitled either
directly or indirectly to compensation from IAT or any of the Subsidiaries for
services as a finder in connection with the proposed public offering.
(w) Except as previously disclosed in writing by
IAT to the Underwriter, no officer, director or five percent stockholder of
IAT or any of the Subsidiaries has any affiliation or association with any
member of the National Association of Securities Dealers Inc. ("NASD").
(x) Neither IAT nor any of the Subsidiaries is,
nor upon receipt of the proceeds from the sale of the Notes will be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(y) Neither IAT nor any of the Subsidiaries has
distributed, nor will it distribute prior to the First Closing Date (as
hereinafter defined) any offering material in connection with the offering and
sale of the Notes other than the Preliminary Prospectus, the Prospectus, the
Registration Statement or the other materials permitted by the Act, if any.
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<PAGE>
(z) There are no business relationships or
related-party transactions of the nature described in Item 404 of Regulation
S-K involving IAT or any of the Subsidiaries and any person described in such
Item that are required to be disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and
that have not been so disclosed.
(aa) IAT and each of the Subsidiaries have
complied with all provisions of Section 517.075 of the Florida Statutes
relating to doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(bb) The Indenture has been duly qualified under
the Trust Indenture Act, and all fees required to be paid with respect to the
execution of the Indenture and the issuance of the Notes have been paid or
will be paid when due.
(cc) Neither the Company nor FSE has received a
letter from its respective accountants which has brought to the Company's or
FSE's attention any weakness as defined in Statement of Auditing Standards No.
60 "Communication of Internal Control Structure Related Matters Noted in an
Audit" in any of the Company's or the Subsidiaries' internal controls.
2. Purchase, Delivery and Sale of the Notes.
(a) Subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties, and
agreements herein contained, IAT agrees to issue and sell to the Underwriter,
and the Underwriter agrees, to buy from IAT at an aggregate purchase price
equal to 90% of the principal amount thereof, at the place and time
hereinafter specified, the First Notes, consisting of $10,000,000 aggregate
principal amount of Notes.
Delivery of the First Notes against payment
therefor shall take place at the offices of the Underwriter, 199 Crossways
Park Drive, Woodbury, N.Y. 11797 (or at such other place as may be designated
by agreement between you and IAT) at 10:00 a.m., New York time, on , 1998, or
at such later time and date as you may designate, such time and date of
payment and delivery for the First Notes being herein called the "First
Closing Date."
(b) In addition, subject to the terms and
conditions of this Agreement, and upon the basis of the representations,
warranties and agreements herein contained, IAT hereby grants an option to the
Underwriter to purchase all or any part of an aggregate of an additional
$1,500,000 aggregate principal amount of Notes at the same price per Note as
the Underwriter shall pay for the First Notes being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Notes being
referred to herein as the "Option Notes"). This option may be exercised within
30 days after the effective date of the Registration Statement upon notice by
the Underwriter to IAT advising as to the amount of Option Notes as to which
the option is being exercised, the names and denominations in which the
certificates for such Option Notes are to be registered and the time and date
when such certificates are to be delivered. Such
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<PAGE>
time and date shall be determined by the Underwriter but shall not be earlier
than four nor later than ten full business days after the exercise of said
option, nor in any event prior to the First Closing Date, and such time and
date is referred to herein as the "Option Closing Date." Delivery of the
Option Notes against payment therefor shall take place at the offices of the
Underwriter, 199 Crossways Park Drive, Woodbury, N.Y. 11797 (or at such other
place as may be designated by agreement between you and IAT). The option
granted hereunder may be exercised only to cover overallotments in the sale by
the Underwriter of First Notes referred to in subsection (a) above.
(c) IAT will make the certificates for the Notes
to be purchased by the Underwriter hereunder available to you for checking at
least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as you may
request, at least two full business days prior to the Closing Dates. Time
shall be of the essence and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the
Notes to be purchased by the Underwriter hereunder will be delivered by IAT to
you against payment of the purchase price by the Underwriter, by certified or
bank cashier's checks, or by wire transfer, in New York Clearing House funds,
payable to or upon the order of IAT.
In addition, in the event the Underwriter
exercises the option to purchase from IAT all or any portion of the Option
Notes pursuant to the provisions of subsection (b) above, payment for such
Notes shall be made to or upon the order of IAT by certified or bank cashier's
checks, or by wire transfer, payable in New York Clearing House funds at the
offices of the Underwriter, 199 Crossways Park Drive, Woodbury, New York,
11797 (or such other place as may be designated by agreement between you and
IAT) at the time and date of delivery of such Notes as required by the
provisions of subsection (b) above, against receipt of the certificates for
such Notes by the Underwriter for the respective accounts of the Underwriter
registered in such names and in such denominations as the Underwriter may
request.
It is understood that the Underwriter proposes to
offer the Notes to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and
agrees with the Underwriter that:
(a) IAT will use its best efforts to cause the
Registration Statement to become effective as promptly as possible. If
required, IAT will file the Prospectus or any Term Sheet that constitutes a
part thereof and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under
the Act. Upon notification from the Commission that the Registration Statement
has become
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<PAGE>
effective, IAT will so advise you and will not at any time, whether before or
after the effective date, file the Prospectus, Term Sheet or any amendment to
the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you or
your counsel shall have objected in writing or which is not in compliance with
the Act and the Rules and Regulations. At any time prior to the later of (A)
the completion by the Underwriter of the distribution of the Notes
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) 25 days after the date on which the Registration Statement shall have
become or been declared effective, IAT will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your opinion, may be necessary
or advisable in connection with the distribution of the Notes.
As soon as IAT is advised thereof, IAT will advise
you, and confirm the advice in writing, of the receipt of any comments of the
Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission for amendment of
the Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the Commission
or any state or regulatory body of any stop order or other order or threat
thereof suspending the effectiveness of the Registration Statement or the
qualification of the Trustee or any order preventing or suspending the use of
any preliminary prospectus, or of the suspension of the qualification of the
Notes for offering in any jurisdiction, or of the institution of any
proceedings for any of such purposes, and will use its best efforts to prevent
the issuance of any such order or suspension, and, if issued, to obtain as
soon as possible the lifting thereof.
IAT has caused to be delivered to you copies of
each Preliminary Prospectus, and IAT has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. IAT authorizes the
Underwriter and dealers to use the Prospectus in connection with the sale of
the Notes for such period as in the opinion of counsel to the Underwriter the
use thereof is required to comply with the applicable provisions of the Act
and the Rules and Regulations. In case of the happening, at any time within
such period as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer of any event of which IAT
has knowledge and which materially affects IAT and its Subsidiaries taken as a
whole or the securities of IAT, or which in the opinion of counsel for IAT or
counsel for the Underwriter should be set forth in an amendment to the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Notes or in case it shall be necessary to amend or supplement the Prospectus
to comply with law or with the Rules and Regulations, IAT will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the
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<PAGE>
Prospectus, in light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be
attached to the Prospectus shall be without expense to the Underwriter, except
that in case any Underwriter is required, in connection with the sale of the
Notes to deliver a Prospectus nine months or more after the effective date of
the Registration Statement, IAT will upon request of and at the expense of the
Underwriter, amend or supplement the Registration Statement and Prospectus and
furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Exchange
Act, the Trust Indenture Act and the Rules and Regulations in connection with
the offering and issuance of the Notes.
(b) IAT will use its best efforts to qualify to
register the Notes for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may designate and will make such applications
and furnish such information as may be required for that purpose and to comply
with such laws, provided IAT shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising
out of the offering or sale of the Notes. IAT will, from time to time, prepare
and file such statements and reports as are or may be required to continue
such qualification in effect for so long a period as the Underwriter may
reasonably request.
(c) If the sale of the Notes provided for herein
is not consummated for any reason caused by the Company, IAT shall pay all
costs and expenses incident to the performance of IAT's obligations hereunder,
including but not limited to, all of the expenses itemized in Section 8,
including the accountable out-of-pocket expenses of the Underwriter.
(d) IAT will use its best efforts to (i) cause a
registration statement with respect to the Notes, the shares of Common Stock
issuable upon conversion of the Notes and the shares of Common Stock issuable
as payment of the Excess Interest Amount (as defined in the Indenture) under
the Exchange Act to be declared effective concurrently with the completion of
this offering and will notify the Underwriter in writing immediately upon the
effectiveness of such registration statement, and, for so long as the Notes
remain outstanding, the Company (a) shall cause the Registration Statement,
once effective, to remain current and effective or (b) shall file a new
registration statement with respect to the Notes, the Common Stock issuable
upon conversion of the Notes and the Common Stock issuable as payment of the
Excess Interest Amount and shall cause such new registration statement to
become effective and, once effective, to remain current and effective and (ii)
if requested by the Underwriter, to obtain a listing of the Notes on the
Nasdaq National Market or Pacific Stock Exchange and the underlying Common
Stock on the Pacific Stock Exchange and to obtain and keep current a listing
in the Standard & Poors or Moody's Industrial OTC Manual.
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(e) For so long as IAT is a reporting company
under either Section 12(g) or 15(d) of the Exchange Act, IAT, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail
and at its expense, will furnish to you during the period ending five (5)
years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, a balance sheet of IAT and any of its subsidiaries as at the end
of such fiscal year, together with statements of income, surplus and cash flow
of IAT and any of its subsidiaries for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, consolidated summary
financial information of IAT for such quarter in reasonable detail; (iii) as
soon as they are available, a copy of all reports (financial or other) mailed
to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with
the Commission or any securities exchange or automated quotation system on
which any class of securities of IAT is listed; and (v) such other information
as you may from time to time reasonably request.
(f) In the event IAT has an active subsidiary or
subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of IAT and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) IAT will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies
of the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. IAT will deliver to you or upon the order of the Underwriter, from
time to time until the effective date of the Registration Statement, as many
copies of any Preliminary Prospectus filed with the Commission prior to the
effective date of the Registration Statement as the Underwriter may reasonably
request. IAT will deliver to the Underwriter on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required
to be delivered under the Act, from time to time, as many copies of the
Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriter may from time to time reasonably request. IAT, not later than (i)
3:00 p.m., New York City time, on the business day following the date of
determination of the public offering price, if such determination occurred at
or prior to 12:00 noon, New York City time, on such date or (ii) 6:00 p.m.,
New York City time, on the business day following the date of determination of
the public offering price, if such determination occurred after 12:00 noon,
New York City time, on such date, will deliver to the Underwriter, without
charge, as many copies of the Prospectus and any amendment or supplement
thereto as the Underwriter may reasonably request for purposes of confirming
orders that are expected to settle on the First Closing Date.
(h) IAT will make generally available to its
security holders and deliver to you as soon as it is practicable to do so but
in no event later than 90 days after the end
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of twelve months after its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least 12 consecutive
months beginning after the effective date of the Registration Statement, which
shall satisfy the requirements of Section 11(a) of the Act.
(i) IAT will apply the net proceeds from the sale
of the Notes for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Notes and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) IAT will, promptly upon your request, prepare
and file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter, may be reasonably necessary or advisable in
connection with the distribution of the Notes, and will use its best efforts
to cause the same to become effective as promptly as possible.
(k) IAT will reserve and keep available that
maximum number of its authorized but unissued securities which are issuable
upon conversion of the Notes outstanding from time to time and which are
issuable to pay the Excess Interest Amount (as defined in the Indenture).
(l) The Company will deliver to the Underwriter
agreements to the effect that until March 27, 1999, each of Dr. Alfred Simmet,
Messrs. Reiner Hallauer and Arnold J. Wasserman and each other officer and
director of the Company, if any, who did not deliver an agreement in
connection with the Company's initial public offering in March 1997, shall not
directly or indirectly, offer, sell (including any short sale), grant any
option for the sale of, acquire any option to dispose of, exercise any
registration rights with respect to, or otherwise dispose of any securities of
IAT, subject to certain exceptions contained therein, all as described in the
"Underwriting" section of the Prospectus. In order to enforce this covenant,
IAT shall impose stop-transfer instructions with respect to the securities
owned by each of the above individuals until the end of such period.
(m) Prior to completion of this offering, IAT will
make all filings required, including registration under the Exchange Act, to
obtain the listing of the Underlying Shares on the Nasdaq National Market (or
a listing on such other market or exchange as the Underwriter consent to), and
will effect and maintain such listing for as long as the Notes remain
outstanding and for a period of five years thereafter. So long as the Notes
remain outstanding and for a period of five years thereafter, the Company will
use its best efforts to maintain the listing of its Common Stock on the Nasdaq
National Market or the New York Stock Exchange or American Stock Exchange if
the Common Stock is listed on such exchange.
(n) IAT represents that it has not taken and
agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably
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be expected to cause or result in the stabilization or manipulation of the
price of the Notes or to facilitate the sale or resale of the Notes.
(o) IAT will deliver to the Underwriter at or
before the First Closing Date releases from any other investment banking
firms, if any, having any prior rights to underwrite or act as placement agent
for any offering of the Company's securities.
(p) During the 18 month period commencing on the
date of this Agreement, IAT will not, without the prior written consent of the
Underwriter, grant options to purchase Common Stock at an exercise price less
than the greater of (i) the Conversion Price (as defined in the Indenture) or
(ii) the fair market value of the Common Stock on the date of grant. During
the six month period commencing on the date of this Agreement, IAT will not,
without the prior written consent of the Underwriter, grant options to any
current officer of IAT. During the three year period from the First Closing
Date, IAT will not, without the prior written consent of the Underwriter,
offer or sell any of its securities pursuant to Regulation S under the Act.
(q) IAT will not, without the prior written
consent of the Underwriter, grant registration rights to any person which are
exercisable sooner than 13 months from the First Closing Date.
(r) Prior to the Effective Date, the Company or a
Subsidiary will have entered into employment or consulting agreements with Dr.
Alfred Simmet and such other executive officers, individuals or entities as
the Underwriter may deem necessary or appropriate in connection with the
offering. IAT will have obtained key person life insurance in an amount of not
less than $2 million on the life of Dr. Viktor Vogt and Dr. Alfred Simmet and
such other individuals as designated by the Underwriter, and will use its best
efforts to maintain such insurance during the three year period commencing
with the First Closing Date. In the event that Dr. Vogt's employment with IAT
is terminated prior to three years following the First Closing Date, IAT will
obtain a comparable policy on the life of his successor for the balance of the
three year period. For a period of thirteen months from the First Closing
Date, the compensation of the executive officers of IAT shall not be increased
from the compensation levels disclosed in the Prospectus; provided, however,
that the Compensation Committee of the Board of Directors of the Company may
increase the annual compensation of any executive officer of IAT in an amount
not to exceed 10% of such executive officer's compensation (not including
bonuses) for the previous year.
(s) For a period of five (5) years from the
Effective Date, IAT (i) at its expense, shall cause its regularly engaged
independent certified public accountants to review (but not audit) IAT's
financial statements for each of the first three (3) fiscal quarters prior to
the announcement of quarterly financial information, the filing of IAT's 10-Q
quarterly report and the mailing of quarterly financial information to
stockholders and (ii) shall not change its accounting firm without the prior
written consent of the Chairman or the President of the Underwriter, which
consent shall not be unreasonably withheld.
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(t) As promptly as practicable after the Closing
Date, IAT will prepare, at its own expense, hard cover "bound volumes"
relating to the offering, and will distribute not more than nine of such
volumes to the individuals designated by the Underwriter or counsel to the
Underwriter.
(u) Prior to the Effective Date, and for a period
of five years thereafter the Company shall appoint at least two independent
directors to its Board of Directors. The Company will, for a period of five
years from the Effective Date, recommend and use its best efforts to elect a
designee of the Underwriter to the Company's Board of Directors, which
designee of the Underwriter may become one of the independent directors of the
Company, or to appoint such designee as an advisor to the Board with the right
to receive notice of and to attend all Board meetings, and to receive
compensation and expense reimbursement as if such designee were a director. In
addition, IAT shall engage a public relations firm acceptable to the
Underwriter, which public relations firm will be engaged within 60 days from
the date of this Agreement; provided, that such public relations firm shall
not be engaged to provide public relations services in connection with IAT's
products.
(v) IAT shall, for a period of six years after the
date of this Agreement, submit which reports to the Secretary of the Treasury
and to stockholders, as the Secretary may require, pursuant to Section 1202 of
the Internal Revenue Code, as amended, or regulations promulgated thereunder,
in order for IAT to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in IAT.
(w) Prior to or on the First Closing Date, the
Company shall execute and deliver to the Underwriter the M/A Agreement in the
form previously delivered to the Company by the Underwriter, which M/A
Agreement will supersede all prior agreements among the parties with respect
to the subject matter hereto, including the merger and acquisition agreement
dated April 1, 1997.
(x) The Notes are to be unsecured obligations of
the Company subordinate to all Senior Indebtedness of the Company (as defined
in the Indenture).
(y) For a period ending on the earlier of (i) five
years from the date hereof and (ii) the issuance of all of the Underlying
Shares, the Company will not take any action or actions which may cause the
exemption from registration provided by Section 3(a)9 of the Act (or any
successor provision) to be unavailable for the conversion into Common Stock.
(z) For a period of four years after the effective
date of the Registration Statement, the Company shall use reasonable efforts
to provide to the Underwriters at the Underwriter's request and at the
Company's sole expense, with a report on Blue Sky qualifications relating to
secondary sales of the Company's securities prepared by counsel to the
Company; provided, however, that the Underwriter shall not make any such
request unless the Common Stock or the Notes are not listed on Nasdaq, the
Nasdaq Stock Market or a national securities exchange at the time of such
request.
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(aa) The Company shall use its reasonable efforts
to do and perform all things required to be done and performed under this
Agreement by it that are within its control prior to or after the Closing
Dates and to use reasonable efforts to satisfy all conditions precedent on its
part to the delivery of the Notes.
(bb) In connection with the Offering, until the
Underwriter shall have notified the Company of the completion of the resale of
the Notes, the Company shall not, and shall use its reasonable best efforts to
not permit any affiliated purchasers (as defined in Regulation M under the
Exchange Act), either alone or with one or more other persons to, bid for or
purchase, for any account in which it or any of its affiliated purchasers has
a beneficial interest, any Notes, or attempt to induce any person to purchase
any Notes; and to not, and to use its reasonable best efforts to not permit
any of its affiliated purchasers to, make bids or purchases for the purpose of
creating actual, or apparent, active trading in or of raising the price of the
Notes.
(cc) IAT shall not take any action prior to the
execution and delivery of the Indenture which, if taken after such execution
and delivery, would have violated any of the covenants contained in the
Indenture.
4. Conditions of Underwriter's Obligations. The obligations
of the Underwriter to purchase and pay for the Notes which the Underwriter has
agreed to purchase hereunder, are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of IAT herein, to the performance by IAT of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement (including the
Statement of Eligibility and Qualification of the Trustee on Form T-1 (the
"Form T-1")), shall have become effective and you shall have received notice
thereof not later than 10:00 A.M., New York time, on the date on which the
amendment to the registration statement originally filed with respect to the
Notes or to the Registration Statement, as the case may be, containing
information regarding the public offering price of the Notes has been filed
with the Commission, or at such later time and date as shall have been agreed
to by the Underwriter; if required, the Prospectus or any Term Sheet that
constitutes a part thereof and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period
required by Rule 434 and 424(b) under the Act; on or prior to the Closing
Dates no stop order suspending the effectiveness of the Registration Statement
(including the Form T-1) or the qualification of the Trustee (as defined in
the Indenture) shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to your knowledge
or to the knowledge of IAT, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Bachner, Tally, Polevoy &
Misher LLP, counsel to the Underwriter. If the Company has elected to rely
upon Rule 430A of the Rules and Regulations, the price of the Securities and
any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted
to the Commission for filing pursuant to Rule 424(b) of the
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Rules and Regulations within the prescribed time period, and prior to the
Closing Date the Company shall have provided evidence satisfactory to the
Underwriter of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) At the First Closing Date, you shall have
received the opinions, addressed to the Underwriter, dated as of the First
Closing Date, of Baker & McKenzie, New York, counsel for IAT, and, with
respect to matters of the laws of Switzerland, the opinion of Baker &
McKenzie, Zurich, counsel for IAT AG and with respect to the laws of Germany,
the opinion of Baker & McKenzie, Munich, counsel for FSE, Handel and IAT
Germany, in form and substance substantially in the forms attached hereto.
Such opinions shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinions, such counsel
may rely upon certificates of any officer of IAT or the Subsidiaries or public
officials as to matters of fact; and may rely as to all matters of law other
than in the case of the opinion of counsel for IAT, the law of the United
States, the State of Delaware or the State of New York and, in the case of the
opinion of counsel for IAT AG, the laws of Switzerland, and in the case of the
opinion of counsel for FSE, Handel and IAT Germany, the laws of Germany, upon
opinions of counsel satisfactory to you, in which case the opinions shall
state that they have no reason to believe that you and they are not entitled
to so rely.
(c) All corporate proceedings and other legal
matters relating to this Agreement, the Registration Statement, the Prospectus
and other related matters shall be reasonably satisfactory to or approved by
Bachner, Tally, Polevoy & Misher LLP, counsel to the Underwriter, and you
shall have received from such counsel a signed opinion, dated as of the First
Closing Date, with respect to the validity of the issuance of the Notes, the
form of the Registration Statement and Prospectus (other than the financial
statements and other financial data contained therein), the execution of this
Agreement and other related matters as you may reasonably require. IAT and
each of the Subsidiaries shall have furnished to counsel for the Underwriter
such documents as it may reasonably request for the purpose of enabling it to
render such opinion.
(d) You shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from Rothstein, Kass & Company, P.C., independent public
accountants for the Company and FSE, substantially in the form approved by
you, and including estimates of IAT's and FSE's revenues and results of
operations for the period ending at the end of the month immediately preceding
the effective date and results of the comparable period during the prior
fiscal year.
(e) At the Closing Dates, (i) the representations
and warranties of IAT contained in this Agreement shall be true and correct
with the same effect as if made on and as of
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the Closing Dates and IAT and each of the Subsidiaries shall have performed
all of its obligations hereunder and satisfied all the conditions on its part
to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto shall contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change, or any development
involving a prospective material adverse change, in the business, properties,
condition (financial or otherwise), results of operations, capital stock,
long-term or short-term debt or general affairs of IAT and the Subsidiaries
taken as a whole from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the effective date of the Registration Statement,
and IAT and each of the Subsidiaries shall not have incurred any material
liabilities or entered into any agreement not in the ordinary course of
business other than as referred to in the Registration Statement and
Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or
proceeding at law or in equity shall be pending or threatened against IAT or
any of the Subsidiaries which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against IAT or any of the Subsidiaries before or by any commission, board or
administrative agency in the United States, Switzerland, Germany or elsewhere,
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, property, condition (financial or otherwise),
results of operations or general affairs of IAT and the Subsidiaries taken as
a whole, and (v) you shall have received, at the First Closing Date, a
certificate signed by each of the Co- Chairmen of the Board, the Chief
Executive Officer and the President and the principal financial or accounting
officer of IAT, dated as of the First Closing Date, evidencing compliance with
the provisions of this subsection (e).
(f) Upon exercise of the option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay
for the Option Notes referred to therein will be subject (as of the date
hereof and as of the Option Closing Date) to the following additional
conditions:
(i) The Registration Statement (including
the Form T-1) shall remain effective at the Option Closing Date, and no stop
order suspending the effectiveness thereof or the qualification of the Trustee
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of IAT,
shall be contemplated by the Commission, and any reasonable request on the
part of the Commission for additional information shall have been complied
with to the satisfaction of Bachner, Tally, Polevoy & Misher LLP, counsel to
the Underwriter.
(ii) At the Option Closing Date there
shall have been delivered to you as Underwriter the signed opinions of Baker &
McKenzie, New York, counsel for IAT,
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Baker & McKenzie, Zurich, counsel for IAT AG, and Baker & McKenzie, Munich,
counsel for FSE, Handel and IAT Germany, dated as of the Option Closing Date,
in form and substance satisfactory to Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter, which opinions shall be substantially the same in
scope and substance as the opinions furnished to you at the First Closing Date
pursuant to Section 4(b) hereof, except that such opinions, where appropriate,
shall cover the Option Notes.
(iii) At the Option Closing Date there
shall have been delivered to you a letter in form and substance satisfactory
to you from Rothstein, Kass & Company, P.C., dated the Option Closing Date and
addressed to the Underwriter confirming the information in their letter
referred to in Section 4(d) hereof and stating that nothing has come to its
attention during the period from the ending date of their review referred to
in said letter to a date not more than five business days prior to the Option
Closing Date, which would require any change in said letter if it were
required to be dated the Option Closing Date.
(iv) At the Option Closing Date there
shall have been delivered to you a certificate of each of the Co-Chairmen of
the Board, the Chief Executive Officer and the President and the principal
financial or accounting officer of IAT, dated the Option Closing Date, in form
and substance satisfactory to Bachner, Tally, Polevoy & Misher LLP, counsel to
the Underwriter, substantially the same in scope and substance as the
certificates furnished to you at the First Closing Date pursuant to Section
4(e) hereof.
(v) All proceedings taken at or prior to
the Option Closing Date in connection with the sale and issuance of the Option
Notes shall be satisfactory in form and substance to you, and you and Bachner,
Tally, Polevoy & Misher LLP, counsel to the Underwriter, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements of IAT or its compliance with any of the covenants or conditions
contained herein.
(vi) At the Option Closing Date, the
Company shall have deposited with the Escrow Agent (as defined in the Escrow
Agreement) an amount as set forth in the Escrow Agreement from the net
proceeds from the sale of the Option Notes.
(g) On each of the Closing Date and the Option
Closing Date, there shall have been duly tendered to the Underwriter the
appropriate principal amount of Notes.
(h) The Company shall have filed an additional
listing application for the Underlying Shares and the shares of Common Stock
issuable upon exercise of the Stock Purchase Warrant with the Nasdaq National
Market.
(i) Trading in the Common Stock shall not have
been suspended by the Nasdaq National Market.
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(j) The Indenture and the Escrow Agreement shall
have been duly executed and delivered by the Company and the Trustee and the
Notes shall have been duly executed and delivered by the Company and duly
authenticated by the Trustee. On the Closing Date, the Company shall have
deposited the Interest Reserve Funds (as defined in the Escrow Agreement) with
the Escrow Agent.
(k) The M/A Agreement shall have been duly
executed and delivered by the Company.
(l) No action shall have been taken by the
Commission or the NASD, the effect of which would make it improper, at any
time prior to the Closing Date, for members of the NASD to execute
transactions (as principal or agent) in the Notes and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to
the knowledge of the Underwriter or IAT, shall be contemplated by the
Commission or the NASD. IAT represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or
the NASD. IAT and each of the Subsidiaries shall have advised the Underwriter
of any NASD affiliation of any of its officers, directors, stockholders or
their affiliates.
(m) All opinions, letters, evidence and
certificates mentioned above or elsewhere in this Agreement shall be deemed to
be in compliance with the provisions hereof only if they are in form and
substance reasonably satisfactory to the Underwriter. If any of the conditions
herein provided for in this Section shall not have been fulfilled as of the
date indicated, this Agreement and all obligations of the Underwriter under
this Agreement may be cancelled at, or at any time prior to, each Closing Date
by the Underwriter notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation
shall be without liability of the Underwriter to IAT.
5. Conditions of the Obligations of IAT. The obligation of
IAT to sell and deliver the Notes is subject to the following conditions:
(a) The Registration Statement shall have become
effective not later than 10:00 a.m. New York time, on the day following the
date of this Agreement, or on such later date as the Company and the
Underwriter may agree in writing; and
(b) At the Closing Dates, no stop orders
suspending the effectiveness of the Registration Statement (including the Form
T-1) shall have been issued under the Act or any proceedings therefor
initiated or threatened by the Commission.
If the conditions to the obligations of IAT provided for in
this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of IAT to sell and deliver the Notes on exercise of
the option provided for in Section 2(b) hereof shall be affected.
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6. Indemnification.
(a) IAT agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and will reimburse, as incurred,
such Underwriter and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in (A)
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (B) any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Notes under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that IAT will not be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. This indemnity will be in addition to any liability which
IAT may otherwise have.
(b) The Underwriter will indemnify and hold
harmless IAT, each of its directors, each nominee (if any) for director named
in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls IAT within the meaning of the
Act, against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which IAT or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the
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Prospectus, or any amendment or supplement thereto (i) in reliance upon and in
conformity with written information furnished to IAT by you specifically for
use in the preparation thereof and (ii) relates to the transactions effected
by the Underwriter in connection with the offer and sale of the Notes
contemplated hereby. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party under this Section, notify in writing the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, subject to the provisions herein stated, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the right
to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is an Underwriter or a person
who controls such Underwriter within the meaning of the Act, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Underwriter, it is advisable for the Underwriter or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses of more than one separate firm of attorneys
for such Underwriter and controlling persons, which firm shall be designated
in writing by you). No settlement of any action against an indemnified party
shall be made without the consent of the indemnifying party, which shall not
be unreasonably withheld in light of all factors of importance to such
indemnifying party.
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7. Contribution.
In order to provide for just and equitable contribution
under the Act in any case in which (i) any Underwriter makes claim for
indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case,
notwithstanding the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the Underwriter, then IAT and each person who controls
IAT, in the aggregate, and such Underwriter shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount per Note appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and IAT shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of IAT
and the Underwriter and controlling persons, in the aggregate, in connection
with the statements or omissions which resulted in such damages and other
relevant equitable considerations shall also be considered. The relative fault
shall be determined by reference to, among other things, whether in the case
of an untrue statement of a material fact or the omission to state a material
fact, such statement or omission relates to information supplied by the
Company or any of the Subsidiaries or the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. IAT and the Underwriter agree
that it would not be just and equitable if the respective obligations of IAT
and the Underwriter to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate damages or by
any other method of allocation that does not take account of the equitable
considerations referred to in the first sentence of this Section 7 and (b)
that the contribution of the Underwriter shall not be in excess of its
proportionate Note of the portion of such losses, claims, damages or
liabilities for which the Underwriter is responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls IAT within the meaning
of Section 15 of the Act. If the full amount of the contribution specified in
this paragraph is not permitted by law, then the Underwriter and each person
who controls the Underwriter shall be entitled to contribution from IAT, its
officers, directors and controlling persons to the full extent permitted by
law. The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of
the Act other than IAT and the Underwriter. No contribution shall be requested
with regard to the settlement of any matter from any party who did not consent
to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
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8. Costs and Expenses.
(a) Whether or not this Agreement becomes
effective or the sale of the Notes to the Underwriter is consummated, IAT will
pay all costs and expenses incident to the performance of this Agreement by
the Company including, but not limited to, the fees and expenses of counsel to
the Company and of the Company 's accountants; the costs and expenses incident
to the preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus,
as amended or supplemented, or the Term Sheet, the fee of the NASD in
connection with the filing required by the NASD relating to the offering of
the Notes contemplated hereby; all expenses, including reasonable fees (up to
$30,000) and disbursements of counsel to the Underwriter, in connection with
the qualification of the Notes under the state securities or blue sky laws
which the Underwriter shall designate; the cost of printing and furnishing to
the Underwriter copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, and the Blue Sky Memorandum, any
fees relating to the listing of the Underlying Shares and the shares of Common
Stock issuable upon exercise of the Stock Purchase Warrant on the Nasdaq
National Market or any other securities exchange, the costs relating to the
printing, engraving, issuance and delivery of the Underlying Shares and the
shares of Common Stock issuable upon exercise of the Stock Purchase Warrant,
the fees of the transfer agent in connection with the issuance of the
Underlying Shares and the shares of Common Stock issuable upon exercise of the
Stock Purchase Warrant, fees and expenses of the Trustee, including the
Trustee's counsel, in connection with the Indenture and the Notes, fees
incurred in connection with the rating, if any, of the Notes, any transfer
tax, stamp duty or similar tax payable by the Underwriter in connection with
the purchase by the Underwriter of the Notes, the fees payable to the NASD
incurred in connection with its review of the underwriting terms of the
offering of the Notes, the fees payable to the Nasdaq National Market incurred
in connection with the listing of the Underlying Shares, the cost of
publication of at least three "tombstones" of the offering (at least one of
which shall be in national business newspaper and one of which shall be in a
major New York newspaper) and the cost of preparing no more than nine hard
cover "bound volumes" relating to the offering, in accordance with the
Underwriter's request. IAT shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction)
on sales to the Underwriter hereunder. IAT will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses IAT
shall at the First Closing Date pay to the Underwriter, a non-accountable
expense allowance of $300,000 of which $70,000 has been paid. In the event the
overallotment option is exercised, IAT shall pay to the Underwriter at the
Option Closing Date an additional amount equal to 3% of the gross proceeds
received upon exercise of the overallotment option. In the event the
transactions contemplated hereby are not consummated by reason of any action
by the Underwriter (except if such prevention is based upon a breach by the
Company or any Subsidiary of any covenant, representation or warranty
contained herein or because any other condition to the Underwriter's
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<PAGE>
obligations hereunder required to be fulfilled by the Company or any of the
Subsidiaries is not fulfilled) IAT shall be liable for only the amount (not
less than $70,000) paid by the Company to the Underwriter prior to such
determination. In the event the transactions contemplated hereby are not
consummated by reason of any action of the Company or any Subsidiary or
because of a breach by the Company or any Subsidiary of any covenant,
representation or warranty herein, IAT shall be liable for the accountable
out-of-pocket expenses of the Underwriter, including legal fees, up to a
maximum of $100,000.
(c) No person is entitled either directly or
indirectly to compensation from the Company, from the Underwriter or from any
other person for services as a finder in connection with the proposed
offering, and IAT agrees to indemnify and hold harmless the Underwriter
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), to which the Underwriter
may become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed
offering by reason of such person's or entity's influence or prior contact
with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution
except that you may, at your option, delay its effectiveness until 11:00 A.M.,
New York time on the first full business day following the effective date of
the Registration Statement, or at such earlier time after the effective date
of the Registration Statement as you in your discretion shall first commence
the public offering by the Underwriter of any of the Notes. The time of the
public offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Notes, or the time when the Notes are first
generally offered by you to dealers by letter or telegram, whichever shall
first occur. This Agreement may be terminated by you at any time before it
becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12,
13, 14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12,
13, 14 and 15 hereof, may be terminated at any time prior to the First Closing
Date, and the option referred to in Section 2(b) hereof, if exercised, may be
cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Notes agreed to be purchased hereunder
by reason of (i) the Company and the Subsidiaries taken as a whole having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree; (ii) trading in securities on the
New York Stock Exchange, the American Stock Exchange, the Nasdaq SmallCap
Market or the Nasdaq National Market having been suspended or limited; (iii)
material governmental restrictions
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<PAGE>
having been imposed on trading in securities generally (not in force and
effect on the date hereof); (iv) a banking moratorium having been declared by
federal or New York state authorities; (v) an outbreak of international
hostilities or other national or international calamity or crisis or change in
economic or political conditions having occurred; (vi) a pending or threatened
legal or governmental proceeding or action relating generally to IAT's or any
of the Subsidiaries' business, or a notification having been received by
either IAT or any of the Subsidiaries of the threat of any such proceeding or
action, which could materially adversely affect IAT or any of the
Subsidiaries; (vii) except as contemplated by the Prospectus, IAT or any of
the Subsidiaries is merged or consolidated into or acquired by another company
or group or there exists a binding legal commitment for the foregoing or any
other material change of ownership or control occurs; (viii) the passage by
the Congress of the United States or by any state legislative body or federal
or state agency or other authority of any act, rule or regulation, measure, or
the adoption of any orders, rules or regulations by any governmental body or
any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by the Underwriter to have a
material impact on the business, financial condition or financial statements
of the Company or the market for the securities offered pursuant to the
Prospectus; (ix) any adverse change in the financial or securities markets
beyond normal market fluctuations having occurred since the date of this
Agreement, or (x) any material adverse change having occurred, since the
respective dates of which information is given in the Registration Statement
and Prospectus, in the earnings, business prospects or general condition of
IAT and its Subsidiaries taken as a whole, financial or otherwise, whether or
not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10 or in
Section 9, IAT shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
11. Stock Purchase Warrant.
At or before the First Closing Date, IAT will sell to the
Underwriter or its designees, as permitted by the NASD, for a consideration of
$ , and upon the terms and conditions set forth in the form of Stock Purchase
Warrant annexed as an exhibit to the Registration Statement, a Stock Purchase
Warrant to purchase that number or shares of Common Stock equal to 10% of the
aggregate number of shares of Common Stock issuable upon the conversion of the
First Notes, determined as of the effective date of the Registration
Statement. In the event of conflict in the terms of this Agreement and the
Stock Purchase Warrant, the language of the Stock Purchase Warrant shall
control.
12. Representations, Warranties and Agreements to
Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of IAT, and the undertakings set forth in or
made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the
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<PAGE>
Underwriter, IAT or any of its officers or directors or any controlling person
and will survive delivery of and payment of the Notes and the termination of
this Agreement.
13. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed or delivered by facsimile
or overnight courier, and confirmed to it at Royce Investment Group, Inc., 199
Crossways Park Drive, Woodbury, New York 11797, with a copy sent to Bachner,
Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York, New York 10017,
attention: Jill M. Cohen, Esq., or if sent to IAT, will be mailed, or
delivered by facsimile or overnight courier and confirmed to it at
Geschaftschaus Wasserschloss, Aarestrasse 17, CH-5300 Vogelsang-Turgi,
Switzerland, Attention: Dr. Viktor Vogt with a copy sent to Baker & McKenzie,
805 Third Avenue, New York, New York 10022, attention:
Malcolm I. Ross, Esq.
14. Parties in Interest.
The Agreement herein set forth is made solely for the
benefit of the Underwriter, the Company and, to the extent expressed, any
person controlling the Company or the Underwriter, and directors of IAT,
nominees for directors (if any) named in the Prospectus, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors, assigns and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriter of the Notes.
15. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
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<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this agreement, whereupon it will become
a binding agreement between IAT and the Underwriter in accordance with its
terms.
Very truly yours,
IAT MULTIMEDIA, INC.
By:
------------------------------
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
ROYCE INVESTMENT GROUP, INC.
By:
------------------------------
<PAGE>
February , 1998
Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, New York 11797
Re: IAT Multimedia, Inc.
Dear Sir/Madam:
This opinion is furnished to you pursuant to Section 4(b) of
the Underwriting Agreement, dated February ___, 1998 (the "Underwriting
Agreement"), by and between IAT Multimedia, Inc., a Delaware company (the
"Company" or "IAT"), and Royce Investment Group, Inc. (the "Underwriter"). All
capitalized terms which are not specifically defined herein shall have the
respective meanings assigned to such terms in the Underwriting Agreement.
We have acted as counsel for the Company in connection with
the preparation of a Registration Statement on Form S-1 (Registration Number
333-41835) under the Securities Act of 1933, as amended (the "Securities Act")
relating to the public offering of an aggregate of up to $11,500,000 principal
amount of the Company's 10% Convertible Subordinated Notes due 2003 (the
"Notes"), filed with the Securities and Exchange Commission (the "Commission")
on December 10, 1997, as amended (the registration statement as so amended and
the prospectus dated January ___, 1998 filed pursuant to Rule 424(b) are
respectively referred to herein as the "Registration Statement" and the
"Prospectus").
In rendering our opinion, we have examined and relied upon
originals or certified copies of the Restated Certificate of Incorporation and
By-Laws of the Company, resolutions of the Board of Directors and the
Underwriting Committee of the Company, the Registration Statement, the
Prospectus, the Underwriting Agreement, the M/A Agreement, the Stock Purchase
Warrant, the Indenture and the Escrow Agreement and the Global Note. We have
also examined originals or copies of such corporate records of the Company,
certificates of public officials, officers of the Company and other persons and
such other documents, agreements and instruments as we have deemed necessary as
a basis for the opinions hereinafter expressed, including those relating to the
authorization, execution and delivery by the Company of the Underwriting
<PAGE>
Royce Investment Group, Inc.
February , 1998
Page 2
Agreement, the Indenture, the M/A Agreement, the Stock Purchase Warrant, the
Escrow Agreement and the authorization, issuance and sale of the Notes and the
shares of Common Stock issuable upon conversion of the Notes by the Company. We
have reviewed relevant corporate proceedings of the Company, obtained such
certificates from the officers of the Company and its subsidiaries, relied, to
the extent that relevant facts were not independently established by us and to
the extent we deemed proper, on the representations and warranties as to factual
matters made in the Underwriting Agreement and other documents referenced
therein and herein and such other information and made such investigation as we
have deemed necessary for the basis of this opinion.
In our examination of the foregoing documents, we have assumed
the genuineness of all signatures and the authenticity of all documents
submitted to us as certified or photostatic copies and the completeness and
accuracy of translations. We have additionally assumed that the execution of all
documents on behalf of all entities and persons other than the Company was duly
authorized, that such documents were validly executed and delivered on behalf of
such entities and persons, and that all natural persons who are signatories to
any documents are competent. For the purposes of this opinion, we have assumed
the compliance by all entities and persons other than the Company with all
applicable laws and regulations relating to their authority to enter into the
Underwriting Agreement and the other documents referred to herein and therein
and to effect the transactions contemplated thereby, and we have assumed that
such parties have all requisite power and authority and have taken all action
necessary to enter into the Underwriting Agreement and the other documents
referred to herein and therein to which they are a party and to effect the
transactions contemplated by such documents.
Based on the foregoing, we are of the opinion that:
(i) IAT has been duly incorporated and is validly existing as
a corporation in good standing under the laws of Delaware, with full corporate
power and authority to own its properties and conduct its business as described
in the Registration Statement and Prospectus and is duly qualified or licensed
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or conduct of
its business requires such qualification except where the failure to so qualify
or be so licensed would not have a material adverse affect on the business,
properties or financial condition of the Company and the Subsidiaries taken as a
whole. Except as set forth in the Prospectus, to the best of our knowledge, IAT
owns, directly or indirectly, all of the shares of capital stock or limited
partnership interests of the Subsidiaries free and clear of any security
interests, other encumbrance or adverse claim.
(ii) To the best of our knowledge, (a) IAT and each of the
Subsidiaries have obtained, or are in the process of obtaining, all licenses,
<PAGE>
Royce Investment Group, Inc.
February , 1998
Page 3
permits and other governmental authorizations necessary to the conduct of their
respective business as described in the Prospectus, (b) such licenses, permits
and other governmental authorizations obtained are in full force and effect, and
(c) IAT and each of the Subsidiaries are in all material respects complying
therewith.
(iii) The authorized capitalization of IAT as of September 30,
1997 is as set forth under "Capitalization" in the Prospectus; all shares of
IAT's outstanding stock have been duly authorized, validly issued and are fully
paid and non-assessable; the outstanding shares of Common Stock of IAT have not
been issued in violation of any statutory preemptive rights or, to the best of
our knowledge, any other preemptive rights, of any shareholder and the
shareholders of IAT do not have any preemptive rights or other rights to
subscribe for or to purchase, nor are there any restrictions upon the voting or
transfer of any of the Common Stock (except as described in the Prospectus and
the Registration Statement); the Common Stock, the Stock Purchase Warrant and
the Notes conform in all material respects to the descriptions thereof contained
in the Prospectus; the shares of Common Stock issuable upon conversion of the
Notes or upon payment of an Excess Interest Amount in accordance with the terms
of the Indenture, have been duly authorized and, when issued and delivered and
paid for in accordance with the terms of the Indenture, will be validly issued,
fully paid and non-assessable, free and clear of any statutory preemptive rights
and no personal liability will attach to the ownership thereof; the shares of
Common Stock issuable upon exercise of the Stock Purchase Warrant have been duly
authorized and, when issued and delivered and paid for in accordance with the
terms of the Stock Purchase Warrant, will be validly issued, fully paid and
non-assessable, free and clear of any statutory preemptive rights and no
personal liability will attach to the ownership thereof; all prior sales by IAT
of IAT's securities have been made in compliance with or under an exemption from
registration under the Act and applicable state securities laws and no
shareholders of IAT have any rescission rights with respect to the Company's
securities; a sufficient number of shares of Common Stock have been authorized
and reserved for issuance upon conversion of the Notes and exercise of the Stock
Purchase Warrant; and to the best of our knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Notes as contemplated by
the Underwriting Agreement gives rise to any registration rights or other
rights, other than those which have been waived or satisfied for or relating to
the registration of any shares of Common Stock. The specimen form of share
certificate for the Common Stock is in valid and proper legal form.
(iv) Each of the Underwriting Agreement, the M/A Agreement,
the Stock Purchase Warrant, the Indenture and the Escrow Agreement has been duly
and validly authorized, executed and delivered by IAT and, assuming due
execution by each other party thereto, each constitutes a legal, valid and
binding obligation of IAT enforceable against IAT in accordance with its
respective terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
<PAGE>
Royce Investment Group, Inc.
February , 1998
Page 4
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law
or public policy).
(v) The global certificate evidencing the Notes is in valid
and proper legal form. The Notes have been duly authorized, executed, issued and
delivered and, assuming the authentication by the Trustee, are legal, valid and
binding obligation of the Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms except to the
extent that: (i) the same may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws now or hereafter
in effect relating to or by general principles of equity whether asserted in an
action at law or in equity; and (ii) right to indemnify and contribution
thereunder may be limited by state or federal securities laws.
(vi) We know of no pending or threatened legal or governmental
proceedings to which either IAT or any of the Subsidiaries is a party which
could materially adversely affect the business, property, financial condition or
operations of IAT and the Subsidiaries taken as a whole, or which question the
validity of the Notes, the Underwriting Agreement, the Indenture, the M/A
Agreement, the Stock Purchase Warrant, the Escrow Agreement or the shares of
Common Stock issuable upon conversion of the Notes, upon exercise of the Stock
Purchase Warrant or upon payment of any Excess Interest Amount, or of any action
taken or to be taken by either IAT or any of the Subsidiaries pursuant to the
Underwriting Agreement, the Indenture, the M/A Agreement, the Stock Purchase
Warrant or the Escrow Agreement; and no such proceedings are known to us to be
contemplated against either IAT or any of the Subsidiaries; and to the best of
our knowledge, there are no governmental proceedings or regulations required to
be described or referred to in the Registration Statement which are not so
described or referred to.
(vii) To the best of our knowledge, neither IAT nor any of the
Subsidiaries has received notice of any claim or challenge regarding its
ownership of or its other rights to or under any patents, trademarks, service
marks, trade names, licenses, inventions or any other rights described in the
Prospectus. To the best of our knowledge (i) no claim has been made against IAT
or any of the Subsidiaries alleging infringement by IAT or any of the
Subsidiaries of any patent, trademark, service mark, trade name, trade secret,
license in or other intellectual property or franchise right of any person, (ii)
no legal or governmental proceedings are pending relating to the foregoing,
other than review of pending patent applications, and (iii) no such proceedings
are currently threatened by governmental authorities or others.
(viii) To the best of our knowledge, except as described in
the Prospectus, neither IAT nor any of the Subsidiaries is in violation, breach
or default of or under, any indenture, mortgage, deed of trust, loan agreement
<PAGE>
Royce Investment Group, Inc.
February , 1998
Page 5
or other agreement or instrument to which IAT or any of the Subsidiaries is a
party or by which IAT or any of the Subsidiaries may be bound or to which any of
the property or assets of IAT or any of the Subsidiaries is subject, which
violation, breach or default would have a material adverse effect on IAT and the
Subsidiaries taken as a whole; nor will the execution and delivery of the
Underwriting Agreement, the Indenture, the M/A Agreement, the Stock Purchase
Warrant, the Note or the Escrow Agreement and the consummation of the
transaction and the incurrence of the obligations therein contemplated with or
without the giving of notice or the lapse of time, or both, result in a breach
or violation of, or constitute a default under the Restated Certificate of
Incorporation or the By-Laws of IAT, in the performance or observance of any
material obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or instrument
to which the Company or any of the Subsidiaries is a party and by which it or
any of their respective properties may be bound or in violation of any material
order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign.
(ix) The Registration Statement (including the Statement of
Eligibility of Trustee on Form T-1) has become effective under the Act, and to
the best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement or the qualification of the Trustee (as defined in the
Indenture) is in effect, and no proceedings for that purpose have been
instituted or are pending before, or threatened by, the Commission; the
Registration Statement and the Prospectus (except for the financial statements,
notes thereto and other financial, numerical, statistical and accounting data
contained therein, or omitted therefrom, as to which we need express no opinion)
comply as to form in all material respects with the applicable requirements of
the Securities Act, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") and the Rules and Regulations.
(x) The Indenture has been qualified under the Trust Indenture
Act.
(xi) All descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown, and we do not know of any contracts or
documents of a character required to be summarized or described therein or to be
filed as exhibits thereto which are not so summarized, described or filed.
(xii) No consent, approval, authorization or other order of
any governmental or regulatory authority is required in connection with the
authorization, execution, delivery and performance of the Underwriting
Agreement, the M/A Agreement, the Stock Purchase Warrant, the Escrow Agreement
and the Indenture, or with the authorization, issue and sale of the Notes and
the Stock Purchase Warrant or the shares of Common Stock underlying the Notes
<PAGE>
Royce Investment Group, Inc.
February , 1998
Page 6
and the Stock Purchase Warrant, except such as may be required for the
registration of the Notes and the Common Stock under the Act, by the National
Association of Securities Dealers, Inc., the Nasdaq Stock Market, Inc. or state
securities laws.
(xiii) The statements in the Registration Statement have been
reviewed by us and insofar as they refer to descriptions of agreements,
statements of law, descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects.
(xiv) The Company is not an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
(xv) Upon the Company's purchase of the Pledged Securities and
pledge of the Pledged Securities to the Trustee for the benefit of the Holders
of the Senior Notes in accordance with the terms of the Escrow Agreement, a
valid security interest will have been created in favor of the Trustee for the
benefit of the Holders, as security for the obligations of the Company under the
Senior Notes and the Indenture to the extent of such security.
In addition, we have participated in conferences with officers
and other representatives of the Company and the Subsidiaries, representatives
of the independent public accountants for the Company, the representatives of
the Underwriter and counsel to the Underwriter at which the contents of the
Registration Statement and Prospectus and related matters were discussed and,
although we are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise expressly set forth
in this opinion), on the basis of the foregoing no facts have come to our
attention that caused us to believe that the Registration Statement (other than
the financial statements and the notes thereto and other financial, numerical,
statistical and accounting date included therein, or omitted therefrom, as to
which we express no opinion), as amended or supplemented, at the time such
Registration Statement became effective and as of the date hereof, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus (other than the financial statements and notes thereto
and other financial, numerical, statistical and accounting data included
therein, or omitted therefrom as to which we express no opinion), as amended or
supplemented, as of its date and the date hereof, contained an untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
We are members only of the bar of the State of New York and
therefore do not hold ourselves out as experts in, and express no opinion as to,
<PAGE>
Royce Investment Group, Inc.
February , 1998
Page 7
any laws other than the laws of the State of New York, the Federal law of the
United States and, to the extent necessary for this opinion, the General
Corporation Law of the State of Delaware. Insofar as the opinions expressed
below relate to certain matters that are governed by the laws of Germany or the
laws of Switzerland, we have, with your permission but without having made any
independent investigation, relied on the opinions of Baker & McKenzie, Munich
and Baker & McKenzie, Zurich, respectively, which opinions have been delivered
to you, and this opinion is subject to the assumptions, qualifications and
limitations set forth therein. Nothing has come to our attention to cause us to
believe that reliance on such opinions is not reasonable.
Whenever our opinion herein with respect to the existence or
absence of facts is indicated to be based on "the best of our knowledge," it is
intended to signify that attorneys in our office who have devoted substantive
attention to this matter have not acquired actual knowledge of the existence or
absence of such facts.
The opinions expressed above are expressed as of the date
hereof only, and we assume no obligation to update or supplement our opinions to
reflect any fact or circumstance that may hereinafter come to our attention or
any changes in law that may occur or become effective after the date of this
opinion.
The opinions set forth herein are solely for your benefit and
may not be relied upon in any manner or for any purpose by any other person
except by Baker & McKenzie, Munich, and Baker & McKenzie, Zurich in connection
with their opinions to the Underwriter in connection with this offering, and may
not be quoted in whole or in part, without our prior written consent.
Very truly yours,
DRAFT
<PAGE>
February __, 1998
Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, New York 11797
Re: IAT Multimedia, Inc.
Ladies and Gentlemen:
We have acted as counsel for IAT Deutschland GmbH Interaktive Medien
System, a corporation organized under the laws of Germany (the "Company") and a
74.9 % subsidiary of IAT AG, a corporation organized under the laws of
Switzerland ("IAT AG"), in connection with the preparation by IAT Multimedia
Inc., a corporation organized under the laws of Delaware ("Multimedia"), of a
Registration Statement on Form S-1 (Registration Number 333-141835) under the
Securities Act of 1933, as amended (the "Securities Act") relating to the public
offering of an aggregate of US$ 11,500,000 principal amount of Multimedia's 10%
Convertible Subordinated Notes due 2003 (the "Notes"), filed with the Securities
and Exchange Commission (the "Commission") on December 10, 1997, as amended
(such registration statement as so amended and the prospectus dated January __,
1998, filed pursuant to Rule 424 (b) are respectively referred to herein as the
"Registration Statement" and the "Prospectus"). This is the opinion contemplated
by Section 4(b) of the Underwriting Agreement dated January __, 1998 (the
"Underwriting Agreement") between Multimedia and Royce Investment Group,
Inc.(the "Underwriter"). All capitalized terms used in this opinion without
definition have the respective meanings given to them in the Underwriting
Agreement.
In connection with this opinion, we have examined copies identified to
our satisfaction of (i) the Underwriting Agreement, (ii) the Stock Purchase
Warrant, (iii) the Indenture, (iv) the M/A Agreement, (v) the Escrow Agreement,
(vi) the Notes, (vii) the Registration Statement, (viii) the Prospectus, (ix) a
copy of the excerpt of the commercial register of the Company dated January 15,
1998, (x) a copy of the recent excerpt of the commercial register of FSE
Computer-Handel Verwaltungsgesellschaft mbH, a corporation organized under the
laws of Germany ("FSE GmbH") and a 100 % subsidiary of Multimedia, dated January
16, 1998, and (xi) a copy of the recent excerpt of the commercial register of
1
<PAGE>
FSE Computer-Handel GmbH & Co. KG, a limited partnership organized under the
laws of Germany ("FSE KG") (FSE KG together with FSE GmbH, "FSE", and FSE KG
together with FSE GmbH and the Company, the "Companies") and a 80 % subsidiary
of Multimedia, dated January 28, 1998. In addition, we first have reviewed
relevant corporate proceedings and records of the Company, obtained such
certificates from public officials and from the officers of the Company, made
such investigations as we have thought relevant and necessary as a basis for our
opinions hereinafter expressed and secondly have checked with the commercial
registers of the Company, FSE GmbH and FSE KG on [no more than one day prior to
the date of this opinion] that there have been no recordings in such commercial
registers since January 15, January 16 and January 28, 1998, respectively.
As to various questions of fact material to this opinion, we have
relied, to the extent that relevant facts were not independently established by
us, and to the extent we deemed proper, upon the representations and
certificates of the Companies, Multimedia and the IAT AG.
4. Assumptions
For the purposes of this opinion, we have assumed:
4.1 the genuineness of all signatures;
4.2 the completeness of and conformity to originals of all documents
purporting to be copies of originals, the authenticity of all documents
submitted to us as originals and the completeness and accuracy of
translations;
4.3 that the execution of all documents on behalf of all entities and
persons other than the Company was duly authorized, that such documents
were validly executed and delivered on behalf of such entities and
persons, and that all natural persons who are signatories to any
documents are competent;
4.4 the compliance by all entities and persons other than the Company with
all laws and regulations relating to their authority to enter into the
Underwriting Agreement and the other documents referred to herein and
therein and to effect the transactions contemplated thereby, and that
such parties have all requisite power and authority and have taken all
action necessary to enter into the Underwriting Agreement and the other
documents referred to herein and therein to which they are a party and
to effect the transactions contemplated by such documents;
4.5 that since [no more than one business day prior to date of this
opinion], there have been no amendments to the Articles of Association
of the Company in the form examined by us; and
4.6 that there are no provisions of the laws of any jurisdiction outside
Germany which would have any implication on the opinions we express.
2
<PAGE>
5. Opinion
We have made such examination of the laws of Germany as currently
applied by the courts of Germany as in our judgment is necessary or
appropriate for the purposes of this opinion. We do not purport to be
qualified to pass upon and express no opinion herein as to the laws of
any other jurisdiction other than those of Germany.
This opinion shall be governed by and construed in accordance with
German law.
On the above assumptions and subject to the reservations below, we are
of the opinion that:
5.1 The Company and FSE GmbH are corporations and FSE KG is a limited
partnership duly incorporated, registered and existing under the laws
of Germany and the Companies have all requisite corporate power and
authority to own its respective properties and conduct its respective
business as described in the Registration Statement and Prospectus. To
the best of our knowledge and according to publicly available
information in Germany obtained on January 15 and 16, 1998 [no more
than one day prior to the date of this opinion], no legal proceedings
have been started or threatened for the winding-up, dissolution or
reorganization or for the appointment of a receiver, administrator or
similar officer of the Companies. To the best of our knowledge all
shares of the capital stock of FSE GmbH are and 80 % of the capital
stock of FSE KG is owned by Multimedia and 74.9 % of the shares of the
capital stock of the Company are owned by IAT AG, in each case, free
and clear of any security interests, other encumbrances or adverse
claims.
5.2 To the best of our knowledge, (a) the Companies have obtained, or are
in the process of obtaining, all licenses, permits and other
governmental authorizations necessary to the conduct of their
respective business as described in the Prospectus in Germany, (b) such
licenses, permits and other governmental authorizations obtained are in
full force and effect, and (c) the Companies are in all material
respects complying therewith.
5.3 To the best of our knowledge, no legal or governmental proceedings are
pending or threatened to which any of the Companies is a party which
could materially adversely affect the business, property, financial
condition or operations of the Companies taken as a whole, or which
question the validity of the Notes, the shares of the Common Stock
issuable upon conversion of the Notes, the shares of Common Stock
issuable as payment of any Excess Interest Payment (as defined in the
Indenture), the Underwriting Agreement, the M/A Agreement, the
Indenture, the Escrow Agreement, the Stock Purchase Warrant or the
shares of Common Stock issuable upon exercise of the Stock Purchase
Warrant, or of any action taken or to be taken by either Multimedia or
any of the Subsidiaries pursuant to the Underwriting Agreement, the
Indenture, the Escrow Agreement, the Notes, the M/A Agreement or the
Stock Purchase Warrant; and no such proceedings are known to us as
contemplated against any of the Companies; and there are no
3
<PAGE>
governmental proceedings or regulations which are required to be
described or referred to in the Registration Statements which are not
so described or referred to.
5.4 To the best of our knowledge, neither of the Companies has received
notice of any claim or challenge regarding its ownership of or its
other rights to or under any patents, trademarks, service marks, trade
names, licenses, inventions or any other rights described in the
Prospectus. To the best of our knowledge, (a) no claim has been made
against any of the Companies alleging its infringement of any patent,
trademark, service mark, trade name, trade secret, license in or other
intellectual property or franchise right of any person, (b) no legal or
governmental proceedings are pending relating to the foregoing, other
than review of pending patent applications, and (c) no such proceedings
are currently threatened by governmental authorities or others.
5.5 To the best of our knowledge, except as described in the Prospectus,
neither of the Companies is in violation, breach or default of or
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Company may be bound or to which
any of the property or assets of such Company are subject, which
violation, breach or default would have a material adverse effect on
such Company taken as a whole; nor will the execution and delivery of
the Underwriting Agreement, the Indenture, the M/A Agreement, the
Escrow Agreement, the Notes or the Stock Purchase Warrant and the
incurrence of the obligations therein contemplated with or without the
giving of notice or the lapse of time, or both, result in a breach or
violation of, or constitute a default under the Articles of Association
of the Companies, in the performance or observance of any material
obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Companies are a party and by which
it or any of their properties may be bound or in violation of any
material order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court.
5.6 All descriptions in the Registration Statement and the Prospectus and
any amendments or supplements thereto, of contracts and other documents
governed by German law are accurate in all material respects and fairly
present the information which is required to be shown, and we do not
know of any such contracts or documents of a character which are
required to be summarized or described therein or to be filed as
exhibits thereto which are not summarized, described or filed.
5.7 No consent, approval, authorization or other order of any governmental
authority is required under German law in connection with the
authorization, execution and delivery of the Underwriting Agreement,
the Indenture, the M/A Agreement, the Escrow Agreement or the Stock
Purchase Warrant, or with the authorization, issue and sale of the
Notes and the shares of Common Stock issuable upon conversion of the
Notes, the exercise of the Stock Purchase Warrant or as payment of any
Excess Interest Amount (as defined in the Indenture).
4
<PAGE>
5.8 The statements in the Registration Statements have been reviewed by us
and insofar as they refer to descriptions of agreements governed by
German law, statements of the laws of Germany, description of such
statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects.
Although we do not pass upon and do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise expressly set forth
in this opinion), on the basis of the foregoing no facts have come to our
attention that caused us to believe that the Registration Statement (other than
the financial statements and the notes thereto and other financial, numerical,
statistical and accounting data included therein, or omitted therefrom, and
matters of law other than German law, as to which we express no opinion), as
amended or supplemented, at the time such Registration Statement became
effective and as of the date hereof, contained an untrue statement of a material
fact which is required to be stated therein or necessary to make the statement
therein not misleading, or that the Prospectus (other than the financial
statements and notes thereto and other financial, numerical, statistical and
accounting data included therein or omitted therefrom, and matters of law other
than German law, as to which we do not express an opinion), as amended or
supplemented, as of its date and the date hereof, contained an untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
6. Qualifications
This opinion is subject to the following qualifications:
6.1 With regard to factual matters, we have relied, to the extent that
relevant facts were not independently established by us, and to the
extent we deemed proper, on the statements, warranties and
representations made in the documents referred to in Section 2, and we
do not express any opinion thereon.
6.2 Insofar as the opinions expressed above relate to certain matters that
are governed by the laws of the United States (including, without
limitations, the requirements of the Federal Securities Laws) or the
laws of Switzerland, we have, with your permission but without having
made any independent investigation, relied on the opinions of Baker &
McKenzie, New York, and Baker & McKenzie, Zurich, respectively, which
opinions have been delivered to you, and this opinion is subject to the
assumptions, qualifications and limitations set forth therein. Nothing
has come to our attention to cause us to believe that reliance on such
opinions is not reasonable.
6.3 Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on "our knowledge" and "the best of our
knowledge", it is intended to signify that attorneys in our office who
have devoted substantive attention to this matter have not acquired
actual knowledge of the existence or absence of such facts; with
5
<PAGE>
respect to FSE we have devoted substantive attention to such matters in
the context of our pre-acquisition diligence review of FSE conducted
for IAT Multimedia Inc.
6.4 The opinions expressed above are expressed as of the date hereof only,
and we assume no obligation to update or supplement our opinions to
reflect any fact or circumstance that may hereinafter come to our
attention or any changes in law that may occur or become effective
after the date of this opinion.
7. Benefit
We are furnishing this opinion to you solely for the benefit of the
Underwriter and may not be relied upon in any manner or for any purpose by any
other person except Baker & McKenzie, New York, and Baker & McKenzie, Zurich, in
connection with their opinion to the Underwriter in connection with this
offering. This opinion may not be referred to, relied on, used, circulated,
quoted or otherwise referred to for any other purpose, or disclosed in whole or
in part to any person without our prior written consent.
Very truly yours,
DRAFT
Walter R. Henle
6
<PAGE>
Royce Investment Group, Inc.
199 Crossways Park Drive
Woodbury, New York 11797
February_____, 1998
Re: IAT Multimedia, Inc.
Ladies and Gentlemen:
1. We have acted as counsel for IAT AG, a corporation organized under the
laws of Switzerland (the "Company") and a subsidiary of IAT Multimedia
Inc., a corporation organized under the laws of Delaware ("Multimedia")
in connection with the preparation by Multimedia of a Registration
Statement on Form S-1 (Registration Number 333-41835) under the
Securities Act of 1933, as amended (the "Securities Act") relating to
the public offering of an aggregate of US$ 11,500,000 principal amount
of Multimedia's 10% Convertible Subordinated Notes due 2003 (the
"Notes"), filed with the Securities and Exchange Commission (the
"Commission") on December 10, 1997, as amended (such registration
statement as so amended and the prospectus dated January __, 1998,
filed pursuant to Rule 424 (b) are respectively referred to herein as
the "Registration Statement" and the "Prospectus"). This is the opinion
contemplated by Section 4(b) of the Underwriting Agreement dated
January __, 1998 (the "Underwriting Agreement") between Multimedia and
Royce Investment Group, Inc. All capitalized terms used in this opinion
without definition have the respective meanings given to them in the
Underwriting Agreement.
2. In connection with this opinion, we have examined copies identified to
our satisfaction of (i) the Underwriting Agreement, (ii) the Stock
Purchase Warrant, (iii) the Registration Statement, (iv) the Prospectus
(v) the Indenture, (vi) the M/A Agreement, (vii) the Escrow Agreement,
(vii) the Note, (viii) a copy of the current Certificate of
Registration and of the Articles of Association of the Company, both
dated [no more than three working days prior to date of this opinion].
In addition, we have reviewed relevant corporate proceedings and
records of the Company, obtained such certificates from public
officials and from the officers of the Company, of Multimedia and of
IAT Germany, made such investigations and examined such documents,
records, agreements, instruments and papers as we have thought relevant
and necessary as a basis for our opinions hereinafter expressed.
<PAGE>
3. As to various questions of fact material to this opinion, we have
relied, to the extent that relevant facts were not independently
established by us, and to the extent we deemed proper, upon the
representations and certificates of the Company, of Multimedia and of
IAT Germany.
4. Assumptions
For the purposes of this opinion, we have assumed:
4.1 the genuineness of all signatures;
4.2 the completeness of and conformity to originals of all documents
purporting to be copies of originals, the authenticity of all documents
submitted to us as originals and the completeness and accuracy of
translations;
4.3 that the execution of all documents on behalf of all entities and
persons other than the Company was duly authorized, that such documents
were validly executed and delivered on behalf of such entities and
persons, and that all natural persons who are signatories to any
documents are competent;
4.4 the compliance by all entities and persons other than the Company with
all laws and regulations relating to their authority to enter into the
Underwriting Agreement and the other documents referred to herein and
therein and to effect the transactions contemplated thereby, and that
such parties have all requisite power and authority and have taken all
action necessary to enter into the Underwriting Agreement and the other
documents referred to herein and therein to which they are a party and
to effect the transactions contemplated by such documents;
4.5 that since [no more than two working days prior to date of this
opinion], there have been no amendments to the Certificate of
Registration and Articles of Association of the Company in the form
examined by us; and
<PAGE>
4.6 that there are no provisions of the laws of any jurisdiction outside
Switzerland which would have any implication on the opinions we
express.
5. Opinion
We have made such examination of the laws of Switzerland as currently
applied by the courts of Switzerland as in our judgment is necessary or
appropriate for the purposes of this opinion. We do not purport to be
qualified to pass upon and express no opinion herein as to the laws of
any other jurisdiction other than those of Switzerland.
This opinion shall be governed by and construed in accordance with
Swiss law.
On the above assumptions and subject to the reservations below, we are
of the opinion that:
5.1 The Company is a corporation duly incorporated, registered and existing
under the laws of Switzerland and has all requisite corporate power and
authority to own its properties and conduct its business as described
in the Registration Statement and Prospectus. To the best of our
knowledge and according to publicly available information in
Switzerland obtained on [no more than two working days prior to date of
this opinion], no legal proceedings have been started or threatened for
the winding-up, dissolution or reorganization or for the appointment of
a receiver, administrator or similar officer of the Company. To the
best of our knowledge all of the shares of capital stock of the Company
are owned by Multimedia free and clear of any security interests, other
encumbrances or adverse claims, and all of the shares of capital stock
of IAT Germany owned by the Company as set forth in the Prospectus are
owned free and clear of any security interest, other encumbrances or
adverse claims.
5.2 To the best of our knowledge, (a) Multimedia and each of the
Subsidiaries have obtained, or are in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to
the conduct of their respective business as described in the Prospectus
in Switzerland, (b) such licenses, permits and other governmental
authorizations obtained are in full force and effect, and (c)
Multimedia and each of the Subsidiaries are in all material respects
complying therewith.
5.3 We know of no pending or threatened legal or governmental proceedings
in Switzerland to which either Multimedia or any of the Subsidiaries is
a party which could materially adversely affect the business, property,
financial condition or operations of Multimedia and the Subsidiaries
taken as a whole; or which question the validity of the Notes, the
shares of Common Stock issuable upon conversion of the Notes, the
shares of Common Stock issuable as payment of any Exess Interest
Payment (as defined in the Indenture), the Underwriting Agreement, the
M/A Agreement, the Stock Purchase Warrant, or the shares of Common
<PAGE>
Stock issuable upon exercise of the Stock Purchase Warrant, or of any
action taken or to be taken by either Multimedia or any of the
Subsidiaries pursuant to the Underwriting Agreement, the Indenture, the
Notes, the M/A Agreement, the Escrow Agreement or the Stock Purchase
Warrant; and no such proceedings are known to us as contemplated
against either Multimedia or any of the Subsidiaries; and there are no
governmental proceedings or regulations in Switzerland which are
required to be described or referred to in the Registration Statement
which are not so described or referred to.
5.4 To the best of our knowledge, the Company has received no notice of any
claim or challenge regarding its ownership of or its other rights to or
under any patents, trademarks, service marks, trade names, licenses,
inventions or any other rights described in the Prospectus. To the best
of our knowledge, (a) no claim has been made against the Company
alleging infringement by Multimedia or any of the Subsidiaries of any
patent, trademark, service mark, trade name, trade secret, license in
or other intellectual property or franchise right of any person, (b) no
legal or governmental proceedings are pending relating to the
foregoing, other than review of pending patent applications, and (c) no
such proceedings are currently threatened by governmental authorities
or others.
5.5 To the best of our knowledge, except as described in the Prospectus,
the Company is not in violation, breach or default of or under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company, Multimedia or IAT Germany may be
bound or to which any of the property or assets of the Company,
Multimedia or IAT Germany is subject, which violation, breach or
default would have a material adverse effect on Multimedia and the
Subsidiaries taken as a whole; nor will the execution and delivery of
the Underwriting Agreement, the Indenture, the M/A Agreement, the
Escrow Agreement, the Notes or the Stock Purchase Warrant and the
incurrence of the obligations therein contemplated with or without the
giving of notice or the lapse of time, or both, result in a breach or
violation of, or constitute a default under the Articles of Association
of the Company, in the performance or observance of any material
obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which Multimedia or any of the Subsidiaries
is a party and by which it or any of their properties may be bound or
in violation of any material order, rule, regulation, writ, injunction,
or decree of
<PAGE>
5.6 All descriptions in the Registration Statement and the Prospectus and
any amendments or supplements thereto, of contracts and other documents
governed by Swiss law are accurate in all material respects and fairly
present the information which is required to be shown, and we do not
know of any such contracts or documents of a character which are
required to be summarized or described therein or to be filed as
exhibits thereto which are not summarized, described or filed.
5.7 No consent, approval, authorization or other order of any governmental
authority is required under Swiss law in connection with the
authorization, execution and delivery of the Underwriting Agreement,
the Indenture, the M/A Agreement, the Escrow Agreement or the Stock
Purchase Warrant, or with the authorization, issue and sale of the
Notes and the shares of Common Stock issuable upon conversion of the
Notes, the exercise of the Stock Purchase Warrant or as payment of any
Excess Interest Amount .
5.8 The statements in the Registration Statements have been reviewed by us
and insofar as they refer to descriptions of agreements governed by
Swiss law, statements of the laws of Switzerland, description of such
statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects.
Although we do not pass upon and do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement and Prospectus (except as otherwise
expressly set forth in this opinion), on the basis of the foregoing no
facts have come to our attention that caused us to believe that the
Registration Statement (other than the financial statements and the
notes thereto and other financial, numerical, statistical and
accounting data included therein, or omitted therefrom, and matters of
law other than Swiss law, as to which we express no opinion), as
amended or supplemented, at the time such Registration Statement became
effective and as of the date hereof, contained an untrue statement of a
material fact which is required to be stated therein or necessary to
make the statement therein not misleading, or that the Prospectus
(other than the financial statements and notes thereto and other
financial, numerical, statistical and accounting data included therein
or omitted therefrom, and matters of law other than Swiss law, as to
which we do not express an opinion), as amended or supplemented, as of
its date and the date hereof, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
<PAGE>
6. Qualifications
This opinion is subject to the following qualifications:
6.1 With regard to factual matters, we have relied, to the extent that
relevant facts were not independently established by us, and to the
extent we deemed proper, on the statements, warranties and
representations made in the documents referred to in Section 2, and we
do not express any opinion thereon.
6.2 Insofar as the opinions expressed above relate to certain matters that
are governed by the laws of the United States (including, without
limitations, the requirements of the Federal Securities Laws) or the
laws of Germany, we have, with your permission but without having made
any independent investigation, relied on the opinions of Baker &
McKenzie, New York and Baker & McKenzie, Munich, respectively, which
opinions have been delivered to you, and this opinion is subject to the
assumptions, qualifications and limitations set forth therein. Nothing
has come to our attention to cause us to believe that reliance on such
opinions is not reasonable.
6.3 Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on "our knowledge" and "the best of our
knowledge", it is intended to signify that attorneys in our office who
have devoted substantive attention to this matter have not acquired
actual knowledge of the existence or absence of such facts.
6.4 The opinions expressed above are expressed as of the date hereof only,
and we assume no obligation to update or supplement our opinions to
reflect any fact or circumstance that may hereinafter come to our
attention or any changes in law that may occur or become effective
after the date of this opinion.
7. Benefit
We are furnishing this opinion to you solely for the benefit of the
Underwriter and it may not be relied upon in any manner or for any
purpose by any other person except Baker & McKenzie New York and Baker
& McKenzie Munich in connection with their opinion to the Underwriter
in connection with this offering. This opinion may not be referred to,
relied on, used, circulated, quoted or otherwise referred to for any
other purpose, or disclosed in whole or in part to any person without
our prior written consent.
Very truly yours,
DRAFT
Martin Frey
<PAGE>
- --------------------------------------------------------------------------------
INDENTURE
Dated as of February __, 1998
between
IAT MULTIMEDIA, INC.
and
THE BANK OF NEW YORK, as Trustee
----------------
$11,500,000
10% Convertible Subordinated Notes due 2003
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
........................................................................................................1
SECTION 101. Definitions...........................................................1
"Act"...........................................................................................2
"Affiliate".....................................................................................2
"Authenticating Agent"..........................................................................2
"Board of Directors"............................................................................2
"Board Resolution"..............................................................................2
"Business Day"..................................................................................2
"Capital Lease Obligations".....................................................................2
"Change of Control".............................................................................2
"Commission"....................................................................................3
"Common Stock"..................................................................................3
"Company".......................................................................................3
"Company Request"...............................................................................3
"Company Order".................................................................................3
"Corporate Trust Office"........................................................................3
"Current Market Price"..........................................................................3
"Default".......................................................................................4
"Delisted"......................................................................................4
"Designated Senior Debt"........................................................................4
"Escrow Account"................................................................................4
"Exchange Act"..................................................................................4
"Fair Market Value".............................................................................4
"GAAP"..........................................................................................5
"Hedging Obligations"...........................................................................5
"Holder"........................................................................................5
"Indebtedness"..................................................................................5
"Indenture".....................................................................................5
"Interest Payment Date".........................................................................5
"Junior Securities".............................................................................5
"Lien"..........................................................................................6
"Maturity,".....................................................................................6
"National Exchange".............................................................................6
"Notes".........................................................................................6
"Officer".......................................................................................6
"Officers' Certificate".........................................................................6
"Opinion of Counsel"............................................................................6
</TABLE>
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<TABLE>
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<S> <C>
"Outstanding,"..................................................................................6
"Paying Agent"..................................................................................7
"Permitted Liens"...............................................................................7
"Person"........................................................................................8
"Pledged Collateral"............................................................................9
"Predecessor Note"..............................................................................9
"Preferred Stock"...............................................................................9
"Principal".....................................................................................9
"Proceeds Pledge and Escrow Agreement"..........................................................9
"Property"......................................................................................9
"Redemption Date"...............................................................................9
"Redemption Price,".............................................................................9
"Regular Record Date"...........................................................................9
"Responsible Officer,"..........................................................................9
"Securities Act"...............................................................................10
"Senior Indebtedness"..........................................................................10
"Significant Subsidiary".......................................................................10
"Special Record Date"..........................................................................10
"Stated Maturity,".............................................................................11
"Subsidiary"...................................................................................11
"Trading Day"..................................................................................11
"Trustee"......................................................................................11
"Trust Indenture Act"..........................................................................11
"U.S. Government Obligations"..................................................................11
"Vice President"...............................................................................11
SECTION 102. Compliance Certificates and Opinions.........................................12
SECTION 103. Form of Documents Delivered to Trustee.......................................13
SECTION 104. Acts of Holders; Record Dates................................................13
SECTION 105. Notices, Etc., to Trustee and Company........................................14
SECTION 106. Notice to Holders; Waiver....................................................15
SECTION 107. Conflict with Trust Indenture Act............................................15
SECTION 108. Effect of Headings and Table of Contents.....................................15
SECTION 109. Successors and Assigns.......................................................15
SECTION 110. Separability Clause..........................................................16
SECTION 111. Benefits of Indenture........................................................16
SECTION 112. Governing Law................................................................16
SECTION 113. Legal Holidays...............................................................16
SECTION 114. Accounting Terms.............................................................16
SECTION 115. Incorporation by Reference of Trust Indenture Act............................16
ARTICLE TWO
NOTE FORMS..............................................................................................17
SECTION 201. Forms Generally..............................................................17
</TABLE>
(ii)
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<TABLE>
<CAPTION>
<S> <C>
SECTION 202. Form of Face of Note.........................................................17
SECTION 203. Form of Reverse of Note......................................................20
SECTION 204. Form of Trustee's Certificate of Authentication..............................23
SECTION 205. Form of Conversion Notice....................................................23
SECTION 206. Form of Option of Holder to Elect Repurchase.................................24
SECTION 207. Form of Assignment by Holder.................................................25
ARTICLE THREE
THE NOTES...............................................................................................26
SECTION 301. Title and Terms..............................................................26
SECTION 302. Denominations. ..............................................................27
SECTION 303. Execution, Authentication, Delivery and Dating...............................27
SECTION 304. Temporary Notes..............................................................28
SECTION 305. Registration, Registration of Transfer and Exchange..........................28
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes. ................................29
SECTION 307. Payment of Interest; Interest Rights Preserved...............................30
SECTION 308. Persons Deemed Owners........................................................31
SECTION 309. Cancellation.................................................................32
SECTION 310. Computation of Interest......................................................32
ARTICLE FOUR
SATISFACTION AND DISCHARGE..............................................................................32
SECTION 401. Satisfaction and Discharge of Indenture......................................32
SECTION 402. Release of Paying Agent......................................................33
ARTICLE FIVE
REMEDIES................................................................................................33
SECTION 501. Events of Default............................................................33
SECTION 502. Acceleration of Maturity; Rescission and Annulment...........................35
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
............................................................................36
SECTION 504. Trustee May File Proofs of Claim.............................................36
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.......................37
SECTION 506. Application of Money Collected...............................................37
SECTION 507. Limitation on Suits..........................................................38
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest
And to Convert...............................................................39
SECTION 509. Restoration of Rights and Remedies...........................................39
SECTION 510. Rights and Remedies Cumulative...............................................39
SECTION 511. Delay or Omission Not Waiver.................................................39
SECTION 512. Control by Holders...........................................................39
</TABLE>
(iii)
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<TABLE>
<CAPTION>
<S> <C>
ECTION 513. Waiver of Past Defaults......................................................40
ECTION 514. Undertaking for Costs........................................................40
ECTION 515. Waiver of Stay or Extension Laws.............................................40
ARTICLE SIX
THE TRUSTEE.............................................................................................41
SECTION 601. Certain Duties and Responsibilities..........................................41
SECTION 602. Notice of Defaults...........................................................42
SECTION 603. Certain Rights of Trustee....................................................42
SECTION 604. Not Responsible for Recitals or Issuance of Notes............................43
SECTION 605. May Hold Notes...............................................................43
SECTION 606. Money Held in Trust..........................................................44
SECTION 607. Compensation and Reimbursement...............................................44
SECTION 608. Disqualification; Conflicting Interests......................................45
SECTION 609. Corporate Trustee Required; Eligibility......................................45
SECTION 610. Resignation and Removal; Appointment of Successor............................45
SECTION 611. Acceptance of Appointment by Successor.......................................46
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
..............................................................................................47
SECTION 613. Preferential Collection of Claims Against Company............................47
SECTION 614. Appointment of Authenticating Agent..........................................47
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.......................................................49
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
..............................................................................................49
SECTION 702. Preservation of Information; Communications to Holders.......................49
SECTION 703. Reports by Trustee...........................................................50
SECTION 704. Reports by Company...........................................................50
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE....................................................51
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.........................51
SECTION 802. Successor Corporation Substituted............................................52
ARTICLE NINE
SUPPLEMENTAL INDENTURES.................................................................................52
SECTION 901. Supplemental Indentures without Consent of Holders...........................52
SECTION 902. Supplemental Indentures with Consent of Holders..............................53
SECTION 903. Execution of Supplemental Indentures. ......................................54
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 904. Effect of Supplemental Indentures............................................54
SECTION 905. Revocation and Effect of Consents............................................55
SECTION 906. Conformity with Trust Indenture Act..........................................55
SECTION 907. Reference in Notes to Supplemental Indentures................................55
SECTION 908. Subordination Unimpaired.....................................................55
ARTICLE TEN
COVENANTS...............................................................................................56
SECTION 1001. Payment of Principal and Interest............................................56
SECTION 1002. Maintenance of Office or Agency..............................................56
SECTION 1003. Money for Note Payments to Be Held in Trust..................................57
SECTION 1004. Corporate Existence..........................................................58
SECTION 1005. Change of Control............................................................58
SECTION 1006. Payment of Taxes and Other Claims............................................60
SECTION 1007. Books and Records............................................................60
SECTION 1008. Statement by Company as to Compliance or Default.............................60
SECTION 1009. Stay, Extension and Usury Laws...............................................61
SECTION 1010. Company to Maintain Listing..................................................61
ARTICLE ELEVEN
REDEMPTION OF NOTES.....................................................................................61
SECTION 1101. Right of Redemption..........................................................61
SECTION 1102. Applicability of Article.....................................................61
SECTION 1103. Election to Redeem; Notice to Trustee........................................62
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.................................62
SECTION 1105. Notice of Redemption.........................................................62
SECTION 1106. Deposit of Redemption Price..................................................63
SECTION 1107. Notes Payable on Redemption Date.............................................63
SECTION 1108. Notes Redeemed in Part.......................................................64
ARTICLE TWELVE
CONVERSION OF NOTES.....................................................................................64
SECTION 1201. Conversion Privilege.........................................................64
SECTION 1202. Conversion Procedure.........................................................64
SECTION 1203. Cash Payments in Lieu of Fractional Shares...................................65
SECTION 1204. Adjustment of Conversion Price...............................................66
SECTION 1205. Effect of Reclassification, Consolidation, Merger or Sale....................71
SECTION 1206. Taxes on Shares Issued.......................................................72
SECTION 1207. Reservation of Shares; Shares to Be Fully Paid; Compliance with
Government Requirements; Listing of Common Stock.............................72
SECTION 1208. Responsibility of Trustee....................................................73
</TABLE>
(v)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 1209. Notice to Holders Prior to Certain Actions...................................73
ARTICLE THIRTEEN
SUBORDINATION OF NOTES..................................................................................74
SECTION 1301. Agreement to Subordinate.....................................................74
SECTION 1302. No Payment on Notes in Event of Default on Senior Indebtedness.
..............................................................................................74
SECTION 1303. Distribution on Dissolution, Liquidation and Reorganization..................75
SECTION 1304. Payment to Holders of Senior Indebtedness....................................76
SECTION 1305. Subrogation..................................................................77
SECTION 1306. Payment on Notes Permitted...................................................77
SECTION 1307. Authorization of Holders to Trustee to Effect Subordination..................78
SECTION 1308. Trustee as Holder of Senior Indebtedness.....................................78
SECTION 1309. Notices to Trustee...........................................................78
SECTION 1310. No Fiduciary Duty by Trustee to Holders of Senior Indebtedness.
..............................................................................................79
SECTION 1311. Paying Agent Treated as Trustee..............................................79
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE......................................................................79
SECTION 1401. Company's Option to Effect Defeasance or Covenant Defeasance.
..............................................................................................79
SECTION 1402. Defeasance and Discharge.....................................................80
SECTION 1403. Covenant Defeasance..........................................................80
SECTION 1404. Conditions to Defeasance or Covenant Defeasance..............................80
SECTION 1405. Application of Trust Money...................................................83
SECTION 1406. Reinstatement................................................................83
SECTION 1407. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Miscellaneous Provisions..............................................83
ARTICLE FIFTEEN
COLLATERAL AND SECURITY.................................................................................84
SECTION 1501. Proceeds Pledge and Escrow Agreement.........................................84
SECTION 1502. Recording and Opinions.......................................................84
SECTION 1503. Release of Pledged Securities or Collateral Funds............................85
SECTION 1504. Certificate of the Company...................................................86
SECTION 1506. Authorization of Actions to Be Taken by the Trustee under the
Proceeds Pledge and Escrow Agreement.........................................86
SECTION 1506. Authorization of Receipt of Funds by the Trustee under the
Proceeds Pledge and Escrow Agreement.........................................86
SECTION 1507. Termination of Security Interest.............................................87
</TABLE>
(vi)
<PAGE>
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
AND INDENTURE DATED AS OF FEBRUARY__, 1998
Trust Indenture Act Section Indenture Section
Section 310(a)(1) 609
(a)(2) 609
(a)(3) Not Applicable
(a)(4) Not Applicable
(a)(5) Not Applicable
(b) 608, 610
(c) Not Applicable
Section 311(a) 613
(b) 613
(c) Not Applicable
Section 312(a) 701, 702(a)
(b) 702(b)
(c) 702(c)
Section 313(a) 703(a)
(b) 703(a)
(c) 703(a)
(d) 703(b)
Section 314(a) 704, 1008
(b) Not Applicable
(c)(1) 102
(c)(2) 102
(c)(3) 102
(d) Not Applicable
(e) 102
(f) Not Applicable
Section 315(a) 601
(b) 602
(c) 601
(d) 601
(e) 514
Section 316(a) 101
(a)(1)(A) 502, 512
(a)(1)(B) 513
(a)(2) Not Applicable
(b) 508
(c) 104(c)
Section 317(a)(1) 503
(a)(2) 504
(b) 1003
Section 318(a) 107
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture
vii
<PAGE>
INDENTURE, dated as of February __, 1998, between IAT
Multimedia, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal
executive office at Geschaftshaus Wasserschloss, Aarestrasse 17, CH-5300
Vogelsang-Turgi, Switzerland, and The Bank of New York, a New York banking
corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the creation of an issue of
up to $11,500,000 aggregate principal amount of its 10% Convertible
Subordinated Notes due 2003 (herein called the "Notes") of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company
has duly authorized the execution and delivery of this Indenture.
WHEREAS, all things necessary to make the Notes, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as
the singular;
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have
the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP;
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(4) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision; and
(5) references to Sections or Articles mean Sections or
Articles of this Indenture.
"Act" when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Notes.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.
"Capital Lease Obligations" means, at the time any determination
thereof is to be made, the amount of liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" of any Person means the Common Stock or Preferred
Stock of such Person. Unless otherwise stated herein or the context otherwise
requires, "Capital Stock" means Capital Stock of the Company.
"Change of Control" means the occurrence of any of the following
events after the date of this Indenture: (i) any Person (including, without
limitation, any "person" within the meaning of Section 13(d) or 14(d) of the
Exchange Act, but excluding (a) the Company, (b) any Subsidiary, (c) any
employee benefit plan of the Company or any Subsidiary and (d) Vertical
Financial Holdings Establishment ("Vertical") or its Affiliates) becomes the
direct or indirect beneficial owner of shares of Capital Stock representing
greater than 50% of the combined voting power of all outstanding shares of
Capital Stock entitled to vote in the election of
2
<PAGE>
directors under ordinary circumstances, (ii) the Company consolidates with or
merges into any other Person and the outstanding Common Stock is changed or
exchanged as a result, (iii) the sale, conveyance, transfer or other
disposition of, in one transaction or a series of transactions, all or
substantially all of the assets of the Company or of the collective assets of
the Company and the Subsidiaries to any Person or related group of Persons,
(iv) at any time Vertical ceases to have the right to nominate two persons as
members of the management slate for election to the Board of Directors of the
Company or ceases to have the right to elect a Co-Chairman or the Chairman of
the Company or (v) the Company makes any distribution of cash, Property or
securities (other than regular quarterly dividends, Common Stock, Preferred
Stock which is substantially equivalent to the Common Stock or rights to
acquire Common Stock or Preferred Stock which is substantially equivalent to
the Common Stock) to holders of Common Stock, or the Company or any Subsidiary
purchases or otherwise acquires Common Stock, and the sum of the Fair Market
Value of such cash, Property or securities distributed or Common Stock
purchased on the date the same is made, plus the Fair Market Value, when made,
of all other cash, Property or securities so distributed and Common Stock so
purchased which have occurred during the 12-month period ending on such date,
in each case expressed as a percentage of the aggregate Current Market Price
of all Common Stock outstanding at the close of business on the last Trading
Day prior to the date of such distribution or purchase, exceeds 50%.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Stock" means all shares now or hereafter authorized of the
class of common stock, par value $.01 per share, of the Company currently
authorized and stock of any other class into which such shares may hereafter
have been changed.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by the Chairman of the Board, a Co-Chairman
of the Board, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary , of the Company
and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee in
New York, New York at which at any particular time its corporate trust
business shall be administered, which, on the date hereof, is located at 101
Barclay Street, Floor 21W, New York, New York 10286.
"Current Market Price" means, when used with respect to any security
as of any date, the last sale price, regular way, or, in case no such sale
takes place on such date, the average of the closing bid and asked prices,
regular way, of such security in either case as reported for
3
<PAGE>
consolidated transactions on the New York Stock Exchange or, if such security
is not listed or admitted to trading on the New York Stock Exchange, as
reported for consolidated transactions with respect to securities listed on
the principal national securities exchange on which such security is listed or
admitted to trading or, if such security is not listed or admitted to trading
on any national securities exchange, as reported on the Nasdaq National
Market, or, if such security is not listed or admitted to trading on the
Nasdaq National Market, as reported on the Nasdaq SmallCap Market, or if such
security is not listed or admitted to trading on any national securities
exchange or the Nasdaq National Market or the Nasdaq SmallCap Market, the
average of the high bid and low asked prices of such security in the
over-the-counter market as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System, the National Quotation Bureau, Inc.
or such other system then in use or, if such security is not quoted by any
such organization, the average of the closing bid and asked prices of such
security furnished by a New York Stock Exchange member firm selected by the
Company. If such security is not quoted by any such organization and no such
New York Stock Exchange member firm is able to provide such prices, the
Current Market Price of such security shall be the Fair Market Value thereof.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Delisted" means that the Common Stock of the Company has ceased to
be listed for trading on a National Exchange. "Delisting" has a correlative
meaning.
"Designated Senior Debt" means indebtedness under the lines of credit
with Swiss Bank Corporation and Volksbank Sottrum as well as stockholder loans
from Klaus-Dirk Sippel and any other Senior Indebtedness the principal amount
of which is $10.0 million or more and which has been designated as Designated
Senior Debt in an Officer's Certificate.
"Escrow Account" has the meaning ascribed to it in the Proceeds
Pledge and Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Fair Market Value" means, at any date as to any asset, Property or
right (including, without limitation, Capital Stock of any Person, evidences
of indebtedness or other securities, but excluding cash), the fair market
value of such item as determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution;
provided, however, that if there is a Current Market Price for such item on
such date, "Fair Market Value" means such Current Market Price (without giving
effect to the last sentence of the definition thereof).
4
<PAGE>
"GAAP" means, as of any date, generally accepted accounting
principles in the United States and does not include any interpretations or
regulations that have been proposed but that have not become effective.
"Guarantee Agreement" means the bank guaranty of the Company for the
benefit of Dr. Alfred Simmet dated November ____, 1997.
"Hedging Obligations" mean, with respect to any person, the
obligations of such person under (i) interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements and agreements and
arrangements designed to protect such Person against fluctuations in interest
rates and (ii) foreign exchange swap agreements, foreign exchange option
agreements, foreign exchange futures agreements and other agreements or
arrangements designed to protect such Person against fluctuations in foreign
currency exchange rates.
"Holder" means a Person in whose name a Note is registered in the
Note Register.
"Indebtedness" means with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP, as well
as all indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Person) and, to the
extent not otherwise included, the guarantee by such Person of any
indebtedness of any other Person. The amount of any Indebtedness outstanding
as of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness that does not require current payments of interest, and (ii) the
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Junior Securities" means (a) shares of any and all classes of
Capital Stock and (b) securities of the Company which are subordinated in
right of payment to Senior Indebtedness at the time of issuance or delivery of
such securities to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in Article Thirteen.
5
<PAGE>
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Maturity," when used with respect to any Note, means the date on
which the Principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration,
call for redemption or otherwise.
"National Exchange" means the Nasdaq National Market, the New York
Stock Exchange or the American Stock Exchange.
"Notes" has the meaning specified in the recitals of the Company.
"Obligations" means any Principal, interest, penalties, fees
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means a Chairman or Co-Chairman of the Board, a Vice
Chairman of the Board, the Chief Executive Officer, the President or a Vice
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, the Controller or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by a Chairman or
Co-Chairman of the Board, a Vice Chairman of the Board, the President or a
Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or
an Assistant Secretary, of the Company, and delivered to the Trustee and,
unless otherwise provided in this Indenture, containing the statements
provided for in Section 102; provided, however, that for purposes of Section
1008, "Officers' Certificate" means a certificate signed by the principal
executive officer, principal financial officer or principal accounting officer
of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company and who shall be reasonably acceptable to the Trustee,
containing the statements provided for in Section 102.
"Outstanding," when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
6
<PAGE>
(ii) Notes for whose payment or redemption money in the
necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company, any
Subsidiary or any Affiliate thereof) in trust, in accordance
with this Indenture, for the Holders of such Notes and the
Trustee or Paying Agent is not prohibited from paying such
money to the Holders thereof pursuant to the terms of this
Indenture; provided that, such Notes shall continue to be
Outstanding until the redemption date or maturity date; and
(iii) Notes which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture,
other than any such Notes in respect of which there shall
have been presented to the Trustee proof satisfactory to it
that such Notes are held by a bona fide purchaser in whose
hands such Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes which the Trustee knows to be so owned
shall be so disregarded. Notes so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such Notes and
that the pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
Principal of or interest on any Notes on behalf of the Company.
"Permitted Liens" means, without duplication, each of the following:
(i) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company or;
(ii) Liens on property existing at the time-of acquisition thereof by
the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition;
(iii) Liens existing on the date of this Indenture;
7
<PAGE>
(iv) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(v) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor;
(vi) Liens created pursuant to the Proceeds Pledge and Escrow
Agreement;
(vii) Liens incurred in the ordinary course of business of the
Company with respect to obligations that do not exceed [5.0 million] at any
one time outstanding and that (a) are not incurred in connection on with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company;
(viii) Liens securing the Notes;
(ix) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects which, in the aggregate, are not
material in amount, and which do not, in any case, materially detract from the
value of the property subject thereto (as such property is used by the
Company) or interfere with the ordinary conduct of the business of the
Company;
(xi) Liens arising by reason of any judgment, decree or order or any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(xii) any interest or title of a lessor under any Capital Lease
Obligation; and
(xiii) any extension, renewal or placement, in whole or in part, of
any Permitted Lien, provided that any such extension, renewal or replacement
shall be no more restrictive in any material respects that the Lien so
extended, renewed or replaced and shall not extend to any additional property
or assets.
"Person" means any person or entity of any nature whatsoever,
specifically including an individual, firm, company, corporation, limited
liability company, partnership, trust, or other entity.
8
<PAGE>
"Pledged Collateral" means the Collateral (as defined in the Proceeds
Pledge and Escrow Agreement) subject to the Proceeds Pledge and Escrow
Agreement.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same
debt as the mutilated, destroyed, lost or stolen Note.
"Preferred Stock" of any Person means the class or classes of equity,
ownership or participation interests (however designated) in such Person,
including, without limitation, stock, share, partnership and membership
interests, which are preferred as to the payment of dividends or distributions
by, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of, such Person (or equivalents thereof) over
interests of any other class of interests of such Person. Unless otherwise
stated herein or the context otherwise requires, "Preferred Stock" means
Preferred Stock of the Company.
"Principal" of a debt security means the principal of the security
plus the premium, if any, on the security. "Principal" shall include, with
respect to the Notes, the redemption price or repurchase price, if any,
payable thereon.
"Proceeds Pledge and Escrow Agreement" means the Proceeds Pledge and
Escrow Agreement, of even date with this Indenture, by and between the Company
and the Trustee governing the disbursement of funds from the Escrow Account.
"Property" of any Person means any and all types of real, personal,
tangible, intangible or mixed property owned by such Person, whether or not
included on the most recent consolidated balance sheet of such Person in
accordance with GAAP.
"Redemption Date" when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the date specified in Section 202 as the "Regular Record
Date."
"Responsible Officer," when used with respect to the Trustee, means
any vice president assistant vice president, assistant secretary, assistant
treasurer, any trust officer or assistant trust officer or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
9
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"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Senior Indebtedness" 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 the Company, 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 agreement
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;
(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 the Company 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.
"Significant Subsidiary" means each Subsidiary that would constitute
a "Significant Subsidiary" within the meaning of Rule 1-02 of Regulation S-X
of the Commission.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
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"Stated Maturity," when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the Principal of such Note or such installment of interest
is due and payable, whether at maturity, upon redemption, upon a Change of
Control or otherwise.
"Subsidiary" of a Person on any date means any other Person, a
majority of whose Capital Stock with voting power, under ordinary
circumstances, entitling holders of such Capital Stock to elect the board of
directors or other governing body of such other Person, is at such date,
directly or indirectly, owned by such Person and/or a Subsidiary or
Subsidiaries of such Person. Unless otherwise stated herein or the context
otherwise requires, "Subsidiary" means a Subsidiary of the Company.
"Trading Day" means (i) if the applicable security is listed or
admitted for trading on a national security exchange, a day on which such
exchange is open for business, (ii) if the applicable security is quoted on
the Nasdaq National Market, a day on which trades may be made thereon or (iii)
if the applicable security is not so listed, admitted for trading or quoted,
any Business Day.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force at the date as of which this instrument was executed; provided, however,
that in the event the Trust Indenture Act of 1939 is amended after such date
or the date any supplemental indenture is executed, "Trust Indenture Act"
means, to the extent required by any such amendment, the Trust Indenture Act
of 1939 as so amended.
"U.S. Government Obligations" means non-callable (i) direct
obligations (or certificates representing an ownership interest in such
obligations) of the United States for which its full faith and credit are
pledged and (ii) obligations of a Person controlled or supervised by, and
acting as an agency or instrumentality of, the United States, the payment of
which is unconditionally guaranteed as a full faith and credit obligation of
the United States.
"Vice President" when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
In addition, the following terms are defined in the Sections indicated:
Term Defined in Section
"Aggregate Consideration" 1204
"Approvable Shares" 1204
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"Change of Control Notice" 1005
"Change of Control Offer" 1005
"Change of Control Payment" 1005
"Change of Control Payment Date" 1005
"Code" 1004
"covenant defeasance" 1403
"Conversion Agent" 305
"Conversion Price" 1201
"Defaulted Interest" 307
"Defeasance" 1402
"Defeasance Date" 1404
"DTC" 1202
"Event of Default" 501
"Excess Issuance" 1204
"Nonpayment Default" 1302
"Note Register" 305
"Note Registrar" 305
"Payment Blockage Notice" 1302
"Payment Blockage Period" 1302
"Trigger Event" 1204
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the
Trustee to take any action under any provision of this Indenture, the Company
shall furnish to the Trustee such certificates and opinions as may be required
under the Trust Indenture Act and under this Indenture.
Each such certificate or opinion shall be given in the form
of an Officers' Certificate, if to be given by an officer of the Company, or
an Opinion of Counsel, if to be given by counsel, and shall comply with the
requirements of the Trust Indenture Act and any other requirements set forth
in this Indenture.
Every certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture (other than the
Officers' Certificate provided pursuant to Section 1008) shall include
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
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(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be
certified by, or covered in an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an officer of the Company may
be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion
or representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company
stating that the information with respect to such factual matters is in the
possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
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any purpose of this Indenture and (subject to Section 601) conclusive in favor
of the Trustee and the Company, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness to such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgements of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the
Trust Indenture Act, fix any day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote
on any action, authorized or permitted to be given or taken by Holders. If not
set by the Company prior to the first solicitation of a Holder made by any
Person in respect of any such action, or, in the case of any such vote, prior
to such vote, the record date for any such action or vote shall be the 30th
day (or, if later, the date of the most recent list of Holders required to be
provided pursuant to Section 701) prior to such first solicitation or vote, as
the case may be. With regard to any record date, only the Holders on such date
(or their duly designated proxies) shall be entitled to give or take, or vote
on, the relevant action.
(d) The ownership of Notes shall be proved by the Note
Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made
upon such Note.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trust Trustee
Administration, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing and
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mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office
specified in the first paragraph of this instrument or at
any other address previously furnished in writing to the
Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at such Holder's address as it appears in
the Note Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
In case by reason of the suspension of regular mail service
or by reason of any other cause it shall be impracticable to give such notice
by mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose
hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in this Indenture by
operation of Sections 310 to 317, inclusive, of the Trust Indenture Act, such
required provision shall control.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction
hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the
Company shall bind its successors and assigns, whether so expressed or not.
All covenants and agreements in this Indenture by the Trustee shall bind its
successors and assigns, whether so expressed or not.
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SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Indebtedness and the Holders of
Notes, any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 112. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes)
payment of interest or Principal need not be made on such date, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the Interest Payment Date, Redemption Date or at the Stated Maturity,
provided that no interest shall accrue for the period from and after such
Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
SECTION 114. Accounting Terms.
All accounting terms not specifically defined herein shall
be construed in accordance with GAAP, and all financial data required to be
delivered hereunder shall be prepared in accordance with GAAP, applied on a
consistent basis; except as otherwise specifically prescribed herein.
SECTION 115. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the
Trust Indenture Act, which are incorporated by reference in and made a part of
this Indenture. Such provisions shall apply to this Indenture at all times,
notwithstanding that at any time or from time to time this Indenture is not
required to be qualified under the Trust Indenture Act.
The following Trust Indenture Act terms used in this Indenture have the
following meanings:
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"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means
the Trustee; and
"obligor" on the Notes means the Company and any
successor obligor on the Notes.
All other terms used in this Indenture that are defined by the Trust Indenture
Act, defined by Trust Indenture Act reference to another statute or defined by
Commission rule under the Trust Indenture Act and not otherwise defined herein
have the meanings so assigned to them.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
The Notes, the Trustee's certificate of authentication and
the Conversion Notice shall be in substantially the forms set forth in this
Article, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes.
The definitive Notes shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner, all as determined by the
officers executing such Notes, as evidenced by their execution of such Notes.
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SECTION 202. Form of Face of Note.
IAT MULTIMEDIA, INC.
10% Convertible Subordinated Note due 2003
CUSIP No.: _________
No___. $__________________
IAT Multimedia, Inc., a corporation duly organized and
existing under the laws of the State of Delaware (herein called the "Company,"
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ________________,
or registered assigns, the principal sum of ______________ Dollars on
__________, 2003, and to pay interest thereon from _____________, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually in arrears on ______________ 1 and _______________
1 of each year, commencing ____________, or, if any such date is not a
Business Day on the next succeeding Business Day (each, an "Interest Payment
Date"), at the rate of 10% per annum, until the Principal hereof is paid. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on ___________ 15 and _______________15, whether or not a
Business Day, preceding the respective Interest Payment Date (the "Regular
Record Date"). Any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Notes may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture. Payment of the Principal of and
interest on this Note will be made at the office or agency of the Company
maintained for that purpose in New York, New York, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that at the option of
the Company payment of interest on any Interest Payment Date other than at
Maturity may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Note Register.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument
to be duly executed under its corporate seal.
IAT MULTIMEDIA, INC.
By:_________________________
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Attest:
By:________________________
Dated:
Authenticated by:
THE BANK OF NEW YORK, as Trustee
By:______________________________
Dated:
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SECTION 203. Form of Reverse of Note.
This Note is one of a duly authorized issue of Notes of the
Company designated as its 10% Convertible Subordinated Notes due 2003 (herein
called the "Notes"), limited in aggregate principal amount to $11,500,000,
issued and to be issued under an Indenture, dated as of _________________,
1998 (herein called the "Indenture"), between the Company and The Bank of New
York, as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of Senior Indebtedness and the Holders
of the Notes and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
Conversion. Subject to and upon compliance with the
provisions of the Indenture, the Holder of this Note is entitled, at his
option, at any time after ______________ [the first anniversary of the date of
issuance of the Notes] and prior to the Stated Maturity of the Outstanding
Notes on ________, 2003 (provided that, in case this Note or any portion
hereof shall be called for redemption prior to such date, such right shall
terminate with respect to this Note or portion hereof, as the case may be, so
called for redemption on the Business Day next preceding the Redemption Date),
to convert the principal amount of this Note (or any portion hereof which is
$1,000 or an integral multiple thereof) into shares of Common Stock. The
Conversion Price shall be subject to adjustment as provided in the Indenture.
In order to exercise the conversion privilege, the Holder shall surrender this
Note, together with the conversion notice hereon duly executed (unless such
Holder is DTC, in which case the customary procedures of DTC will apply), to
the Company at the designated office or agency of the Company in New York, New
York, accompanied (if so required by the Company) by instruments of transfer,
in form satisfactory to the Company and to the Trustee, duly executed by the
Holder or by his duly authorized attorney in writing. Except as provided in
the Indenture, no adjustment or payment is to be made on conversion for
interest accrued hereon or for dividends on shares of Common Stock issued on
conversion. The Company is not required to issue fractions of shares upon any
such conversion, but shall make adjustment therefor in cash as provided in the
Indenture. A Holder is not entitled to any rights of a holder of Common Stock
until such Holder has converted its Notes into Common Stock as provided in the
Indenture.
Optional Redemption by the Company. The Notes are subject to
redemption at any time on or after ____________, 2000, as a whole or in part,
at the election of the Company, upon not less than 30 nor more than 60 days'
notice, at the Redemption Prices (expressed as percentages of the principal
amount being redeemed) set forth below if the Redemption Date occurs during
the twelve-month period beginning ____________ of the years indicated:
For the 12 Months Redemption
after ______, Price
2000 105.00%
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2001 102.50%
2002 and thereafter 100.00%
together in the case of any such redemption with accrued interest to the
Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Notes, or
one or more Predecessor Notes, of record at the close of business on the
applicable Regular Record Dates referred to on the face hereof, all as
provided in the Indenture.
Mandatory Redemption. The Notes do not have the benefit of
any sinking fund obligation.
Repurchase at the Option of Holder. Upon a Change of
Control, the Company shall make an offer to purchase all the Outstanding Notes
at a purchase price equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon to the Change of Control Payment Date. Within the
periods specified in the Indenture, the Company shall mail a notice to each
Holder setting forth the procedures governing the offer to purchase as
required by the Indenture. A Holder may tender or refrain from tendering all
or any portion of such Holder's Notes, at such Holder's discretion, by
completing and signing the form entitled "Option of Holder to Elect
Repurchase" below and delivering such form, together with the Notes with
respect to which the repurchase right is being exercised, duly endorsed for
transfer to the Company, to the Trustee. Any partial tender of Notes must be
made in an integral multiple of $1,000.
In the event of redemption or repurchase by the Company of
this Note in part only, a new Note or Notes for the portion hereof not
redeemed or repurchased will be issued in the name of the Holder hereof upon
the cancellation hereof.
Discharge and Defeasance. The Indenture contains provisions
for defeasance of (a) the entire indebtedness of the Notes and (b) certain
restrictive covenants upon compliance by the Company with certain conditions
set forth therein.
Subordination. The indebtedness evidenced by the Notes is,
to the extent and in the manner provided in the Indenture, subordinate and
subject in right of payment to the prior payment in full of all Senior
Indebtedness, and this Note is issued subject to such provisions and each
Holder of this Note, by accepting the same, agrees to and shall be bound by
such provisions, and authorizes the Trustee on such Holder's behalf to take
such action as may be necessary or appropriate to effectuate the subordination
as provided in the Indenture and appoints the Trustee as such Holder's
attorney-in-fact for such purpose.
Default. If an Event of Default shall occur and be
continuing, the Principal of all the Notes may be declared due and payable in
the manner and with the effect provided in the Indenture.
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Modification. The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the Notes
under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in aggregate principal amount of the
Notes at the time Outstanding. Without the consent of any Holder, the Company
and the Trustee may amend or supplement the Indenture to (i) 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 Indenture;
(ii) add to the covenants of the Company for the benefit of the Holders, or
surrender any right or power herein conferred upon the Company; (iii) cure any
ambiguity, correct or supplement any provision herein which may be
inconsistent with any other provision therein, or to make any other provisions
with respect to matters or questions arising under the Indenture which shall
not be inconsistent with the provisions of the Indenture, provided such action
shall not adversely affect the interests of the Holders in any material
respect; or (iv) provide for uncertificated Notes in addition to or in lieu of
certificated Notes. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Notes at
the time Outstanding, on behalf of the Holders of all the Notes, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Note.
Transfer; Denominations; Exchange. As provided in the
Indenture and subject to certain limitations therein set forth, the transfer
of this Note is registrable in the Note Register, upon surrender of this Note
for registration of transfer at the designated office or agency of the Company
in New York, New York, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Notes of authorized
denominations and for the same aggregate principal amount will be issued to
the designated transferee or transferees. The Notes are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Notes are exchangeable for a like aggregate
principal amount of Notes of a different authorized denomination, as requested
by the Holder surrendering the same. No service charge shall be made for any
such registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Persons Deemed Owners. Prior to due presentment of this Note
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name this Note is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
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Definitions. All terms used in this Note which are defined
in the Indenture shall have the meanings assigned to them in the Indenture.
Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to:
IAT Multimedia, Inc.
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi
Switzerland
Attn: Chief Executive Officer
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Notes referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
as Trustee
By:
------------------------------------
Authorized Signatory
Dated:
------------------------------------
SECTION 205. Form of Conversion Notice.
To IAT Multimedia, Inc.
The undersigned owner of this Note hereby irrevocably
exercises the option to convert this Note, or portion hereof (which is $1,000
or an integral multiple thereof) below designated, into shares of Common
Stock, par value $.01 per share, of IAT Multimedia, Inc. in accordance with
the terms of the Indenture referred to in this Note, and directs that the
shares issuable and deliverable upon the conversion, together with any check
in payment for fractional shares and any Notes representing any unconverted
principal amount hereof, be issued and
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delivered to the registered holder hereof unless a different name has been
indicated below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
Dated
-------------------------
-------------------------------
Signature (exactly as your name
appears on the face of this Note)
Signature Guaranteed:
By:_______________________
This signature shall be guaranteed by an eligible guarantor institution (a
bank or a trust company having an office or correspondent in the United States
or a broker or dealer which is a member of a registered securities exchange or
the National Association of Securities Dealers, Inc.) with membership in an
approved signature guaranty medallion program pursuant to SEC Rule 17Ad- 15.
Fill in for registration of shares of Common Stock and Notes if to be issued
otherwise than to the registered holder.
----------------------------
Social Security or Other Taxpayer
Identifying Number
----------------------------
(Print Name)
----------------------------
(Print address, including zip code)
$---------------------------
Principal Amount to be Converted (in an integral multiple of
$1,000, if less than all):
SECTION 206. Form of Option of Holder to Elect Repurchase.
To elect to have this Note, or portion hereof (which is
$1,000 or an integral multiple thereof) repurchased by IAT Multimedia, Inc.
pursuant to Section 1005 of the Indenture in connection with a Change of
Control, state the amount you elect to have repurchased (if all, write "ALL"):
$----------.
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Dated
-------------------------
-------------------------------
Signature (exactly as your name
appears on the face of this Note)
Signature Guaranteed:
By:
----------------------------------
This signature shall be guaranteed by an eligible guarantor institution (a
bank or a trust company having an office or correspondent in the United States
or a broker or dealer which is a member of a registered securities exchange or
the National Association of Securities Dealers, Inc.) with membership in an
approved signature guaranty medallion program pursuant to SEC Rule 17Ad- 15.
SECTION 207. Form of Assignment by Holder.
(I) or (we) assign and transfer this Note to:
-------------------------------------
(Insert assignee's social security or
tax I.D. no.)
-------------------------------------
(Print or type assignee's name,
address and zip code)
and irrevocably appoint The Bank of New York agent to transfer this Note on
the Note Register. The agent may substitute another to act for him.
Dated
----------------- ---------------------------------------
Signature (exactly as your name appears
on the face of this Note)
Name:
Title:
Address:
Phone No.:
Signature Guaranteed:
By:
-------------------
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This signature shall be guaranteed by an eligible guarantor institution (a
bank or a trust company having an office or correspondent in the United States
or a broker or dealer which is a member of a registered securities exchange or
the National Association of Securities Dealers, Inc.) with membership in an
approved signature guaranty medallion program pursuant to SEC Rule 17 Ad- 15.
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is limited to $11,500,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305,
306, 907 or 1108.
The Notes shall be known and designated as the "10%
Convertible Subordinated Notes due 2003" of the Company. Their Stated Maturity
shall be ____________, 2003, and they shall bear interest at the rate of 10%
per annum from ____________, 1997 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
payable semi-annually in arrears on _____________ and __________________ of
each year, commencing _______________, 199_, until the principal thereof is
paid or made available for payment.
Notwithstanding the foregoing, in the event the Common Stock
of the Company is Delisted, effective as of the effective date of the
Delisting, the interest rate applicable to the Principal amount of the Notes
as set forth on the face of the Notes and in the Indenture shall be increased
from 10% per annum to 15% per annum and the unpaid Principal amount of the
Notes shall bear interest at a rate of 15% per annum from the effective date
of such Delisting until the earlier of (i) the relisting of the Common Stock
on a National Exchange or (ii) such Principal is paid or made available for
payment as set forth in this Section 301. In the event the interest rate
applicable to the Principal amount of the Notes is increased as set forth in
this Section 301, (i) the first 10% of interest payable on the Principal
amount of the Notes on each Interest Payment Date shall continue to be payable
and paid in cash and (ii) the additional 5% of interest payable on the
Principal amount of the Notes on each Interest Payment Date (the "Excess
Interest Amount"), at the option of the Company, shall be payable and paid (x)
in cash, (y) by issuing that number of fully paid and nonassessable shares of
Common Stock which have been registered under the Securities Act having in the
aggregate a Fair Market Value on such Interest Payment Date equal to the
Excess Interest Amount due on such Interest Payment Date or (z) in any
combination thereof. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issued as payment of
the Excess Interest Amount to any Holder. If any fractional share of Common
Stock would be issuable upon the payment of any
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Excess Interest Amount to any Holder, the Company shall make an adjustment
therefor in cash at the Fair Market Value of the Common Stock on the such
Interest Payment Date.
The Principal of and interest on the Notes shall be payable
at the office or agency of the Company in New York, New York, maintained for
such purpose and at any other office or agency maintained by the Company for
such purpose; provided, however, that at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Note Register.
The Company shall be required to offer to repurchase Notes
following the occurrence of a Change of Control as provided in Article Ten.
The Notes shall be redeemable at the option of the Company
as provided in Article Eleven.
The Notes shall be convertible into Common Stock as provided
in Article Twelve.
The Notes shall be subordinated in right of payment to
Senior Indebtedness as provided in Article Thirteen.
The Notes shall not have the benefit of any sinking fund
obligations.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiples of
$1,000.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman of the Board, a Co-Chairmen of the Board, its President or one of its
Vice Presidents, under its corporate seal reproduced thereon attested by its
Treasurer or one of its Assistant Treasurers, or its Secretary or one of its
Assistant Secretaries. The signature of any of these officers and the
corporate seal of the Trustee on the Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such Notes or
did not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes executed by the
Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Notes
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and the Trustee in accordance with such Company Order shall authenticate and
make available for delivery such Notes as in this Indenture provided and not
otherwise.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Note a certificate of authentication substantially in the form provided
for herein executed by the Trustee by manual signature, and such certificate
upon any Note shall be conclusive evidence, and the only evidence, that such
Note has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Notes in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Notes may
determine, as evidenced by their execution of such Notes. If temporary Notes
are issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the
temporary Notes at any office or agency of the Company designated pursuant to
Section 1002, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Notes, the Company shall execute and the Trustee
shall authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and
in any other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration of Notes and of transfers of Notes. The Trustee is hereby
appointed "Note Registrar" for the purpose of registering Notes and transfers
of Notes as herein provided, the "Conversion Agent" for the purpose of
converting the Notes as provided herein and the "Paying Agent" for the purpose
of paying Principal of and interest on the Notes on behalf of the Company as
provided herein.
Upon surrender for registration of transfer of any Note at
an office or agency of the Company designated pursuant to Section 1002 for
such purpose, the Company shall execute, and the Trustee shall authenticate
and make available for delivery, in the name of the designated
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transferee or transferees, one or more new Notes of any authorized
denominations, of a like aggregate principal amount.
Subject to Section 302, at the option of the Holder, Notes
may be exchanged for other Notes of any authorized denominations, of a like
aggregate principal amount, upon surrender of the Notes to be exchanged at
such office or agency. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and make available
for delivery, the Notes which the Holder making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange. Every Note
presented or surrendered for registration of transfer or for exchange shall be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Note Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient from a Holder requesting such transfer or exchange to cover any tax
or other government charge that may be imposed in connection with any
registration of transfer or exchange of Notes, other than exchanges pursuant
to Section 304, 907 or 1108 not involving any transfer.
The Company shall not be required to make, and the Registrar
need not register, transfers or exchanges of (a) Notes selected for redemption
during the 15-day (or shorter) period after the Trustee is notified of a
redemption and preceding the mailing of a notice of such redemption to the
Holders in accordance with Article Eleven (except, in the case of Notes to be
redeemed in part, the portion thereof not to be redeemed) or (b) any Notes
with respect to which a repurchase election has been tendered and not
withdrawn by the Holder thereof in accordance with Section 1005 (except, in
the case of Notes tendered for purchase in part, the portion thereof not to be
purchased).
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
If any mutilated Note is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and make available
for delivery in exchange therefor a new Note of like tenor and principal
amount and bearing a number not contemporaneously Outstanding.
If there shall be delivered to the Company and the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any
Note and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice of the Company or the Trustee that such Note has been acquired by a
bona
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fide purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and make available for delivery, in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount
and bearing a number not contemporaneously Outstanding.
In case any such mutilated, destroyed, lost or stolen Note
has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of
any destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionately with any and
all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Note (or one or more Predecessor Notes) is
registered at the close of business on the Regular Record Date for such
interest.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Notes
(or their respective Predecessor Notes) are registered at
the close of business on a "Special Record Date" for the
payment of such Defaulted Interest, which shall be fixed in
the following manner. At least 20 days prior to the proposed
payment date, the Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be
paid on each Note and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee
an amount of money equal to the aggregate amount proposed to
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be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to
the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at
the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at his address as it appears in the
Note Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid
to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business
on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the
Notes may be listed, and upon such notice as may be required
by such exchange, if, after written notice given by the
Company to the Trustee of the proposed payment pursuant to
this Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
In the case of any Note which is converted after any Regular
Record Date and on or prior to the next succeeding Interest Payment Date
(other than any Note whose Maturity is prior to such Interest Payment Date),
interest whose Stated Maturity is on such Interest Payment Date shall be
payable on such Interest Payment Date notwithstanding such conversion, and
such interest (whether or not punctually paid or duly provided for) shall be
paid to the Person in whose name that Note (or one or more Predecessor Notes)
is registered at the close of business on such Regular Record Date.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Note is registered as the owner of
such Note for the purpose of receiving payment of Principal of
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and (subject to Section 307) interest on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and neither the Company, the
Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 309. Cancellation.
All Notes surrendered for payment, redemption, registration
of transfer or exchange, conversion or repurchase shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee
for cancellation any Notes previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly cancelled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of as directed by a Company Order,
provided that in no event shall the Trustee be required to destroy such
cancelled Notes.
SECTION 310. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except
as to any surviving rights of registration of transfer or exchange of Notes
herein expressly provided for), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) all Notes theretofore authenticated and
delivered (other than (i) Notes which have been destroyed,
lost or stolen and which have been replaced or paid as
provided in Section 306 and (ii) Notes for whose payment
money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for
cancellation;
(2) the Company has paid or caused to be paid all
other sums payable hereunder by the Company; and
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(3) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and the
obligations of the Trustee to any Authenticating Agent under Section 614 shall
survive.
SECTION 402. Release of Paying Agent.
In connection with the satisfaction and discharge of this
Indenture all moneys then held by any Paying Agent under the provisions of
this Indenture shall, upon written demand of the Company, be paid to the
Trustee and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of
the following events (whatever the reasons for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon
any Note when it becomes due and payable, and continuance of
such default for a period of ten Business Days, whether or
not such payment is prohibited by the subordination
provisions of this Indenture; or
(2) default in the payment of the Principal of any
Note at its Stated Maturity, whether or not such payment is
prohibited by the subordination provisions of this
Indenture; or
(3) failure to provide timely notice of a Change
of Control in accordance with the provisions of Article Ten;
or
(4) default in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other
than a covenant or warranty a default in whose performance
or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a
period of 30 days after there has been given to the Company
by the Trustee or to the Company and the Trustee by
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the Holders of at least 25% in principal amount of the
Outstanding Notes a written notice specifying such default
or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or
other evidence of indebtedness for money borrowed by the
Company or any of its Subsidiaries or under any mortgage,
indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness
for money borrowed by the Company or any of its Subsidiaries
whether such indebtedness now exists or shall hereafter be
created, which default shall have resulted in such
indebtedness in an aggregate amount exceeding $10,000,000
becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable or
such obligations being accelerated, without such
acceleration having been rescinded or annulled within a
period of 30 days after there shall have been given, by
first class mail, to the Company by the Trustee (which
notice will be delivered by the Trustee promptly after a
Responsible Officer of the Trustee obtains actual knowledge
of any such default) or to the Company and the Trustee by
the Holders of at least 25% in principal amount of the
Outstanding Notes a written notice specifying such default
and requiring the Company to cause such acceleration to be
rescinded or annulled and stating that such notice is a
"Notice of Default" hereunder; or
(6) the entry of a decree or order by a court
having jurisdiction in the premises adjudging the Company or
any of its Significant Subsidiaries a bankrupt or insolvent,
or the commencement of any bankruptcy, reorganization, debt
arrangement or other case or proceeding under any bankruptcy
or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Company or any
Significant Subsidiary, and, if such case or proceeding is
not commenced by the Company or any Significant Subsidiary
or converted to a voluntary case, such case or proceeding
shall be consented to or acquiesced in by the Company or
such Significant Subsidiary or shall result in the entry of
an order for relief or shall remain for 60 days undismissed;
or
(7) the Company or any Significant Subsidiary
shall apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator,
liquidator, custodian or other similar official for the
Company or any Significant Subsidiary or any property of any
thereof, or, in the absence of such application, shall
consent to, acquiesce in or permit or suffer to exist the
appointment of a trustee, receiver, sequestrator, liquidator
or other custodian for the Company or any Significant
Subsidiary or for any substantial part of the property of
any thereof, and such trustee, receiver, sequestrator,
liquidator, custodian or other similar official shall not be
discharged within 30 days; or the Company or any Significant
Subsidiary shall make a general assignment for the benefit
of creditors or admit in
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writing its inability to pay its debts generally as they
become due, or shall take corporate action in furtherance of
any of the foregoing; or
(8) the entry of a judgment or order by a court
having jurisdiction in the premises adjudging the Company or
any of its Subsidiaries liable for the payment of money of
at least $10,000,000 and such judgment or order is not
vacated, discharged, stayed or bonded pending appeal within
30 days thereof.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default
specified in clauses (6) and (7) of Section 501) occurs and is continuing,
then and in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Notes may declare the Principal of all the
Notes, and the interest accrued thereon, to be due and payable immediately, by
a notice in writing to the Company (and to the Trustee, if given by Holders).
Upon any such declaration such Principal shall become immediately due and
payable. If an Event of Default specified in clause (6) or (7) of Section 501
occurs, such amount shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration has
been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in principal amount of the Outstanding Notes, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on all
Notes,
(B) the Principal of any Notes which have become
due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest at
the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
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(2) all Events of Default, other than the non-payment of the
Principal of Notes which have become due solely by such
declaration of acceleration, have been cured and waived as
provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee.
The Company covenants that if
(1) default is made in the payment of any
installment of interest on any Note when such interest
becomes due and payable and such default continues for a
period of ten (10) Business Days, or
(2) default is made in the payment of the
Principal of any Note at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of
the Holders of such Notes, the whole amount then due and payable on such Notes
for Principal and interest, with interest upon the overdue Principal and, to
the extent that payment of such interest shall be legally enforceable, upon
overdue installments of interest, at the rate borne by the Notes; and, in
addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor upon
the Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the Principal of the Notes
shall
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then be due and payable as therein expressed or by declaration or otherwise
and irrespective of whether the Trustee shall have made any demand on the
Company for the payment of overdue Principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount
of Principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed
in such judicial proceeding, and
(ii) to collect and receive any moneys or other
Property payable or deliverable on any such claims and to
distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator, custodian or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay to the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Notes or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. Application of Money Collected.
Subject to Article Thirteen, any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution of
such money on account of Principal or interest, upon presentation of
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the Notes and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the
Trustee under Section 607; and
SECOND: To the payment of all amounts due the
holders of Senior Indebtedness to the extent required by
Article Thirteen; and
THIRD: To the payment of the amounts then due and
unpaid for Principal of and interest on the Notes in respect
of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Notes
for Principal and interest, respectively.
SECTION 507. Limitation on Suits.
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written
notice to the Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal
amount of the Outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect
of such Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to
institute any such proceeding; and
(5) no direction inconsistent with such written
request has been given to the Trustee during such 60-day
period by the Holders of a majority in principal amount of
the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or to seek to obtain priority or preference
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over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal
and Interest And to Convert.
Notwithstanding any other provision in this Indenture, but
subject to Article Thirteen, the Holder of any Note shall have the right to
receive payment of the Principal of and (subject to Section 307) interest on
such Note on the respective Stated Maturities expressed in such Note (or, in
the case of redemption, on the Redemption Date), to require the Company to
repurchase such Note pursuant to Article Ten and to convert such Note in
accordance with Article Twelve and to institute suit for the enforcement of
any such payment and such rights shall not be impaired without the consent of
such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Indenture and such proceeding has
been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case,
subject to any determination in such proceeding, the Company, the Trustee and
the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
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SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Notes shall 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 on the Trustee, provided that
(1) such direction shall not be in conflict with
any rule of law or with this Indenture, and
(2) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such
direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount
of the Outstanding Notes may on behalf of the Holders of all the Notes waive
any past default hereunder and its consequences, except a default
(1) in the payment of the Principal of or interest
on any Note, or
(2) in respect of a covenant or provision hereof
which under Article Nine cannot be modified or amended
without the consent of the Holder of each Outstanding Note
affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a trustee, a court in its discretion may require the filing
by any party litigant in the suit of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 514 does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 508, or a suit by Holders of more than
10% in aggregate principal amount of the then outstanding Notes or any suit
for the enforcement of the right to convert any Note in accordance with
Article Twelve.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or
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advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power
as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) If an Event of Default has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties
that are specifically set forth in this Indenture or the
Trust Indenture Act and no others; and
(ii) in the absence of gross negligence, willful
misconduct or bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture, but the Trustee need not verify the contents
thereof.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or
its own willful misconduct, except that:
(i) this Section 601(c) does not limit the effect
of Section 601(b);
(ii) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer,
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to
Section 512.
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(iv) no provision of this Indenture shall require
the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to
it.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to the provisions of the
Trust Indenture Act and Sections 601(a), 601(b), 601(c) and
601(e).
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default
hereunder as and to the extent provided by the Trust Indenture Act. For the
purpose of this Section, the term "default" means any event which is, or after
notice or lapse of time or both would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Except as otherwise provided in Section 601:
(a) The Trustee may conclusively rely on any
document believed by it to be genuine and to have been
signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in the document,
but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters to the
extent reasonably deemed necessary by it.
(b) Whenever in the administration of this
Indenture the Trustee shall deem it desirable that a matter
be proved or established prior to taking, suffering or
omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, subject to
the provisions of Section 601(b)(ii), rely on an Officers'
Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any actions it takes or omits to
take in good faith (in the absence of gross negligence or
willful misconduct) in reliance on such Officers'
Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and
attorneys and shall not be responsible for the willful
misconduct or gross negligence of any agents and attorneys
appointed with due care.
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(d) Subject to the provisions of Section 601(c),
the Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be
authorized or within its rights or powers conferred by this
Indenture.
(e) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders
pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable indemnity against the
costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction.
(f) Any request or direction of the Company
mentioned herein shall be sufficiently evidenced by a
Company Request or Company Order and any resolution of the
Board of Directors may be sufficiently evidenced by a Board
Resolution;
(g) The Trustee may consult with counsel of its
selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance
thereon;
(h) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney at the
sole cost of the Company and shall incur no liability or
additional liability of any kind by reason of such inquiry
or investigation;
(i) The Trustee shall not be deemed to have notice
of any Default or Event of Default unless a Responsible
Officer of the Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust
Office of the Trustee, and such notice references the
Securities and this Indenture.
SECTION 604. Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no
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responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Notes. The Trustee
shall not be accountable for the use or application by the Company of Notes or
the proceeds thereof.
SECTION 605. May Hold Notes.
The Trustee, any Authenticating Agent, any Paying Agent, any
Note Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Notes and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent, Note
Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time
reasonable compensation as the Company and the Trustee shall
from time to time agree in writing for all services rendered
by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein,
to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture
(including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to
its negligence or bad faith; and
(3) to indemnify each of the Trustee or any
predecessor Trustee and their agents for, and to hold them
harmless against, any loss, damage, claim, liability or
expense including taxes (other than (i) taxes based upon,
secured by, or determined by the income of the Trustee and
(ii) franchise taxes) incurred without negligence or willful
misconduct on its part, arising out of or in connection with
the acceptance or administration of this trust, including
the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance
of any of its powers or duties hereunder.
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As security for the performance of the obligations of the Company under this
Section the Trustee shall have a lien prior to the Notes upon all property and
funds held or collected by the Trustee as such, except funds held in trust for
the payment of Principal of or interest on Notes. When the Trustee incurs
expenses or renders services in connection with an Event of Default specified
in Section 501(6) or Section 501(7), the expenses (including the reasonable
charges and expenses of its counsel) and the compensation for the services are
intended to constitute expenses of administration under any applicable Federal
or state bankruptcy, insolvency or other similar law. The Provisions of this
Section 607 shall survive termination of this Indenture.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest,
within the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall
be a Person that is eligible pursuant to the Trust Indenture Act to act as
such and has a combined capital and surplus of at least $100,000,000 and
subject to supervision or examination by federal or state authority. If such
Person publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter
specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and
no appointment of a successor Trustee pursuant to this
Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving
written notice thereof to the Company. If an instrument of
acceptance by a successor Trustee shall not have been
delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act
of the Holders of a majority in principal amount of the
Outstanding Notes, delivered to the Trustee and to the
Company.
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(d) If at any time:
(1) the Trustee shall fail to comply with Section
608 after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at
least six months, or
(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written request
therefor by the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver
of the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any
such case, (i) the Company by a Board Resolution may remove
the Trustee, or (ii) subject to Section 514, any Holder may,
on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or
become incapable of acting, or if a vacancy shall occur in
the office of Trustee for any cause, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor
Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Notes
delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the
Company. If no successor Trustee shall have been so
appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder
may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each
resignation and each removal of the Trustee and each
appointment of a successor Trustee by mailing written notice
of such event by first-class mail, postage prepaid, to all
Holders as their names and addresses appear in the Note
Register. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust
Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment,
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and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all Property and money held by such retiring
Trustee hereunder, subject nevertheless to its lien, if any, provided for in
Section 607. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any document or
instrument or any further act on the part of any of the parties hereto. In
case any Notes shall have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or consolidation
to such authenticating Trustee may adopt such authentication and deliver the
Notes so authenticated with the same effect as if such successor Trustee had
itself authenticated such Notes.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Notes), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
At any time when any of the Notes remain Outstanding the
Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate Notes issued upon
exchange, registration of transfer or partial redemption thereof or pursuant
to Section 306, and Notes so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Notes by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed
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to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized
and doing business under the laws of the United States of America, any state
thereof or the District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by federal or state
authority. If such Authenticating Agent publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section. Any corporation into which an Authenticating
Agent may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
such Authenticating Agent shall be a party, or any corporation succeeding to
the corporate agency or corporate trust business of an Authenticating Agent,
shall continue to be an Authenticating Agent, provided such corporation shall
be otherwise eligible under this Section, without the execution or filing of
any paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any
time such Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first-class mail, postage prepaid, to
all Holders as their names and addresses appear in the Note Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent
herein. No successor Authenticating Agent shall be appointed unless eligible
under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the
Notes may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
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This is one of the Notes described in the within-mentioned
Indenture.
---------------------------------,
As Trustee
By
------------------------------
As Authenticating Agent
By
------------------------------
Authorized Officer
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ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the
Trustee
(a) Semi-annually, not more than 5 days after each
Regular Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of, and the
principal amount of the Notes held by, the Holders as of
such Regular Record Date, and
(b) at such other times as the Trustee may request
in writing, within 30 days after the receipt by the Company
of any such request, a list of similar form and content as
of a date not more than 15 days prior to the time such list
is furnished;
excluding from any such list names and addresses received by the Trustee in
its capacity as Note Registrar.
SECTION 702. Preservation of Information; Communications to
Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Holders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as
"applicants") apply in writing to the Trustee and such application states that
the applicants desire to communicate with other Holders with respect to their
rights under this Indenture or under the Notes and is accompanied by a copy of
the form of proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five business days after the receipt
of such application, at its election, either
(i) afford such applicants access to the
information preserved at the time by the Trustee in
accordance with Section 702(a), or
(ii) inform such applicants as to the approximate
number of Holders whose names and addresses appear in the
information preserved at the time by the Trustee in
accordance with Section 702(a), and as to the approximate
cost of mailing to such Holders the form of proxy or other
communication, if any, specified in such application.
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If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 702(a) a copy of the
form of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable
expenses of mailing, unless within five days after such tender the Trustee
shall mail to such applicants and file with the Commission, together with a
copy of the material to be mailed, a written statement to the effect that, in
the opinion of the Trustee, such mailing would be contrary to the best
interest of the Holders or would be in violation of applicable law. Such
written statement shall specify the basis of such opinion. If the Commission,
after opportunity for a hearing upon the objections specified in the written
statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such material to all such
Holders with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(c) Every Holder of Notes, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with Section 702(b), regardless of the source from which
such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
Section 702(b).
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to all Holders such reports
concerning the Trustee and its actions under this Indenture as may be required
pursuant to Section 313 of the Trust Indenture Act at the times and in the
manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Notes are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Notes are listed on any stock
exchange.
SECTION 704. Reports by Company.
(a) The Company shall file with the Trustee copies of all
reports and other information and documents that the Company is required to
file with the Commission pursuant to the Exchange Act. Each such report or
other information or document shall be filed with the Trustee within 15 days
after filing of such report or other information or document with the
Commission. Delivery of such reports, information and documents to the Trustee
is for
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informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates). The Company will mail
or cause to be mailed to all Holders copies of all of (i) its annual reports
to stockholders and (ii) quarterly reports to stockholders which are mailed to
its institutional stockholders.
(b) If the Company is at any time no longer subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will prepare (i) for the first three quarters of each fiscal year of the
Company, quarterly financial statements substantially equivalent to the
financial statements required to be included in a report on Form 10-Q under
the Exchange Act, and (ii) annually, complete audited consolidated financial
statements, including, but not limited to, a balance sheet, a statement of
operations, a statement of stockholders' equity and all appropriate notes. All
such financial statements will be prepared in accordance with GAAP, except for
changes with which the Company's independent accountants concur and except
that quarterly financial statements may be subject to year-end adjustments.
The Company will file or cause to be filed with the Trustee and will mail or
cause to be mailed to the Holders a copy of such financial statements within
50 days after the end of each of the first three quarters of each fiscal year
of the Company and within 95 days after the close of each fiscal year of the
Company, respectively. Notwithstanding the foregoing, if the Company is no
longer subject to such reporting requirements by reason of the acquisition of
Capital Stock by, or merger or consolidation of the Company with, a Person
which is subject to such reporting requirements or a Subsidiary of such a
Person and such Person has unconditionally and irrevocably guaranteed payment
in full when due of all amounts payable with respect to the Notes, then the
Company need not prepare, file or mail the financial statements described in
this Section 704(b); provided, however, that such Person complies with Section
704(a) as if references therein to the Company were references to such Person.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any
other corporation or convey or transfer or lease its properties and assets
substantially as an entirety to any Person, without the consent of Holders of
the majority in aggregate principal amount of the Outstanding Notes, unless:
(1) the corporation formed by such consolidation or into
which the Company is merged or the Person which acquires by
conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety shall be
a corporation organized and existing under the laws of the
United States of America, any state thereof or the District
of Columbia and shall expressly assume,
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by an indenture supplemental hereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee, the due
and punctual payment of the Principal of and interest on all
the Notes and the performance of every covenant of this
Indenture on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse
of time or both, would become an Event of Default, shall
have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Notes and this Indenture (as supplemented by any such
supplemental indenture) will be valid and enforceable
obligations of the Company or such successor; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease
and such supplemental indenture comply with this Article and
that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 802. Successor Corporation Substituted.
Upon any consolidation or merger or any conveyance, transfer
or lease of the properties and assets of the Company substantially as an
entirety in accordance with Section 801, the successor corporation formed by
such consolidation or into which the Company is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor corporation had been named
as the Company herein, and thereafter, except in the case of a lease, the
predecessor corporation shall be relieved of all obligations and covenants
under this Indenture and the Notes.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures without Consent of Holders.
Without the consent of any Holder, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time
to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) 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
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(2) 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;
(3) 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; or
(4) to provide for uncertificated Notes in addition to or in
lieu of certificated Notes;
provided, however, that, in each case, the Company has delivered to the
Trustee an Officers' Certificate stating that such amendment complies with the
provisions of this Section 901 and an Opinion of Counsel stating that adoption
of such amendment does not conflict with the provisions of this Section 901.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority
in principal amount of the Outstanding Notes, by an Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby:
(1) 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, or
change the place of payment where, or the coin or currency
in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption
Date or, in the case of an offer to purchase Notes by the
Company pursuant to Article Ten which has been made, on or
after the applicable Repayment Date), or modify the
provisions of this Indenture with respect to the
subordination of the Notes in a manner adverse to the
Holders, or
(2) reduce the percentage in principal amount of
the Outstanding Notes, the consent of whose Holders is
required for any such supplemental indenture, or the consent
of whose Holders is required for any waiver (of compliance
with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in
this Indenture, or
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(3) modify any of the provisions of this Section,
or Section 513, except to increase any such percentage or to
provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby, or
(4) following the making of an offer to purchase
Notes by the Company pursuant to Article Ten, modify the
provisions of this Indenture with respect to the Company's
obligation to purchase such Notes in a manner adverse to
such Holder, or
(5) modify the provisions of this Indenture with
respect to a Holder's right to convert the Notes in a manner
adverse to such Holder.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed supplemental indenture, but it shall be
sufficient if such Act shall approve the substance thereof.
After an amendment or waiver under this Section 902 becomes
effective, the Company shall mail to Holders a notice briefly describing the
amendment or waiver. Any failure of the Company to mail such notices, or any
defect therein, shall not, however, in any way impair or affect the validity
of any such amendment or waiver.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Notes theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
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SECTION 905. Revocation and Effect of Consents.
Until an amendment, supplemental indenture or waiver becomes
effective, a consent to it by a Holder of a Note is a continuing consent by
such Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as such consenting Holder's Note, even if notation of
the consent is not made on any Note. However, prior to becoming effective, any
such Holder or subsequent Holder may revoke the consent as to its Notes or a
portion thereof if the Trustee receives written notice of revocation before
the consent of Holders of the requisite aggregate principal amount of Notes
then outstanding has been obtained and not revoked.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such amendment or waiver or to revoke
any consent previously given, whether or not such Persons continue to be
Holders after such record date. No consent shall be valid or effective for
more than 90 days after such record date unless consents from Holders of the
principal amount of Notes required hereunder for such amendment or waiver to
be effective shall have also been given and not revoked within such 90-day
period. After an amendment or waiver becomes effective it shall bind every
Holder; provided, however, that in the case of any amendment referred to in
clauses (1) through (5) of Section 902 such amendment shall bind each Holder
of a Note who has consented to it and every subsequent Holder of a Note that
evidences the same debt as the consenting Holder's Note.
SECTION 906. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this
Article shall conform to the requirements of the Trust Indenture Act as then
in effect.
SECTION 907. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Board of Directors, to any such supplemental indenture may be prepared
and executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 908. Subordination Unimpaired.
No supplemental indenture entered into under this Article
shall directly or indirectly modify the provisions of Article Thirteen or the
definition of Senior Indebtedness in
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any manner which might alter or impair the subordination of the Notes with
respect to Senior Indebtedness then outstanding unless each holder of such
Senior Indebtedness has consented thereto in writing.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal and Interest.
The Company will duly and punctually pay the Principal of
and interest on the Notes in accordance with the terms of the Notes and this
Indenture. Principal and interest shall be considered paid on the date due if
the Paying Agent (other than the Company or a Subsidiary) prior to 10:00 a.m.,
New York City time, on that date holds money in immediately available funds
and in accordance with this Indenture designated for and sufficient to pay in
cash all Principal and interest then due and the Paying Agent is not
prohibited from paying such money to Holders on that date pursuant to the
terms of this Indenture.
To the extent lawful, the Company shall pay interest
(including post-petition interest in any proceeding under Title 11 of the U.S.
Code or any similar federal, foreign or state law for the relief of debtors)
on (i) overdue Principal and repurchase price, if any, of the Notes at the
rate borne by the Notes and (ii) overdue installments of interest at the same
rate.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in New York, New York an office or
agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices
and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside New York, New York) where the Notes
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in New York, New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
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SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company or any Affiliate of the Company shall at any
time act as its own Paying Agent, it will, on or before each due date of the
Principal of or interest on any of the Notes, segregate and hold in trust for
the benefit of the Persons entitled thereto a sum sufficient to pay the
Principal or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents,
it will, on or before each due date of the Principal of or interest on any
Notes, deposit with a Paying Agent a sum sufficient to pay the Principal or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such Principal or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act. The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of
the Principal of or interest on Notes in trust for the
benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as
herein provided;
(2) give the Trustee notice of any default by the
Company (or any other obligor upon the Notes) in the making
of any payment of Principal or interest; and
(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by such Paying
Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose, pay, or by Company Order
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent (if other than the Company, a Subsidiary or an Affiliate thereof)
shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the Principal of or
interest on any Note and remaining unclaimed for two years after such
Principal or interest has become due and payable shall be paid to the Company
on Company Request, or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor,
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look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money, and all liability of
the Company as trustee thereof, shall thereupon cease; provided, however, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in New York, New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and its Subsidiaries, and shall comply with all statutes, rules,
regulations and orders of and restrictions imposed by governmental and
administrative authorities and agencies applicable to the Company and its
Subsidiaries; provided, however, that the foregoing shall not obligate the
Company to preserve any such right or franchise if the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries and that the loss thereof is not
disadvantageous in any material respect to any Holder.
SECTION 1005. Change of Control.
(a) In the event of a Change of Control, the Company shall
give or cause to be given written notice in the form of an Officers'
Certificate (the "Change of Control Notice") to all Holders, the Trustee and
the Paying Agent of such event and shall make an offer to purchase (as the
same may be extended in accordance with applicable law, the "Change of Control
Offer") all then Outstanding Notes at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the
Change of Control Payment Date. The Change of Control Notice shall be given in
accordance with Section 1105 and the Change of Control Offer shall be made not
more than 30 days following the date of the Change of Control (the "Change of
Control Date"), unless the Company has previously given a notice of optional
redemption by the Company of all of the Notes in accordance with this
Indenture. The Change of Control Notice shall set forth:
(i) that a Change of Control has occurred and,
unless the Notes are subject to a notice of optional
redemption described above, that the Company is offering to
repurchase all of the Outstanding Notes;
(ii) a brief description of such Change of Control
and, to the extent readily available to the Company,
information with respect to pro forma consolidated income,
cash flow and capitalization of the Company after giving
effect to such Change of Control and such other financial
information relating to the Company
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with respect to such Change of Control as the Company may,
in its sole discretion, deem relevant to a decision whether
to convert or hold Notes or tender Notes in connection with
such Change of Control Offer;
(iii) the repurchase price (the "Change of Control
Payment");
(iv) the expiration date of the Change of Control
Offer, which shall be no earlier than 30 days nor later than
60 days from the date the Change of Control Notice is
mailed;
(v) the date such purchase shall be effected,
which shall be no later than 30 days after the expiration
date of the Change of Control Offer (the "Change of Control
Payment Date");
(vi) that, unless the Company defaults in the
payment of the Change of Control Payment, all Notes or
portions thereof accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest on and after
the Change of Control Payment Date;
(vii) the Conversion Price;
(viii) the name and address of the Paying Agent
and the Conversion Agent;
(ix) that Notes (duly endorsed for transfer to the
Company), together with the form of "Option of Holder to
Elect Repurchase" thereon completed and signed, must be
surrendered to the Paying Agent prior to the expiration of
the Change of Control Offer to collect the Change of Control
Payment; and
(x) any other information required by applicable
law to be included therein and any other procedures that a
Holder must follow in order to have Notes repurchased.
(b) The Change of Control Offer shall remain open until the
close of business on the expiration date of the Change of Control Offer. Each
Holder shall have the right to withdraw his tender in accordance with
applicable rules promulgated by the Commission under the Exchange Act.
(c) In the event that the Company is required to make a
Change of Control Offer, the Company will comply with any applicable
securities laws and regulations, including, to the extent applicable, Section
14(e) of, and Rule 14e-1 under, the Exchange Act.
(d) On the Change of Control Payment Date, the Company
shall, to the extent lawful:
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(i) accept for payment Notes or portions thereof
tendered pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent in immediately
available funds an amount equal to the Change of Control
Payment with respect to all Notes or portions thereof so
accepted; and
(iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof tendered
to the Company.
(e) The Paying Agent shall promptly (but in any case not
later than five Business Days after the Change of Control Payment Date) mail
to each Holder of Notes so accepted payment in an amount equal to the Change
of Control Payment for such Holder's Notes, and the Trustee shall promptly
authenticate and mail to each Holder a new Note equal in principal amount to
any unpurchased portion of the Notes surrendered by such Holder, if any;
provided, that each such new Note shall be in principal amount of $1,000 or an
integral multiple thereof. The Company shall publicly announce the results of
all repurchases pursuant to this Section 1005 on or as soon as practicable
after the Change of Control Payment Date.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all taxes,
assessments and governmental charges levied or imposed upon the Company or any
Subsidiary or upon the income, profits or Property of the Company or any
Subsidiary and (2) all lawful claims for labor, material and supplies which,
if unpaid, might by law become a lien upon the Property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed amounts adequate
reserves (in the good faith judgment of the Board of Directors evidenced by a
Board Resolution) have been established.
SECTION 1007. Books and Records.
The Company shall, and shall cause each Subsidiary to, at
all times keep proper books of record and account in which proper entries
shall be made in accordance with generally accepted accounting principles and,
to the extent applicable, regulatory accounting principles.
SECTION 1008. Statement by Company as to Compliance or Default.
The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company, an Officers' Certificate
stating that a review of the activities of the Company and the Subsidiaries
during the preceding fiscal year has been made under the
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supervision of the signing Officer with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture and further stating, as to such Officer, that to the best of his or
her knowledge the Company has kept, observed, performed and fulfilled each and
every covenant and condition contained in this Indenture and is not in default
in the performance or observance of any of the terms, provisions and
conditions hereof (or, if an Event of Default or an event which with notice,
the passage of time or both would be an Event of Default shall have occurred,
describing all such defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with
respect thereto), and that, to the best of his or her knowledge, no event has
occurred and remains in existence by reason of which payments on account of
the Principal of or interest on the Notes are prohibited.
SECTION 1009. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law has been enacted.
SECTION 1010. Company to Maintain Listing.
The Company shall use its best efforts to maintain the
listing of its Common Stock on a National Exchange.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
The Notes shall not be redeemable at the option of the
Company prior to ___________, 2000. The Company may, at its option, redeem all
or any part of the Notes at any time on or after ____________, 2000, at the
Redemption Prices specified in the form of Note hereinbefore set forth for
redemptions, together with interest accrued to the Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company shall be
made in accordance with this Article and such Notes.
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SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all the Notes, the
Company shall, at least 15 days prior to mailing any notice of redemption to
the Holders (unless the Trustee consents to a shorter period), notify the
Trustee in writing of such Redemption Date and of the principal amount of
Notes to be redeemed.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the
particular Notes to be redeemed shall be selected not more than 60 days or
less than 30 days prior to the Redemption Date by the Trustee, from the
Outstanding Notes not previously called for redemption, 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 and which may provide for the
selection for redemption of portions (equal to $1,000 or any integral multiple
thereof) of the principal amount of Notes of a denomination larger than
$1,000. The Trustee shall promptly notify the Company and each Note Registrar
in writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Notes shall
relate, in the case of any Notes redeemed or to be redeemed only in part, to
the portion of the principal amount of such Note which has been or is to be
redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Notes to be redeemed, at his address
appearing in the Note Register.
In order to facilitate the redemption of Outstanding Notes,
the Board of Directors may fix by Board Resolution a record date for the
determination of Outstanding Notes to be redeemed, not more than 60 days nor
less than 30 days prior to the applicable Redemption Date.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the Conversion Price;
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(4) the name and address of the Paying Agent and
Conversion Agent;
(5) that Notes called for redemption may be
converted at any time before the close of business on the
Business Day immediately preceding the Redemption Date in
accordance with Article Twelve;
(6) that Holders who want to convert Notes must
satisfy the requirements in the Paragraph of the Notes
entitled "Conversion;"
(7) that Notes called for redemption must be
surrendered to the Paying Agent to collect the Redemption
Price;
(8) the CUSIP number of the Notes;
(9) if fewer than all of the outstanding Notes are
to be redeemed, the certificate numbers and principal
amounts of the particular Notes to be redeemed;
(10) if any Note is being redeemed in part, that,
after the Redemption Date, upon surrender of such Note, a
new Note or Notes in principal amount equal to the
unredeemed portion will be issued; and
(11) that unless the Company defaults in making
such redemption payment or the Paying Agent is prohibited
from making such redemption payment pursuant to the terms of
this Indenture, interest on Notes called for redemption
ceases to accrue on and after the Redemption Date.
Notice of redemption of Notes to be redeemed at the election of the Company
shall be given by the Company or, at the Company's request, by the Trustee in
the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
On or before any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 1003) an
amount of money sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Notes so to be redeemed shall, on the Redemption Date, become due and payable
at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the
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Redemption Price and accrued interest) such Notes shall cease to bear
interest. Upon surrender of any such Note for redemption in accordance with
said notice, such Note shall be paid by the Company at the Redemption Price,
together with accrued interest to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Notes, or one or more
Predecessor Notes, registered as such at the close of business on the relevant
record dates according to their terms and the provisions of Section 307.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the Principal shall, until paid, bear
interest from the Redemption Date at the rate borne by the Note.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part shall be
surrendered at an office or agency of the Company designated for that purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Note without
service charge, a new Note or Notes, of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Note so
surrendered.
ARTICLE TWELVE
CONVERSION OF NOTES
SECTION 1201. Conversion Privilege.
Each Holder may, at such Holder's option, at any time after
________, 1999 and prior to the close of business on ___________, 2003, unless
earlier redeemed or repurchased, convert such Holder's Notes, in whole or in
part (in denominations of $1,000 or multiples thereof), at 100% of the
principal amount so converted, into shares of Common Stock at a conversion
price per share equal to $_____, as such conversion price may be adjusted from
time to time in accordance with this Article Twelve (the "Conversion Price").
SECTION 1202. Conversion Procedure.
(a) To convert a Note, the Holder thereof must (1) complete
and sign the "Form of Election to Convert" thereon (unless such Holder is The
Depository Trust Company ("DTC") or its nominee, in which case the customary
procedures of DTC will apply), (2) surrender such Note to the Conversion
Agent, (3) furnish appropriate endorsements and transfer documents if required
by the Note Registrar or the Conversion Agent and (4) pay any transfer or
similar tax if required by Section 1206. The Conversion Agent (if other than
the Company) shall promptly
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(and in any event within two business days) notify the Company of each such
conversion. The Company's delivery to the Holder of a fixed number of shares
of Common Stock (and any cash in lieu of fractional shares of Common Stock
into which such Note is converted) shall be deemed to satisfy the Company's
obligation to pay the principal amount of such Note and, except as provided in
the next sentence, all accrued interest on such Note. If such Note (including
a Note which has been called for redemption and even if a Change of Control
Offer has been made) is converted after a Regular Record Date and prior to the
related Interest Payment Date, the full interest installment on such Note
scheduled to be paid on such Interest Payment Date shall be payable on such
Interest Payment Date to the Holder of record at the close of business on such
record date.
(b) As promptly as practicable after the surrender of a Note
in compliance with this Section 1202, the Company shall issue and deliver at
the office or agency of the Note Registrar or the Conversion Agent to such
Holder, or on such Holder's written order, a certificate or certificates for
the full number of whole shares of Common Stock issuable upon the conversion
of such Note in accordance with the provisions of this Article Twelve and a
check or cash with respect to any fractional share of Common Stock arising
upon such conversion as provided in Section 1203. In case any Note of a
denomination greater than $1,000 shall be surrendered for partial conversion,
then, subject to Article Two, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of the Note so surrendered, without
charge to such Holder, a new Note or Notes in authorized denominations in an
aggregate principal amount equal to the unconverted portion of the surrendered
Note.
(c) Each conversion shall be deemed to have been effected on
the date on which such Note shall have been surrendered in compliance with
this Section 1202, and the Person in whose name any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become on said date the holder of record of the shares
of Common Stock represented thereby for all purposes; provided, however, that
no surrender of a Note on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the Person or Persons
entitled to receive such shares upon such conversion as the record holder or
holders of such shares on such date, but such surrender shall be effective to
constitute the Person or Persons entitled to receive such shares as the record
holder or holders thereof for all purposes at the close of business on the
next succeeding day on which such stock transfer books are open and, in any
such case, such conversion shall be at the Conversion Price in effect on the
date on which such Note shall have been surrendered. If the last day on which
a Note may be converted is not a Business Day, the Note may be surrendered to
that Conversion Agent on the next succeeding Business Day. Provisions of this
Indenture that apply to conversion of all of a Note also apply to conversion
of a portion of such Note.
SECTION 1203. Cash Payments in Lieu of Fractional Shares.
No fractional shares of Common Stock or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Notes. If
more than one Note shall be surrendered for conversion at one time by the same
Holder, the full number of whole shares of
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Common Stock which shall be issuable upon conversion shall be computed on the
basis of the aggregate principal amount of Notes (or specified portions
thereof to the extent permitted hereby) so surrendered. If any fractional
share of Common Stock would be issuable upon the conversion of any Note or
Notes, the Company shall make an adjustment therefor in cash at the Current
Market Price of the Common Stock as of the close of business on the Business
Day prior to such conversion.
SECTION 1204. Adjustment of Conversion Price.
(a) If the Company shall (i) pay a dividend or other
distribution, in Common Stock, on any class of Capital Stock of the Company,
(ii) subdivide the outstanding Common Stock into a greater number of shares by
any means or (iii) combine the outstanding Common Stock into a smaller number
of shares by any means (including, without limitation, a reverse stock split),
then in each such case the Conversion Price in effect immediately prior
thereto shall be adjusted so that the Holder of any Note thereafter
surrendered for conversion shall be entitled to receive the number of shares
of Common Stock that such Holder would have owned or have been entitled to
receive upon the happening of such event had such Note been converted
immediately prior to the relevant record date or, if there is no such record
date, the effective date of such event. An adjustment made pursuant to this
Section 1204(a) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution or shall become effective immediately after the effective date of
such subdivision or combination, as the case may be.
(b) If the Company shall (i) issue or distribute, at a price
per share less than the Current Market Price per share of such Capital Stock
on the date of such issuance or distribution, Capital Stock (excluding an
issuance or distribution of Common Stock described in Section 1204(a) above
and any issuance or distribution to a holder of Senior Indebtedness issued or
distributed in order to induce such holder to extend such credit to the
Company) or (ii) issue or distribute rights, warrants, options or convertible
or exchangeable securities entitling the holder thereof to subscribe for,
purchase, convert into or exchange for Capital Stock at a price per share less
than the Current Market Price per share of such Capital Stock on the date of
issuance or distribution (excluding an issuance or distribution under any
stock-based employee compensation plan now existing or hereafter adopted and
any issuance or distribution to a holder of Senior Indebtedness issued or
distributed in order to induce such holder to extend such credit to the
Company), then, in each such case, at the earliest of (A) the date the Company
enters into a firm contract for such issuance or distribution or (B) the date
of actual issuance or distribution of any such Capital Stock or any such
rights, warrants, options or convertible or exchangeable securities, the
Conversion Price shall be reduced by multiplying the Conversion Price in
effect immediately prior to such earliest date by:
(x) if such Capital Stock is Common Stock, a
fraction the numerator of which is the number of shares of
Common Stock outstanding on such earliest date plus the
number of shares of Common Stock which could be purchased at
the Current Market Price per share of Common Stock on the
date of such issuance or
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distribution with the aggregate consideration (based on the
Fair Market Value thereof) received or receivable by the
Company either (A) in connection with such issuance or
distribution or (B) upon the conversion, exchange, purchase
or subscription of all such rights, warrants, options or
convertible or exchangeable securities (the "Aggregate
Consideration"), and the denominator of which is the number
of shares of Common Stock outstanding on such earliest date
plus the number of shares of Common Stock to be so issued or
distributed or to be issued upon the conversion, exchange,
purchase or subscription of all such rights, warrants,
options or convertible or exchangeable securities; or
(y) if such Capital Stock is other than Common
Stock, a fraction the numerator of which is the Current
Market Price per share of Common Stock on such earliest date
minus an amount equal to (A) the difference between of (1)
the Current Market Price per share of such Capital Stock
multiplied by the number of shares of such Capital Stock to
be so issued and (2) the Aggregate Consideration, divided by
(B) the number of shares of Common Stock outstanding on such
date, and the denominator of which is the Current Market
Price per share of Common Stock on such earliest date.
The adjustments contemplated by Section 1204(b) shall be
made successively whenever any such Capital Stock, rights, warrants, options
or convertible or exchangeable securities are so issued or distributed. In
determining whether any rights, warrants, options or convertible or
exchangeable securities entitle the holders thereof to subscribe for,
purchase, convert into or exchange for shares of such Capital Stock at less
than such Current Market Price, there shall be taken into account the Fair
Market Value of any consideration received or receivable by the Company for
such rights, warrants, options or convertible or exchangeable securities
(including, upon exercise thereof). If any right, warrant, option or
convertible or exchangeable securities, the issuance of which resulted in an
adjustment in the Conversion Price pursuant to Section 1204(b), shall expire
and shall not have been exercised, the Conversion Price shall immediately upon
such expiration be recomputed to the Conversion Price which would have been in
effect if such right, warrant, option or convertible or exchangeable
securities had never been distributed or issued. Notwithstanding anything
contained in this paragraph to the contrary, the issuance of Capital Stock
upon the exercise of such rights, warrants or options or the conversion or
exchange of such convertible or exchangeable securities will not cause an
adjustment in the Conversion Price if no such adjustment would have been
required at the time such right, warrant, option or convertible or
exchangeable security was issued or distributed; provided, however, that, if
the consideration payable upon such exercise, conversion or exchange and/or
the Capital Stock receivable thereupon are changed after the time of the
issuance or distribution of such right, warrant, option or convertible or
exchangeable security, then such change shall be deemed to be the expiration
thereof without having been exercised and the issuance or distribution of new
options, rights, warrants or convertible or exchangeable securities.
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Notwithstanding anything contained in this Indenture to the
contrary, options, rights or warrants issued or distributed by the Company,
including options, rights or warrants distributed prior to the date of this
Indenture, to holders of Common Stock generally which, until the occurrence of
a specified event or events (a "Trigger Event"), (i) are deemed to be
transferred with Common Stock, (ii) are not exercisable and (iii) are also
issued on a pro rata basis with respect to future issuances of Common Stock,
shall be deemed not to have been issued or distributed for purposes of this
Section 1204 (and no adjustment to the Conversion Price under this Section
1204 will be required) until the occurrence of the earliest Trigger Event.
Upon the occurrence of a Trigger Event, such options, rights or warrants shall
continue to be deemed not to have been issued or distributed for purposes of
this Section 1204 (and no adjustment to the Conversion Price under this
Section 1204 will be required) if and for so long as each Holder who
thereafter converts such Holder's Notes shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon such
conversion, a number of such options, rights or warrants, as the case may be,
equal to the number of options, rights or warrants to which a holder of the
number of shares of Common Stock equal to the number of shares of Common Stock
issuable upon conversion of such Holder's Notes is entitled to receive at the
time of such conversion in accordance with the terms and provisions of and
applicable to such options, rights or warrants. Upon the expiration of any
such options, rights or warrants or at such time, if any, as a Holder is not
entitled to receive such options, rights or warrants upon conversion of such
Holder's Notes, an adjustment (if any is required) to the Conversion Price
shall be made in accordance with Section 1204(b) with respect to the issuance
of all such options, rights and warrants as of the date of issuance thereof,
but subject to the provisions of the preceding paragraph.
If any such option, right or warrant, including any such
options, rights or warrants distributed prior to the date of this Indenture,
are subject to events, upon the occurrence of which such options, rights or
warrants become exercisable to purchase different securities, evidences of
indebtedness, cash, Properties or other assets or different amounts thereof,
then, subject to the preceding provisions of this paragraph, the date of the
occurrence of any and each such event shall be deemed to be the date of
distribution and record date with respect to new options, rights or warrants
with such new purchase rights (and a termination or expiration of the existing
options, rights or warrants without exercise thereof). In addition, in the
event of any distribution (or deemed distribution) of options, rights or
warrants, or any Trigger Event or other event of the type described in the
preceding sentence, that required (or would have required but for the
provisions of Section 1204(e) or this paragraph) an adjustment to the
Conversion Price under this Section 1204 and such options, rights or warrants
shall thereafter have been redeemed or repurchased without having been
exercised, then the Conversion Price shall be adjusted upon such redemption or
repurchase to give effect to such distribution, Trigger Event or other event,
as the case may be, as though it had instead been a cash distribution, equal
on a per share basis to the result of the aggregate redemption or repurchase
price received by holders of such options, rights or warrants divided by the
number of shares of Common Stock outstanding as of the date of such repurchase
or redemption, made to holders of Common Stock generally as of the date of
such redemption or repurchase.
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(c) If the Company shall pay or distribute, as a dividend or
otherwise, generally to holders of Common Stock or any class or series of
Capital Stock which is convertible into or exercisable or exchangeable for
Common Stock any assets, Properties or rights (including, without limitation,
evidences of indebtedness of the Company, any Subsidiary or any other Person,
cash or Capital Stock or other securities of the Company, any Subsidiary or
any other Person, but excluding payments and distributions as described in
Section 1204(a) or 1204(b), dividends and distributions in connection with the
liquidation, dissolution or winding up of the Company in its entirety and
distributions consisting solely of cash described in Section 1204(d)), then in
each such case the Conversion Price shall be reduced by multiplying the
Conversion Price in effect immediately prior to the date of such payment or
distribution by a fraction, the numerator of which is the Current Market Price
per share of Common Stock on the record date for the determination of
stockholders entitled to receive such payment or distribution less the Fair
Market Value per share on such record date of the assets, Properties or rights
so paid or distributed, and the denominator of which is the Current Market
Price per share of Common Stock on such record date. Such adjustment shall
become effective immediately after such record date. For purposes of this
Section 1204(c) such Fair Market Value per share shall equal
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the aggregate Fair Market Value on such record date of the assets, Properties
or rights so paid or distributed divided by the number of shares of Common
Stock outstanding on such record date.
(d) If the Company shall, by dividend or otherwise, make a
distribution (other than in connection with the liquidation, dissolution or
winding up of the Company in its entirety), generally to holders of Common
Stock or any class or series of Capital Stock which is convertible into or
exercisable or exchangeable for Common Stock, consisting solely of cash where
(x) the sum of (i) the aggregate amount of such
cash plus (ii) the aggregate amount of all cash so
distributed (by dividend or otherwise) to such holders
within the 12-month period ending on the record date for
determining stockholders entitled to receive such
distribution with respect to which no adjustment has been
made to the Conversion Price pursuant to this Section
1204(d);
exceeds
(y) 10% of the product of (1) the Current Market
Price per share of Common Stock on such record date times
(2) the number of shares of Common Stock outstanding on such
record date, then the Conversion Price shall be reduced,
effective immediately prior to the opening of business on
the day following such record date, by multiplying the
Conversion Price in effect immediately prior to the close of
business on the day prior to such record date by a fraction,
the numerator of which is the Current Market Price per share
of Common Stock on such record date less the aggregate
amount of cash per share so distributed and the denominator
of which is such Current Market Price;
provided, however, that, if the aggregate amount of cash per share is equal to
or greater than such Current Market Price, then, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Holder shall have
the right to receive upon conversion (with respect to each share of Common
Stock issued upon such conversion and in addition to the Common Stock issuable
upon conversion) the aggregate amount of cash per share such Holder would have
received had such Holder's Note been converted immediately prior to such
record date. In no event shall the Conversion Price be increased pursuant to
this Section 1204(d); provided, however, that if such distribution is not so
made, the Conversion Price shall be adjusted to be the Conversion Price which
would have been in effect if such distribution had not been declared. For
purposes of this paragraph of this Section 1204(d), such aggregate amount of
cash per share shall equal such sum set forth in Section 1204(e)(x) divided by
the number of shares of Common Stock outstanding on such record date.
(e) The provisions of this Section 1204 shall similarly
apply to all successive events of the type described in this Section 1204.
Notwithstanding anything contained herein to the contrary, no adjustment in
the Conversion Price shall be required unless such adjustment
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would require an increase or decrease of at least 1% in the Conversion Price
then in effect; provided, however, that any adjustments which by reason of
this Section 1204(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Article Twelve shall be made by the Company and shall be made to the nearest
cent or to the nearest one hundredth of a share, as the case may be, and the
Trustee shall be entitled to rely conclusively thereon. Notwithstanding
anything contained in this Section 1204 to the contrary, the Company shall be
entitled to make such reductions in the Conversion Price, in addition to those
required by this Section 1204, as would, in the sole discretion of the
Company, be in the best interests of the Company, which determination shall be
conclusive. Except as provided in this Article Twelve, no adjustment in the
Conversion Price will be made for the issuance of Common Stock or any
securities convertible into or exchangeable for Common Stock or carrying the
right to purchase Common Stock or any securities so convertible or
exchangeable.
(f) Whenever the Conversion Price is adjusted as provided
herein, the Company shall promptly file with the Trustee and any Conversion
Agent other than the Trustee an Officers' Certificate setting forth the
Conversion Price in effect after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Promptly after delivery of
such Officers' Certificate, the Company shall give or cause to be given to
each Holder a notice of such adjustment of the Conversion Price setting forth
the adjusted Conversion Price and the date on which such adjustment becomes
effective.
(g) Notwithstanding anything contained herein to the
contrary, in any case in which this Section 1204 provides that an adjustment
in the Conversion Price shall become effective immediately after a record date
for an event, the Company may defer until the occurrence of such event (i)
issuing to the Holder of any Note converted after such record date and before
the occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event over
and above the number of shares of Common Stock issuable upon such conversion
before giving effect to such adjustment and (ii) paying to such Holder any
amount in cash in lieu of any fractional share of Common Stock pursuant to
Section 1203.
SECTION 1205. Effect of Reclassification, Consolidation, Merger
or Sale.
In the event of (i) any reclassification (including, without
limitation, a reclassification effected by means of an exchange or tender
offer by the Company or any Subsidiary) or change of outstanding Common Stock
(other than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or combination),
(ii) any consolidation, merger or combination of the Company with another
corporation as a result of which holders of Common Stock shall be entitled to
receive securities or other Property (including cash) with respect to or in
exchange for Common Stock or (iii) any sale or conveyance of the Property of
the Company as, or substantially as, an entirety to any other corporation as a
result of which holders of Common Stock shall be entitled to receive
securities or other Property (including cash) with respect to or in exchange
for Common Stock,
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then the Company or the successor or purchasing corporation, as the case may
be, shall enter into a supplemental indenture providing that each Note shall
be convertible into the kind and amount of securities or other Property
(including cash) receivable upon such reclassification, change, consolidation,
merger, combination, sale or conveyance which the Holder of such Note would
have received if such Note had been converted immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance. Such supplemental indenture shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article Twelve. Whenever a supplemental indenture is
entered into as provided herein, the Company shall promptly file with the
Trustee and any Conversion Agent other than the Trustee an Officers'
Certificate setting forth a brief statement of the facts requiring such
supplemental indenture. Promptly after delivery of such Officers' Certificate,
the Company shall give or cause to be given to each Holder a notice of the
execution of such supplemental indenture. The provisions of this Section 1205
shall similarly apply to all successive events of the type described in this
Section 1205.
SECTION 1206. Taxes on Shares Issued.
The issuance of a certificate or certificates on conversions
of Notes shall be made without charge to the Holders of such Notes for any tax
or charge with respect to the issuance thereof. The Company shall not,
however, be required to pay any tax or charge which may be payable with
respect to any transfer involved in the issuance and delivery of a certificate
or certificates in any name other than that of the Holders of such Notes, and
the Company shall not be required to issue or deliver any such certificate or
certificates unless and until the Person or Persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or charge or
shall have established to the satisfaction of the Company that such tax or
charge has been paid.
SECTION 1207. Reservation of Shares; Shares to Be Fully Paid;
Compliance with Government Requirements; Listing of
Common Stock.
The Company shall reserve, out of its authorized but
unissued Common Stock or its Common Stock held in treasury, sufficient shares
of Common Stock to provide for the conversion of all of the Notes that are
outstanding from time to time. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value, if any, of
the Common Stock issuable upon conversion of Notes, the Company will take all
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue Common Stock at such
adjusted Conversion Price. The Company covenants that all Common Stock which
may be issued upon conversion of Notes will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance and delivery thereof.
The Company covenants that if any Common Stock issued or delivered upon
conversion of Notes hereunder requires registration with or approval of any
governmental authority under any applicable federal or state law (excluding
federal or state securities laws) before such Common Stock may be lawfully
issued, the Company will in good faith and as expeditiously as possible
endeavor to
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secure such registration or approval, as the case may be. The Company
covenants that it will not take any action which would cause the exemption
from the registration requirement of Section 5 of the Securities Act afforded
by Section 3(a)(9) of the Securities Act to be unavailable with respect to the
issuance and delivery of Common Stock upon the conversion of Notes in
accordance with this Indenture.
SECTION 1208. Responsibility of Trustee.
The Trustee and any other Conversion Agent shall not at any
time be under any duty or responsibility to any Holder to determine whether
any fact exists which may require any adjustment of the Conversion Price or
other adjustment, or with respect to the nature, extent or calculation of any
such adjustment when made, or with respect to the method employed or herein or
in any supplemental indenture provided to be employed, in making any such
adjustment, or with respect to the correctness thereof. The Trustee and any
other Conversion Agent shall not be accountable with respect to the validity,
value, kind or amount of any item at any time issued or delivered upon the
conversion of any Note, and neither the Trustee nor any other Conversion Agent
makes any representations with respect thereto. Subject to Section 603,
neither the Trustee nor any Conversion Agent shall be responsible for any
failure of the Company to issue, transfer or deliver any item upon the
surrender of any Note for conversion or to comply with any of the duties,
responsibilities or covenants of the Company contained in this Article Twelve.
Without limiting the generality of the foregoing, neither the Trustee nor any
Conversion Agent shall be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture entered
into pursuant to Section 1205, but, subject to the provisions of Section 603,
may accept as conclusive evidence of the correctness of any such provisions,
and shall be protected in relying upon, the Officers' Certificate with respect
thereto.
SECTION 1209. Notice to Holders Prior to Certain Actions.
In the event that: (a) the Company shall declare or
authorize any event which could result in an adjustment in the Conversion
Price under Section 1204 or require the execution of a supplemental indenture
under Section 1205; or (b) the Company shall authorize the granting to the
holders of Common Stock generally of rights, options or warrants to subscribe
for or purchase any shares of any class or series of Capital Stock of the
Company or any Subsidiary or any other rights, options or warrants, the
reclassification of Common Stock (other than a subdivision or combination of
outstanding Common Stock, or a change in par value, or from par value to no
par value, or from no par value to par value), the combination, consolidation
or merger of the Company for which approval of any stockholders of the Company
is required, the sale or transfer of all or substantially all of the assets of
the Company or the voluntary or involuntary dissolution, liquidation or
winding-up of the Company in whole or in part; then, in each such case, the
Company shall file or cause to be filed with the Trustee and shall give or
cause to be given to each Holder, as promptly as possible but in any event at
least 15 days prior to the applicable date hereinafter specified, a notice
stating the date on which a record is to be taken for the purpose of
determining the holders of outstanding Common Stock entitled to participate in
such event, the date on which such event is expected to become
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effective or occur and the date on which it is expected that holders of
outstanding Common Stock of record shall be entitled to surrender their
shares, or receive any items, in connection with such event. Failure to give
such notice, or any defect therein, shall not affect the legality or validity
of such event.
ARTICLE THIRTEEN
SUBORDINATION OF NOTES
SECTION 1301. Agreement to Subordinate.
The Company covenants and agrees, and each Holder of Notes,
by such Holder's acceptance thereof, likewise covenants and agrees, that the
indebtedness evidenced by the Notes and the payment of the Principal thereof
and interest thereon shall be subordinate and subject in right of payment, to
the extent and in the manner hereinafter set forth, to the prior payment in
full of all Senior Indebtedness.
No provisions of this Article Thirteen shall prevent the
occurrence of any Event of Default hereunder.
Nothing contained in this Article Thirteen or elsewhere in
this Indenture or in the Notes is intended to or shall impair, as among the
Company, its creditors and the Holders, the right, which is absolute and
unconditional, of a Holder to convert any Note in accordance with Article
Twelve.
SECTION 1302. No Payment on Notes in Event of Default on Senior
Indebtedness.
(a) In the event of any default (a "Payment Default") in the
payment of Principal of or interest on any Designated Senior Debt beyond any
applicable grace period with respect thereto (whether at maturity, on account
of mandatory redemption or prepayment, upon acceleration or otherwise), then
no payment shall be made by the Company with respect to the Principal of or
interest on the Notes (other than in the form of Junior Securities) or to
acquire any of the Notes (other than in the form of Junior Securities) unless
and until such Payment Default shall have been cured or waived.
In the event of receipt by the Trustee of written notice (a
"Payment Blockage Notice") that an event of default other than a Payment
Default with respect to any Designated Senior Debt shall have occurred and be
continuing, the occurrence of which permits the holders of such Designated
Senior Debt (or a trustee on behalf of the holders thereof) to declare such
Designated Senior Debt due and payable prior to the date on which it would
otherwise have become due and payable (a "Nonpayment Default"), then no
payment shall be made by the Company with respect to the Principal of or
interest on the Notes (other than in the form of Junior Securities) or to
acquire any of the Notes (other than in the form of Junior Securities) for a
period (a "Payment Blockage Period") commencing upon receipt by the Trustee of
a Payment
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Blockage Notice and ending on the earliest of (a) the date on which such
Nonpayment Default is cured or waived or ceases to exist, (b) the date on
which such Designated Senior Date is discharged or repaid in full in cash or
(c) 150 days after the date on which the applicable Payment Blockage Notice is
received (or earlier if such Payment Blockage Notice is terminated by written
notice to the Trustee and the Company from the holders of such Designated
Senior Date or any trustee, agent or other representative acting on behalf of
such holders). Subject to the first sentence of this Section 1302(a), payments
on the Notes shall be resumed upon the expiration of such Payment Blockage
Period. Not more than one Payment Blockage Period may be commenced during any
period of 360 consecutive days and no default with respect to Designated
Senior Debt that existed or was continuing on the date of commencement of any
such Payment Blockage Period shall be, or be made, the basis for a subsequent
Payment Blockage Period (whether or not within a period of 360 consecutive
days) unless such default shall have been cured or waived for a period of not
less than 120 consecutive days.
(b) The provisions of this Section 1302 shall not apply to
any payment with respect to which Section 1303 would be applicable.
SECTION 1303. Distribution on Dissolution, Liquidation and
Reorganization.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, (b) any payment or distribution of
assets or securities of the Company of any kind or character, whether in cash,
Property or securities, to creditors upon any dissolution or winding up or
total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary and whether in bankruptcy, insolvency or receivership
proceedings or (c) any assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of the Company, or upon other
proceedings:
(a) all Principal of and interest due on all
Senior Indebtedness shall first be paid in full, or due
provision made for such payment, in accordance with the
terms of such Senior Indebtedness, before any payment is
made on account of the Principal of or interest on the
indebtedness evidenced by the Notes other than in the form
of Junior Securities, or before the Holders of the Notes
shall be entitled to retain any assets so paid or
distributed in respect thereof other than Junior Securities;
and
(b) any payment or distribution of assets or
securities of the Company of any kind or character, whether
in cash, Property or securities (other than Junior
Securities), to which the Holders of the Notes or the
Trustee for their benefit would be entitled except for the
provisions of this Section 1303, shall be paid or delivered
by the Company or any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such
payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness
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remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with the terms of such
Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of Senior
Indebtedness, before any payment or distribution is made to
the Holders of the Notes.
The Company shall give prompt written notice to the Trustee
of any dissolution, winding up, liquidation or reorganization of the Company
within the meaning of this Section 1303.
The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the Company
following the conveyance or transfer of its properties and assets
substantially as an entirety to another Person upon the terms and conditions
set forth in Article Eight shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshalling of assets and liabilities of the Company for the purposes of this
Section 1303 if the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance or transfer, comply with
the conditions set forth in Article Eight.
SECTION 1304. Payment to Holders of Senior Indebtedness.
Subject to the provisions of Section 1306, in the event
that, notwithstanding the provisions of Section 1302 or Section 1303, any
payment or distribution of assets or securities (other than Junior Securities,
as applicable) of the Company of any kind or character, whether in cash,
Property or securities, shall be received by the Trustee or the Holders of the
Notes from the Company in violation of such provisions, such payment or
distribution shall forthwith be paid over by the Trustee or such Holders
directly to holders of Senior Indebtedness or their representatives or the
trustees 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 all
Senior Indebtedness in full in accordance with the terms of such Senior
Indebtedness, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Indebtedness.
Upon any payment or distribution of assets or securities of
the Company referred to in Sections 1302 and 1303, the Trustee and the Holders
of the Notes shall be entitled to rely upon any order or decree of a court of
competent jurisdiction, or upon any certificate of any liquidating trustee or
agent or other Person making any payment or distribution to the Trustee or to
the Holders of the Notes, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of the Senior
Indebtedness, the amount thereof for payment thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article Thirteen. In the event that the Trustee determines, in good faith,
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
referred to in Sections 1302 and 1303,
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the Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness held by
such Person, as to the extent to which such Person is entitled to
participation in such payment or distribution, and as to other facts pertinent
to the rights of such Person under Sections 1302 and 1303, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 1305. Subrogation.
Subject to the payment in full of all Senior Indebtedness,
the Holders shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Indebtedness pursuant to the provisions of
this Article Thirteen (equally and ratably with the holders of all
indebtedness of the Company which is not Senior Indebtedness and which is
entitled to like rights of subrogation) to the rights of the holders of such
Senior Indebtedness to receive payments and distributions of cash, Property
and securities applicable to the Senior Indebtedness until the Principal of
and interest on the Notes shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, Property or securities to which the Holders or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders or the Trustee, shall, as among the Company,
its creditors other than holders of Senior Indebtedness and the Holders be
deemed to be a payment or distribution by the Company to or on account of
Senior Indebtedness. The provisions of this Article Thirteen are and are
intended solely for the purpose of defining the relative rights of the Holders
on the one hand and the holders of Senior Indebtedness on the other hand.
Nothing contained in this Article Thirteen or elsewhere in this Indenture or
in the Notes is intended to or shall: (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders, the
obligation of the Company, which is absolute and unconditional (and which,
subject to the rights under this Article Thirteen of the holders of Senior
Indebtedness, is intended to rank equally with all other general obligations
of the Company), to pay to the Holders the Principal or Repurchase Price, if
any, of and interest on the Notes as and when the same shall become due and
payable in accordance with their terms; or (b) affect the relative rights
against the Company of the Holders and creditors of the Company other than the
holders of Senior Indebtedness; or (c) prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article
Thirteen of the holders of Senior Indebtedness to receive cash, Property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 1306. Payment on Notes Permitted.
Nothing contained in this Article Thirteen or elsewhere in
this Indenture, or in any of the Notes, shall prevent the Company from making
payment of the Principal of or interest on the Notes, at any time, except
under the conditions described in Section 1302 and except during the pendency
of any dissolution, winding up, liquidation or reorganization of the Company
within the meaning of Section 1303. Nothing contained in this Article Thirteen
or
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elsewhere in this Indenture or in any of the Notes shall prevent the
application by the Trustee of any moneys deposited with it hereunder for such
purpose to the payment of or on account of the Principal of or interest on the
Notes, unless, prior to the Business Day next preceding the date upon which
such Principal shall have become payable, or, in the case of any payment of or
on account of interest unless, prior to two Business Days before the date upon
which such interest shall have become payable, the Trustee shall have received
written notice, directed to it at its Corporate Trust Office, from the Company
or any holder of Senior Indebtedness or any trustee therefor of the existence
of any of the conditions described in Section 1302 or of any dissolution,
winding up, liquidation or reorganization of the Company within the meaning of
Section 1303.
SECTION 1307. Authorization of Holders to Trustee to Effect
Subordination.
Each Holder of Notes by his acceptance thereof authorizes
and directs the Trustee on his behalf to take such action as may be necessary
or appropriate to effectuate the subordination provided in this Article
Thirteen and appoints the Trustee his attorney-in-fact for any and all such
purposes.
SECTION 1308. Trustee as Holder of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article Thirteen in respect of any Senior
Indebtedness at any time held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive or be
construed to deprive the Trustee of its rights as such holder.
SECTION 1309. Notices to Trustee.
The Company shall give prompt written notice to the Trustee
of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Notes. Notwithstanding the
provisions of this Article Thirteen or any other provisions of this Indenture,
the Trustee shall not be charged with the knowledge of the existence of any
facts which would prohibit the making of any payment to or by the Trustee in
respect of the Notes unless and until the Trustee shall have received written
notice thereof, directed to it at its Corporate Trust Office, from the Company
or any holder of Senior Indebtedness or any trustee thereof; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 601, shall be entitled in all respects to assume that no such facts
exist; provided, however, that if a Trust Officer of the Trustee shall not
have received, at least three Business Days prior to the date upon which by
the terms hereof any such money may become payable for any purpose, the notice
with respect to such money provided for in this Section 1309, then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purpose
for which such money was received and shall not be affected by any notice to
the contrary which may be received by it within three Business Days prior to
such date.
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Subject to the provisions of Section 601, the Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of
any Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article
Thirteen, and if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment.
SECTION 1310. No Fiduciary Duty by Trustee to Holders of Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such holders
if it shall in good faith mistakenly pay over or distribute to Holders of
Notes or to the Company or to any other Person cash, Property or securities to
which any holders of Senior Indebtedness shall be entitled by virtue of this
Article Thirteen or otherwise. With respect to the holders of Senior
Indebtedness, the Trustee undertakes to perform or to observe only such of its
covenants or obligations as are specifically set forth in this Article and no
implied covenants or obligations with respect to holders of Senior
Indebtedness shall be read into this Indenture against the Trustee.
SECTION 1311. Paying Agent Treated as Trustee.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the
term "Trustee" as used in this Article Thirteen shall in such case (unless the
context shall otherwise require) be construed as extending to and including
such Paying Agent within its meaning as fully for all intents and purposes as
if such Paying Agent were named in this Article Thirteen in place of the
Trustee.
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution at any
time on or after _________, 2002 or at any time after a notice of redemption
has been delivered to the Holders in accordance with Article Eleven, elect to
have either Section 1402 or Section 1403 be applied to all Outstanding Notes
upon compliance with the conditions set forth below in this Article Fourteen.
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SECTION 1402. Defeasance and Discharge.
Upon the Company's exercise under Section 1401 of the option
applicable to this Section 1402, the Company shall be deemed to have been
discharged from its obligations with respect to all the Outstanding Notes on
the date the conditions set forth in Section 1404 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by
Outstanding Notes except for (i) the rights of Holders of Outstanding Notes to
receive payments out of amounts deposited in trust with the Trustee (as set
forth in Section 1404) in respect of the Principal of and interest on such
Notes when such payments are due, (ii) the right of Holders to convert Notes
in accordance with Article Twelve, (iii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iv) the rights, powers, trusts, duties and immunities of the Trustee, (v)
Article Eleven, if such defeasance will occur prior to __________, 2002 and
(vi) this Article Fourteen.
SECTION 1403. Covenant Defeasance.
Upon the Company's exercise under Section 1401 of the option
applicable to this Section 1403, the Company shall be released from its
obligations under any covenant in Section 801 and in Sections 1005 and 1008
with respect to the Outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the Notes
shall thereafter be deemed not to be "Outstanding" for the purposes of any
direction, waiver, consent, declaration or Act (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to the Outstanding Notes, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall
not constitute a default or an Event of Default under Section 501(4), but,
except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby.
SECTION 1404. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of
either Section 1402 or Section 1403 (except where indicated as applying to one
of such Sections) to the Outstanding Notes:
(i) The Company shall irrevocably have deposited
or caused to be deposited with the Trustee (or another
trustee satisfying the requirements of Section 609 who shall
agree to comply with the provisions of this Article Fourteen
applicable to it) as trust funds in trust for the purpose of
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making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the
Holders of such Notes, (A) cash in United States dollars in
an amount, or (B) U.S. Government Obligations which through
the scheduled payment of Principal and interest in respect
thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money
in an amount, or (C) a combination thereof, sufficient, in
the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the Principal of and interest
on the Outstanding Notes on the Stated Maturity (or
Redemption Date, if applicable) of such Principal (or on any
date (such date being referred to as the "Defeasance
Redemption Date") if when exercising under Section 1401
either its option applicable to Section 1402 or its option
applicable to Section 1403, the Company shall have delivered
to the Trustee an irrevocable notice to redeem all of the
Outstanding Notes on the Defeasance Redemption Date and
interest); provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds
of such U.S. Government Obligations to said payments with
respect to the Notes;
(ii) In the case of an election under Section
1402, the Company shall have delivered to the Trustee an
opinion of independent counsel in the United States of
America stating that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such
opinion of counsel in the United States of America shall
confirm that, the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject
to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if
such defeasance had not occurred;
(iii) In the case of an election under Section
1403, the Company shall have delivered to the Trustee an
opinion of independent counsel in the United States of
America to the effect that the Holders of the Outstanding
Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not
occurred;
(iv) No default or Event of Default with respect
to the Notes shall have occurred and be continuing on the
date of such deposit or, with respect to
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Section 501(6) or Section 501(7), at any time during the
period ending on the 91st day after the date of deposit, as
evidenced to the Trustee by an Officer's Certificate
delivered to the Trustee concurrently with such deposit;
(v) Such defeasance or covenant defeasance shall
not cause the Trustee to have a conflicting interest with
respect to any securities of the Company;
(vi) The Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that the deposit
shall not result in the Company's, the Trustee's or the
trust's being deemed to be an "investment company" under the
Investment Company Act of 1940, as amended;
(vii) The Company shall have delivered to the
Trustee an opinion of independent counsel to the effect that
after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(viii) The Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring
the Holders of the Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company;
(ix) 91 days shall have passed after the deposit
is made and during such 91-day period no event of Default
specified in Section 501(6) or 501(7) shall occur and be
continuing at the end of such period;
(x) The Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided for
relating to either the defeasance under Section 1402 or the
covenant defeasance under Section 1403 (as the case may be)
have been complied with;
(xi) Such defeasance does not result in a breach
or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or
by which it is bound, and is not prohibited by Article 11,
as evidenced to the Trustee by an Officers' Certificate
delivered to the Trustee concurrently with such deposit;
(xii) The Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each
stating that such deposit, defeasance and discharge does not
conflict with the applicable provisions of this Indenture;
and
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(xiii) The Company shall have notified each Holder
not more than 60 nor less than 30 days prior to the date of
such defeasance or covenant defeasance of the effective date
of such defeasance or covenant defeasance.
SECTION 1405. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to this Article Fourteen. It shall
apply the deposited money and the money from U.S. Government Obligations
through the Paying Agent and in accordance with this Indenture to the payment
of Principal of and interest on the Notes. Money and securities so held in
trust are not subject to Article Thirteen.
SECTION 1406. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money
in accordance with this Article Fourteen by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this Indenture
and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to this Article Fourteen until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with this
Article Fourteen; provided, however that if the Company makes any payment of
interest on or Principal of any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or
Paying Agent.
SECTION 1407. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Miscellaneous Provisions.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 1407 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of Outstanding Securities.
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ARTICLE FIFTEEN
COLLATERAL AND SECURITY
SECTION 1501. Proceeds Pledge and Escrow Agreement.
The due and punctual payment of the first four interest
payments on the Notes (other than the Excess Interest Amount, if any) when and
as the same shall be due and payable, whether on an Interest Payment Date at
Maturity, by acceleration, repurchase, redemption otherwise, and interest on
the Notes and performance of all other obligations of the Company to the
Holders of Notes or the Trustee under this Indenture and the Notes, according
to the terms hereunder or thereunder, shall be secured as provided in the
Proceeds Pledge and Escrow Agreement which the Company, has entered into
simultaneously with the execution of this Indenture and which is attached as
Exhibit A hereto. Each Holder of Notes, by its acceptance thereof, consents
and agrees to the terms of the Proceeds Pledge and Escrow Agreement
(including, without limitation, the provisions providing for foreclosure and
release of Escrow Funds) as the same may be in effect or may be amended from
time to time in accordance with its terms and authorizes and directs the
Trustee to enter into the Proceeds Pledge and Escrow Agreement and to perform
its obligations and exercise its rights thereunder in accordance therewith.
The Company shall deliver to the Trustee copies of all documents delivered
pursuant to the Proceeds Pledge and Escrow Agreement, and shall do or cause to
be done all such acts and things as may be necessary or proper, or as may be
required by the provisions of the Proceeds Pledge and Escrow Agreement, to
assure and confirm to the Trustee that the security interest in the Funds
contemplated hereby, by the Proceeds Pledge and Escrow Agreement or any part
thereof, as from time to time constituted, so as to render the same available
for the security and benefit of this Indenture and of the Notes secured
hereby, according to the intent and purposes herein expressed. The Company
shall take, or shall cause its Subsidiaries to take, upon request of the
Trustee, any and all actions reasonably required to cause the Proceeds Pledge
and Escrow Agreement to create and maintain, as security for the Obligations
of the Company hereunder, a valid and enforceable perfected first priority
Lien on all the Pledged Collateral, in favor of the Trustee for the benefit of
the Holders of Notes, superior to and prior to the rights of all the Persons
and subject to no other Liens than Permitted Liens.
SECTION 1502. Recording and Opinions.
(a) The Company shall furnish to the Trustee simultaneously
with the execution and delivery of this Indenture an Opinion of Counsel either
(i) stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the Lien intended
to be created by the Proceeds Pledge and Escrow Agreement, and reciting with
respect to the security interests in the Pledged Collateral, the details of
such action, or (ii) stating that, in the opinion of such counsel, no such
action is necessary to make such Lien effective.
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(b) The Company shall furnish to the Trustee on ________ 1
in each year beginning with _________ 1, 1998, an Opinion of Counsel, dated as
of such date, either (i) (A) stating that, in the opinion such counsel, action
has been taken with respect to the recording, registering, filing,
re-recording, re-registering and refiling of all supplemental indentures,
financing statements, continuation statements or other instruments of further
assurance as is necessary to maintain the Lien of the Proceeds Pledge and
Escrow Agreement and reciting with respect to the security interests in the
Pledged Collateral the details of such action or referring to prior Opinions
of Counsel in which such details are given, (B) stating that, based on
relevant laws as in effect on the date of such Opinion of Counsel, all
financing statements and continuation statements have been executed and filed
that are necessary as of such date and during the succeeding 12 months fully
to preserve and protect, to the extent such protection and preservation are
possible by filing, the rights of the Holders of Notes and the Trustee
hereunder and under the Proceeds Pledge and Escrow Agreement with respect to
the security interests in the Pledged Collateral, or (ii) stating that, in the
opinion of such counsel, no such action is necessary to maintain such Lien and
assignment.
(c) The Company shall otherwise comply with the provisions
of ss.3 14(b) of the Trust Indenture Act.
SECTION 1503. Release of Pledged Securities or Collateral Funds.
(a) Subject to subsections (b), (c) and (d) of this Section
15.03, Pledged Collateral may be released from the Lien and security interest
created by the Proceeds Pledge and Escrow Agreement at any time or from time
to time in accordance with the provisions of the Proceeds Pledge and Escrow
Agreement.
(b) No Pledged Collateral shall be released from the Lien
and security interest created by the Proceeds Pledge and Escrow Agreement
pursuant to the provisions of the Proceeds Pledge and Escrow Agreement unless
there shall have been delivered to the Trustee the certificate required by
this Section 15.03.
(c) At any time when a Default or Event of Default shall
have occurred and be continuing and the maturity of the Notes shall have been
accelerated (whether by declaration or otherwise) and the Trustee has
knowledge of such Default or Event of Default, no release of Pledged
Collateral pursuant to the provisions of the Proceeds Pledge and Escrow
Agreement shall be effective as against the Holders of Notes.
(d) The release of any Pledged Collateral from the terms
this Indenture and the Proceeds Pledge and Escrow Agreement shall not be
deemed to impair the security under this Indenture in contravention of the
provisions hereof if and to the extent the Pledged Collateral is released
pursuant to the terms of the Proceeds Pledge and Escrow Agreement. To the
extent applicable, the Company shall cause ss.313(b) of the Trust Indenture
Act relating to the release of property or securities from the Lien and
security interest of the Proceeds Pledge and Escrow Agreement and relating to
the substitution therefor of any property or securities to be subjected
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to the Lien and security interest of the Proceeds Pledge and Escrow Agreement,
to be complied with. Any certificate or opinion required by ss. 314(d) of the
Trust Indenture Act may be made by an Officer of the Company except in cases
where ss. 314(d) of the Trust Indenture Act requires that such certificate or
opinion be made by an independent Person, which Person shall be an independent
engineer, appraiser or other expert selected or approved by the Trustee in the
exercise of reasonable care.
SECTION 1504. Certificate of the Company.
(a) Company shall furnish to the Trustee, prior to each
proposed release of Pledged Collateral pursuant to the Proceeds Pledge and
Escrow Agreement, (i) all documents required by ss. 314(d) of the Trust
Indenture Act and (ii) an Opinion of Counsel, which may be rendered by
internal counsel to the Company, to the effect that such accompanying
documents constitute all documents required by ss.314(d) of the Trust
Indenture Act and (ii) an Opinion of Counsel, which may, to the extent
permitted by Sections 6.01 and 6.03 hereof, accept as conclusive evidence of
compliance with the foregoing provisions the appropriate statements contained
in such documents and such Opinion of Counsel.
SECTION 1506. Authorization of Actions to Be Taken by the Trustee
under the Proceeds Pledge and Escrow Agreement.
Subject to the provisions of Section 6.01 and 6.03 hereof,
the Trustee may, in its sole discretion and without the consent of the Holders
of Notes, take, on behalf of the Holders of Notes, all actions it deems
necessary or appropriate in order to (a) enforce any of the terms of the
Proceeds Pledge and Escrow Agreement and (b) collect and receive any and all
amounts payable in respect of the Obligations of the Company hereunder. The
Trustee shall have power to institute and maintain such suits and proceedings
as it may deem expedient to prevent any impairment of the Pledged Collateral
by any acts that may be unlawful or in violation of the Proceeds Pledge and
Escrow Agreement or this Indenture, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders of Notes in the Pledged Collateral (including power
to institute and maintain suits or proceedings to restrain the enforcement of
or compliance with any legislative or other governmental enactment, rule or
order that may be unconstitutional or otherwise invalid if the enforcement of,
or compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders of Notes
or of the Trustee).
SECTION 1506. Authorization of Receipt of Funds by the Trustee
under the Proceeds Pledge and Escrow Agreement.
The Trustee is authorized to receive any funds for the
benefit of the Holders of Notes distributed under the Proceeds Pledge and
Escrow Agreement, and to make further distributions of such funds to the
Holders of Notes according to the provisions of the Proceeds Pledge and Escrow
Agreement and this Indenture.
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SECTION 1507. Termination of Security Interest.
Upon the payment in full of all Obligations of the Company
under this Indenture and the Notes, or upon Defeasance, the Trustee shall
release the Liens pursuant to this Indenture and the Proceeds Pledge and
Escrow Agreement.
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
IAT MULTIMEDIA, INC.
{seal}
By
-------------------------------
Name:
Title:
ATTEST:
- ----------------------
Name:
Title:
THE BANK OF NEW YORK
{seal}
By
-------------------------------
Name:
Title:
89
<PAGE>
- --------------------------------------------------------------------------------
PROCEEDS PLEDGE AND ESCROW AGREEMENT
by and between
IAT MULTIMEDIA, INC.
and
THE BANK OF NEW YORK
- --------------------------------------------------------------------------------
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<PAGE>
PROCEEDS PLEDGE AND ESCROW AGREEMENT
THIS PROCEEDS PLEDGE AND ESCROW AGREEMENT (this "Agreement"), dated
as of February __, 1998, is by and between IAT MULTIMEDIA, INC. (the
"Company") and The Bank of New York, as trustee under the Indenture referred
to below (the "Trustee").
RECITALS
A. The Notes. Pursuant to that certain Indenture (the "Indenture"),
dated as of February __, 1998, by and between the Company and the Trustee, the
Company will issue 10,000,000 in aggregate principal amount of 10% Convertible
Subordinated Notes due 2003 (collectively, the "First Notes"). The Company has
granted to Royce Investment Group, Inc. (the "Underwriter") an option (the
"Over-allotment Option") to purchase all or any part of an additional
aggregate of $1,500,000 principal amount of Notes (the "Option Notes" and
together with the First Notes, the "Notes") pursuant to the Underwriting
Agreement between the Company and the Underwriter dated January __, 1998 (the
"Underwriting Agreement"). Immediately after receipt of payment for the First
Notes (the "Deposit Time"), the Company will deposit from the net proceeds
from the sale of the First Notes $_______________ (the "Interest Reserve
Funds") into a segregated cash collateral/trust account with the Trustee at
its office at 101 Barclay Street, Floor 21W, New York, New York 10286, in the
name of The Bank of New York, as Trustee, "Interest Reserve and Collateral
Account for IAT Multimedia, Inc." (such account is herein referred to as the
"Escrow Account"). In the event the Underwriter exercises the Over-allotment
Option, the Company shall deposit from the net proceeds from the sale of the
Option Notes an amount as set forth in Article 5(c) of this Agreement into the
Escrow Account. The Escrow Account and all balances and investments from time
to time therein shall be under the sole control and dominion of the Trustee,
for the benefit of the Trustee and the ratable benefit of the Holders of the
Notes.
B. Purpose. The parties hereto desire to set forth their agreement
with regard to the administration of the Escrow Account, the creation of a
security interest in the Collateral (as defined herein) and the conditions
upon which funds will be released from the Escrow Account.
C. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Indenture.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby the parties hereto agree as follows:
1. Security Interest.
(a) Pledge and Assignment of Collateral. The Company hereby
irrevocably pledges, assigns and sets over to the Trustee, and grants to the
Trustee, for the benefit of the Trustee and the ratable benefit of the Holders
of the Notes, a first priority continuing security
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<PAGE>
interest in all of the Company's right, title and interest in and to all of
the following, whether now owned or existing or hereafter acquired or created
(collectively, the "Collateral"):
(i) the Escrow Account;
(ii) all funds from time to time held in the Escrow Account,
including, without limitation, the Interest Reserve Funds and all
certificates and instruments, if any, from time to time representing
or evidencing the Escrow Account or the Interest Reserve Funds;
(iii) all investments of funds in the Escrow Account,
whether the same shall constitute Government Securities (as defined
herein), certificated securities, uncertificated securities, security
entitlements, investment property, instruments, general intangibles
or otherwise and whether held by or registered in the name of the
Trustee or otherwise and all certificates and instruments, if any,
from time to time representing or evidencing such investments;
(iv) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered to
or otherwise possessed by the Trustee, for or on behalf of the
Company, in substitution for or in addition to any or all of the then
existing Collateral;
(v) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Collateral; and
(vi) all proceeds of any of the foregoing, including,
without limitation, cash proceeds.
(b) Secured Obligations. This Agreement secures the due and
punctual payment and performance of all obligations and indebtedness of the
Company, whether now or hereafter existing, under the Notes and the Indenture
including, without limitation, interest and premium, if any, accrued on the
Notes after the commencement of a bankruptcy, reorganization or similar
proceeding involving the Company to the extent permitted by applicable law
(collectively, the "Secured Obligations").
(c) Delivery of Collateral. All certificates and
instruments, if any, representing or evidencing the Collateral shall be held
by or on behalf of the Trustee pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignments in blank, all in form and substance reasonably
satisfactory to the Trustee. All securities in uncertificated or book-entry
form and all security entitlements, if any, in each case representing or
evidencing the Collateral shall be registered in the name of the Trustee (or
any of its nominees) as the registered owner thereof by book-entry or as
otherwise appropriate so as to properly identify the interest of the Trustee
therein. In addition,
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<PAGE>
the Trustee shall have the right, at any time following the occurrence of an
Event of Default, to transfer to or to register in the name of the Trustee or
any of its nominees any or all other Collateral. Except as otherwise provided
herein, all Collateral shall be deposited and held in the Escrow Account. The
Trustee shall have the right at any time to exchange certificates or
instruments representing or evidencing all or any portion of the Collateral
for certificates or instruments of smaller or larger denominations in the same
aggregate amount.
(d) Further Assurances. Prior to, contemporaneously
herewith, and at any time and from time to time hereafter, the Company will,
at the Company's expense, execute and deliver to the Trustee such other
instruments and documents, and take all further action as it deems necessary
or advisable or as the Trustee may reasonably request including an Opinion of
Counsel, upon which the Trustee may conclusively rely, to confirm or perfect
the security interest of the Trustee granted or purported to be granted hereby
or to enable the Trustee to exercise and enforce its rights and remedies
hereunder with respect to any Collateral and the Company will take all
necessary action to preserve and protect the security interest created hereby
as a first priority, perfected Lien and encumbrance upon the Collateral. The
Company will pay all costs incurred in connection with any of the foregoing.
(e) Establishing and Maintaining Accounts. So long as this
Agreement is in full force and effect:
(i) the Company shall establish and maintain the Escrow
Account with the Trustee in New York, New York. The Collateral shall
at all times be subject to the sole dominion and control of the
Trustee, which shall hold the Collateral and administer the Escrow
Account subject to the terms and conditions of this Agreement. The
Company shall have no right of withdrawal from the Escrow Account nor
any other right or power with respect to the Collateral, except as
expressly provided herein; and,
(ii) it shall be a term and condition of the Escrow Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Escrow Account and except as otherwise
provided by the provisions of Articles 3 and 4 of this Agreement,
that no amount in the Escrow Account (including, without limitation,
interest on or other proceeds of the Escrow Account or on investments
held therein) shall be paid or released to or for the account of, or
withdrawn by or for the account of, the Company or any other person
or entity other than the Trustee or its designated agent.
(f) Transfers and Other Liens. Until termination of this
Agreement pursuant to Section 9, the Company agrees that it will not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant
any option with respect to, any of the Collateral or (ii) create or permit to
exist any Lien upon or with respect to any of the Collateral, except for the
security interest under this Agreement.
(g) Trustee Appointed Attorney-in-Fact. In addition to all
of the powers granted to the Trustee pursuant to Article Five of the
Indenture, the Company hereby irrevocably
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<PAGE>
appoints the Trustee as the Company's attorney-in-fact, coupled with an
interest, with full authority in the place and stead of the Company and in the
name of the Company or otherwise, from time to time in the Trustee's
discretion to take any action and to execute any instrument which the Trustee
may deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, endorse and collect all instruments
made payable to the Company representing any interest payment, dividend or
other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same, and the expenses of the Trustee incurred in
connection therewith shall be payable by the Company.
(h) Trustee May Perform. Without limiting the authority
granted under Section 1(g) and except with respect to the failure of the
Company to deliver investment instructions, which shall be governed by Section
2(c) hereof, if the Company fails to perform any agreement contained herein,
the Trustee may, but shall not be obligated to, itself perform, or cause
performance of, such agreement, and the expenses of the Trustee incurred in
connection therewith shall be payable by the Company. In the event that the
Trustee performs pursuant to this Section 1(h), the Company shall indemnify
the Trustee in the manner provided in Section 607 of the Indenture.
2. Investment and Liquidation of Funds in Escrow Account. Funds
deposited in the Escrow Account shall be invested and reinvested by the
Trustee on the following terms and conditions:
(a) Permitted Investments. The Company shall immediately
deposit the Interest Reserve Funds into the Escrow Account. Funds deposited in
the Escrow Account may, subject to the provisions of Articles 2, 3 and 4 of
this Agreement, be invested and reinvested by the Trustee, at the written
direction of the Company, in direct obligations of, or obligations guaranteed
by, the United States of America for the payment of which guarantee or
obligations the full faith and credit of the United States of America is
pledged ("Government Securities"); provided, however, that the maturity dates
of the Government Securities in which the Interest Reserve Funds are invested
and reinvested shall be structured so as to ensure sufficient funds are
available to make the payments of interest on the Notes which the Interest
Reserve Funds and related Government Securities have been pledged to secure.
For the avoidance of doubt, all Government Securities in which the Interest
Reserve Funds are invested and reinvested shall be held by the Trustee in the
Escrow Account as part of the Collateral hereunder.
(b) Investment Instructions. If the Company fails to give
written investment instructions to the Trustee by 12:00 noon (New York time)
on any Business Day on which there is uninvested cash and/or maturing
Government Securities in the Escrow Account, the Trustee is hereby
unconditionally instructed and authorized and directed to invest any such cash
or the proceeds of any maturing Government Securities in the Escrow Account in
Government Securities maturing on the next Business Day. The Company's failure
to give such investment instructions shall not constitute a default or an
event of default hereunder.
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<PAGE>
(c) Interest. All interest earned on funds invested in
accordance with the foregoing shall be held in the Escrow Account and
reinvested in accordance with the terms hereof and will be subject to the
security interest granted hereunder to the Trustee.
(d) Limitation of Trustee's Liability. In no event shall the
Trustee have any liability to the Company or any other Person for investing
the funds from time to time in the Escrow Account in accordance with the
provisions of this Article 2, regardless of whether greater income or a higher
yield could have been obtained had the Trustee invested such funds in
different Government Securities or for any loss (including breakage costs or
loss of principal) associated with the sale or liquidation of Government
Securities in accordance with the terms of this Agreement, in each case other
than with respect to gross negligence or willful misconduct of the Trustee.
(e) Liquidation of Funds. In liquidating any Government
Securities in accordance with Articles 3 and 4 of this Agreement, the Company
shall direct the Trustee as to which Government Securities shall be
liquidated.
3. Interest Payments. Pursuant to the Notes, the Company is obligated
to make payments of interest on the Notes on the dates and at the rates
specified in the Notes. Payment of the first four (4) scheduled interest
payments due on the Notes (other than the Excess Interest Amount) may be made
(i) from amounts held in the Escrow Account in accordance with the procedures
set forth in subsection (a) below or (ii) from other sources of funds
available to the Company, as anticipated in subsection (b) below, or from any
combination of (i) and (ii) above; provided that nothing herein shall be
construed as limiting the Company's obligation to make all interest payments
due on the Notes at the times and in the amounts required by the Notes, which
obligation shall be absolute and unconditional.
(a) Payment of Interest. Not later than five (5) Business
Days prior to the date of any of the first four (4) scheduled interest
payments due on the Notes, the Company shall, pursuant to a duly completed and
executed Certificate of Release in the form of Exhibit A hereto, direct the
Trustee to transfer from the Escrow Account to the Paying Agent funds
necessary to provide for payment in full (or, if the Company intends to make a
portion of such interest payment with funds in the Escrow Account and the
remainder of such interest payment with funds other than those in the Escrow
Account, such portion) of the next scheduled interest payment on the Notes
(other than the Excess Interest Amount). If the Company does not intend to
utilize the funds in the Escrow Account to make any such interest payment in
full, then the Company shall comply with Section 3(b) below. Upon receipt of
such Certificate of Release, the Trustee will transfer to the Paying Agent for
payment to the Holders of Notes the amount set forth in the applicable
Certificate of Release
(b) Release of Funds to the Company Due to Direct Payment of
Interest by the Company. If the Company makes any of the first four (4)
scheduled interest payments on the Notes set forth herein or a portion of any
such scheduled interest payment on the Notes from a source of funds other than
the Escrow Account ("Company Funds"), the Company may, after
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<PAGE>
payment in full of such scheduled interest payment, direct the Trustee,
pursuant to a duly completed and executed Certificate of Release in the form
of Exhibit B hereto, to release to the Company or at the direction of the
Company an amount of funds from the Escrow Account less than or equal to the
amount of Company Funds so expended. Upon receipt of such Certificate of
Release, the Trustee shall pay over to the Company the requested amount.
(c) Release of Funds to Company Due to Overfunding. If at
any time the amount of Collateral in the Escrow Account exceeds 125% of the
amount sufficient, in the written opinion of a nationally recognized firm of
independent public accountants selected by the Company and furnished to the
Trustee, to provide for payment in full of the first four (4) scheduled
interest payments due on the Notes (other than the Excess Interest Amount)
(or, in the event an interest payment or payments have been made in full, an
amount sufficient to provide for payment in full of any then remaining
interest payments, up to and including the fourth scheduled interest payment),
the Company may, pursuant to a duly completed and executed Certificate of
Release in the form of Exhibit B hereto, direct the Trustee to release any
such overfunding to it.
(d) No Duplicate Payments. With respect to the conditions
permitting the release to the Company of any funds in the Escrow Account
pursuant to Sections 3(b) or 3(c) above, the Company shall not request, and
the Trustee shall not make, any full or partial duplicate payment thereunder.
(e) Termination of Security Interest. Upon payment in full
of the first four (4) scheduled interest payments on the Notes (other than the
Excess Interest Amount), the security interest evidenced by this Agreement in
any Collateral remaining in the Escrow Account will terminate and be of no
further force and effect. Furthermore, upon the release of any Collateral from
the Escrow Account in accordance with the terms of this Agreement, whether
upon release of such Collateral to Holders as payment of interest on the
Notes, to the Company pursuant to Sections 3(b) or 3(c) or otherwise, the
security interest evidenced by this Agreement in such Collateral so released
will terminate and be of no further force and effect.
4. Representations and Warranties. The Company hereby represents and
warrants to the Trustee and the Holders of the Notes that:
(a) The execution, delivery and performance by the Company
of this Agreement are within the Company's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene, or
constitute a default under, any provision of applicable law or regulation or
of the certificate of incorporation of the Company or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Company or result in the creation or imposition of any Lien on any assets of
the Company, except for the security interests granted under this Agreement.
(b) The Company is the record and beneficial owner of the
Collateral, free and clear of any Lien or claims of any person or entity
(except for the security interests granted
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<PAGE>
under this Agreement). No financing statement covering the Collateral is on
file in any public office other than the financing statements filed pursuant
to this Agreement.
(c) This Agreement has been duly executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or general principles of equity and commercial
reasonableness.
(d) The pledge of the Collateral pursuant to this Agreement
creates a valid and perfected first priority security interest in and to the
Collateral, securing the payment of the Secured Obligations for the benefit of
the Trustee and the ratable benefit of the Holders of Notes, enforceable as
such against all creditors of the Company and any persons purporting to
purchase any of the Collateral from the Company other than as permitted by the
Indenture.
(e) Except as set forth in Section 4(d) above, no consent of
any other Person and no consent, authorization, approval, or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required either (1) for the pledge by the Company of the Collateral
pursuant to this Agreement or for the execution, delivery or performance of
this Agreement by the Company or (2) for the exercise by the Trustee of the
rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement.
(f) No litigation, investigation or proceeding of or before
any arbitrator or governmental authority is pending or, to the knowledge of
the Company, threatened by or against the Company with respect to this
Agreement or any of the transactions contemplated hereby.
(g) The pledge of the Collateral pursuant to this Agreement
is not prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation, Regulations
G, T, U and X of the Board of Governors of the Federal Reserve System).
5. Covenants. The Company covenants and agrees with the Trustee and
the Holders of Notes from and after the date of this Agreement until the
Termination Date as follows:
(a) The Company (i) will not (A) sell or otherwise dispose
of, or grant any option or warrant with respect to, any of the Collateral or
(B) create or permit to exist any Lien upon or with respect to any of the
Collateral (except for the Lien created pursuant to this Agreement) and (ii)
except as otherwise provided in this Agreement, at all times will be the sole
beneficial owner of the Collateral.
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<PAGE>
(b) The Company will not (a) enter into any agreement or
understanding that purports to or may restrict or inhibit the Trustee's rights
or remedies hereunder, including, without limitation, the Trustee's right to
sell or otherwise dispose of the Collateral in accordance with the terms of
this Agreement or (b) fail to pay or discharge any tax, assessment or levy of
any nature not later than five days prior to the date of any proposed sale
under any judgment, writ or warrant of attachment with regard to the
Collateral.
(c) In the event the Underwriter exercises the
Over-allotment Option, the Company shall deposit from the net proceeds from
the sale of the Option Notes, an amount set forth on a schedule prepared by
the Company's independent accountants sufficient to make the first four (4)
scheduled interest payments due on the Option Notes as set forth in Article 3
of this Agreement.
6. Remedies upon Default. If any Event of Default shall have occurred
and be continuing:
(a) The Trustee may, without notice to the Company except as
required by law and at any time or from time to time, liquidate all Government
Securities and transfer all funds in the Escrow Account to the Paying Agent to
apply such funds in accordance with Section 1105 of the Indenture.
(b) The Trustee may also exercise in respect of the
Collateral, in addition to the other rights and remedies provided for herein
or in the Indenture or otherwise available to it, all the rights and remedies
of a secured party after a default under the Uniform Commercial Code in effect
at that time in the State of New York (the "Code") (whether or not the Code
applies to the affected Collateral), and may also, without notice except as
specified below, sell the Collateral or part thereof in one or more parcels at
public or private sale, at any of the Trustee's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the
Trustee may deem commercially reasonable. The Company agrees that, to the
extent notice of sale shall be required by law, at least ten days' notice to
the Company of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification. The
Trustee shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. The Trustee may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(c) Any cash held by the Trustee as Collateral and all net
cash proceeds received by the Trustee in respect of any sale or liquidation
of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Trustee, be held by the Trustee as
collateral for, and/or then or at any time thereafter be applied (after
payment of any costs and expenses incurred in connection with any sale,
liquidation or disposition of or realization upon the Collateral and the
payment of any amounts payable to the Trustee) in whole or in part by the
Trustee for the ratable benefit of the Holders of the Notes against all or any
part of the Secured Obligations in such order as the Trustee shall elect. Any
surplus of such cash or
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<PAGE>
cash proceeds held by the Trustee and remaining after payment in full of all
the Secured Obligations and the costs and expenses incurred by and amounts
payable to the Trustee hereunder or under the Indenture shall be paid over to
the Company or to whomsoever shall be lawfully entitled to receive such
surplus.
For the avoidance of doubt, if any Event of Default shall
have occurred and be continuing, the Trustee shall not release any Collateral
to, or at the direction of, the Company.
7. Indemnity and Authority of the Trustee.
The Company shall indemnify the Trustee against any and all loses,
liabilities or expenses incurred by it arising out of or in connection with
the acceptance of administration of its duties under this Agreement, including
the costs and expenses of enforcing this Agreement against the Company
(including this Section 7) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its gross negligence or bad faith. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. Failure by
the Trustee so to notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7 shall survive the
satisfaction and discharge of this Agreement.
To secure the Company's payment obligations under this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Agreement.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 501 (5) or (6) of the Indenture occurs, the
expenses and compensation for the services (including the fees and expenses of
its agent and counsel) are intended to constitute expenses of administration
under Title 11, United States Code or any similar law for the relief of
debtors.
The Trustee may conclusively rely upon any Officer's Certificate or
Opinion of Counsel it receives pursuant to Section 603 of the Indenture.
8. Termination.
(a) This Agreement shall create a continuing security
interest in and to the Collateral and such security interest shall, unless
otherwise provided in the Indenture or in this
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Agreement, remain in full force and effect until the earlier of (A) the date
on which all funds in the Escrow Account have been distributed in accordance
with the terms of this Agreement or (B) the date of payment in full in cash of
all Secured Obligations (such earlier date, the "Termination Date"). This
Agreement shall be binding upon the Company, its successors and assigns, and
shall inure, together with the rights and remedies of the Trustee hereunder,
to the benefit of the Trustee, the Holders of Notes and their respective
successors, transferees and assigns.
(b) Subject to the provisions of Section 9(c) hereof, this
Agreement shall terminate upon the Termination Date. At such time, the Trustee
shall, at the written request of the Company, reassign and redeliver to the
Company all of the Collateral hereunder that has not been sold, disposed of,
retained or applied by the Trustee in accordance with the terms of this
Agreement and the Indenture. Such reassignment and redelivery shall be without
warranty (either express or implied) by or recourse to the Trustee, except as
to the absence of any prior assignments by or encumbrances created by the
Trustee on its interest in the Collateral, and shall be at the expense of the
Company.
9. Miscellaneous.
(a) Waiver. Either party hereto may specifically waive any
breach of this Agreement by any other party, but no such waiver shall be
deemed to have been given unless such waiver is in writing, signed by the
waiving party, and specifically designates the breach waived, nor shall any
such waiver constitute a continuing waiver of similar or other breaches.
(b) Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(c) Survival of Provisions. All representations, warranties
and covenants of the Company contained herein shall survive the execution and
delivery of this Agreement, and shall terminate only upon the termination of
this Agreement; provided, however that the Company's obligations pursuant to
Section 7 hereof shall survive the termination of this Agreement (including
any termination under applicable bankruptcy laws) or the resignation or
removal of the Trustee.
(d) Assignment. This Agreement shall inure to and be binding
upon the parties and their respective successors and permitted assigns;
provided, however, that the Company may not assign its rights or obligations
hereunder without the express prior written consent of the Trustee, acting at
the direction of the Holders as provided in the Indenture.
(e) Entire Agreement; Amendments. This Agreement and the
Indenture contain the entire agreement among the parties with respect to the
subject matter hereof and supersede any and all prior agreements,
understandings and commitments with respect thereto, whether oral or written;
provided, however, that this Agreement is executed and accepted by the Trustee
subject to all terms and conditions of its acceptance of the trust under the
Indenture, as fully as if said terms and conditions were set forth at length
herein. This Agreement may be amended only by a writing signed by duly
authorized representatives of both parties. The Trustee may execute an
amendment to this Agreement only if the requisite consent of the
-10-
<PAGE>
Holders of the Notes required by Section 902 of the Indenture has been
obtained, unless no such consent is required by such Section 902, of the
Indenture.
(f) Notices. Any notice or communication by the Company or
the Trustee to the others is duly given if in writing and delivered in person
or mailed by first class mail (registered or certified return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, to the others' address:
If to the Company:
IAT Multimedia, Inc.
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi
Switzerland
Attention: Dr. Viktor Vogt
Facsimile number: 011-41-56-223-5023
Telephone number: 011-41-56-223-5022
With a copy to:
John Francis Fitzpatrick, Esq.
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Facsimile number: (212) 759-9133
Telephone number: (212) 891-3987
If to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Department
Facsimile number: (212) ___________
Telephone number: (212) ___________
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery
to the courier for overnight delivery, if sent by overnight air courier
guaranteeing next day delivery.
-11-
<PAGE>
(g) Expenses. The Company shall pay to the Trustee from time
to time such compensation for its acceptance of this Agreement and services
hereunder as the Company and the Trustee have separately agreed. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of
an express trust. The Company shall reimburse the Trustee promptly upon
request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its service. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
(h) Security Interest Absolute. All rights of the Trustee
and the Holders of Notes and security interests hereunder and all obligations
of the Company hereunder, shall be absolute and unconditional irrespective of
(a) any lack of validity or enforceability of the Indenture or any other
agreement or instrument relating thereto; (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or any consent to any
departure from the Indenture; (c) any exchange, surrender, release or
non-perfection of any Liens on any other collateral for all or any of the
Secured Obligations; or (d) to the extent permitted by applicable law, any
other circumstance which might otherwise constitute a defense available to, or
a discharge of, the Company in respect of the Secured Obligations or of this
Agreement.
(i) Counterpart Originals. The parties may sign any number
of copies of this Agreement. Each signed copy shall be an original, but all of
them represent the same agreement.
(j) Limitation by Law. All rights, remedies and powers
provided herein may be exercised only to the extent that they will not render
this Agreement not entitled to be recorded, registered or filed under
provisions of any applicable law.
(k) Rights of Holders of Notes. No Holder of Notes shall
have any independent rights hereunder other than those rights granted to
individual Holders of Notes pursuant to Section 507 of the Indenture; provided
that nothing in this subsection shall limit any rights granted to the Trustee
under the Notes or the Indenture.
(l) GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
DAMAGES.
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THE COMPANY, THE TRUSTEE AND THE HOLDERS OF NOTES
IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND
DECISIONS OF THE STATE OF NEW YORK.
(ii) THE COMPANY AGREES THAT THE TRUSTEE SHALL, IN ITS
CAPACITY AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF
NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE
-12-
<PAGE>
LAW, TO PROCEED AGAINST THE COMPANY OR ITS PROPERTY IN A COURT IN ANY
LOCATION REASONABLY SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN
REM JURISDICTION OVER THE COMPANY OR ITS PROPERTY, AS THE CASE MAY
BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE
COMPANY AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR
CROSS- CLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON
SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR
OF THE TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSS
CLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT
OTHERWISE BE BROUGHT OR ASSERTED. THE COMPANY WAIVES ANY OBJECTION
THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE TRUSTEE
HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
(iii) THE COMPANY AND THE TRUSTEE EACH WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED
TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN
COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(iv) THE COMPANY AGREES THAT NEITHER THE TRUSTEE NOR ANY
HOLDER OF NOTES SHALL HAVE ANY LIABILITY TO THE COMPANY (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
COMPANY IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO,
THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY
THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE
JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH HOLDER OF
NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS
OR OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDER OF NOTES, AS
THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(v) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AND EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, THE COMPANY WAIVES ALL RIGHTS
OF NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
TRUSTEE OR ANY HOLDER OF NOTES OF ITS RIGHTS DURING THE CONTINUANCE
OF AN EVENT OF DEFAULT TO REPOSSESS THE COLLATERAL WITH JUDICIAL
PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL OR OTHER
SECURITY FOR THE SECURED
-13-
<PAGE>
OBLIGATIONS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY
WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR
ANY HOLDER OF NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL OR OTHER SECURITY FOR THE SECURED OBLIGATIONS, TO ENFORCE
ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE OR
ANY HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY
RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS
AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN THE COMPANY ON
THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF NOTES ON THE OTHER
HAND.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Proceed Pledge and Escrow Agreement as of the day first written above.
COMPANY: IAT MULTIMEDIA, INC.
By:
---------------------------------
Name:
Title:
TRUSTEE: THE BANK OF NEW YORK
By:
---------------------------------
Name:
Title:
-14-
<PAGE>
EXHIBIT A
[Form of]
Certificate of Release of Funds in Escrow Account to Paying Agent
IAT MULTIMEDIA, INC.
Date:_____________
The undersigned officer of IAT Multimedia, Inc., a Delaware
corporation (the "Company"), hereby certifies, pursuant to Section 3(a) of the
Proceeds Pledge and Escrow Agreement, dated as of February__, 1998 (the
"Escrow Agreement"), by and between the Company and The Bank of New York, as
trustee (the "Trustee"), under the Indenture dated as of February__, 1998 (the
"Indenture"), between the Company and the Trustee, that:
1. This request for release of funds has been duly authorized
by all necessary corporate action and does not contravene,
or constitute a default under, any provision of applicable
law or regulation or the certificate of incorporation of the
Company or of the Escrow Agreement, the Indenture or any
other agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or result in the
creation or imposition of any Lien on any assets of the
Company; and
2. The funds released pursuant hereto shall be applied by the
Paying Agent toward payment of interest due on the Notes on
, and for no other purpose.
The Company hereby requests the Trustee to liquidate $
__________worth of Government Securities in the Escrow Account by not later
than 12:00 noon (New York time) on ____, and to transfer $_______ in
immediately available funds to the Paying Agent.
Capitalized terms used herein without definition shall have
the meanings set forth in the Indenture.
IAT MULTIMEDIA, INC.
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
-15-
<PAGE>
EXHIBIT B
[Form of]
Certificate of Release of Funds in Escrow Account to Company
IAT MULTIMEDIA, INC.
Date:_______________
The undersigned officer of IAT Multimedia, Inc., a Delaware
corporation (the "Company"), hereby certifies, pursuant to Section
[3(b)][3(c)] of the Proceeds Pledge and Escrow Agreement, dated as of February
__, 1998 (the "Escrow Agreement"), by and between the Company and The Bank of
New York, as trustee (the "Trustee"), under the Indenture dated as of
February__, 1998 (the "Indenture"), between the Company and the Trustee, that:
1. This request for release of funds has been duly authorized
by all necessary corporate action and does not contravene,
or constitute a default under, any provision of applicable
law or regulation or the certificate of incorporation of the
Company or of the Escrow Agreement, the Indenture or any
other agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or result in the
creation or imposition of any Lien on any assets of the
Company; and
2. The amount of funds requested to be released pursuant hereto
is no greater than the amount of funds previously used by
the Company from sources other than the Escrow Account to
make the payment of interest due on the Notes on (and not
previously released to the Company from the Escrow Account),
which interest payment has been paid in full.] [After giving
effect to the release of funds from the Escrow Account as
provided below, the amount of funds and Government
Securities remaining in the Escrow Account will be at least
125% of the amount sufficient to pay in full the remainder
of the first four (4) scheduled interest payments on the
Notes (other than the Excess Interest Amount) not already
paid in full, as confirmed in the attached written opinion
of ____________, a nationally recognized firm of independent
public accountants.
The Company hereby requests the Trustee to liquidate
$_______ worth of Government Securities in the Escrow Account by not later
than 12:00 noon (New York time) on ____________, and to transfer $________ in
immediately available funds to the Company.
Capitalized terms used herein without definition shall have
the meanings set forth in the Indenture.
IAT MULTIMEDIA, INC.
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
-16-
<PAGE>
IAT MULTIMEDIA, INC.
Geschaftshaus Wasserschloss
Aaretrasse 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, 1999,
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 AGREEMENT
("the Agreement")
between
IAT Multimedia, Inc., c/o IAT AG, Geschaftshaus Wasserschloss,
Aarestrasse 17, CH-5300 Vogelsang-Turgi (the "Company")
and
Reiner Hallauer, Wettesteinstrasse 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.
1. 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>
2. 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.
3. 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 $6, 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
<PAGE>
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 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>
EXHIBIT 10.43
AMENDED AND RESTATED AGREEMENT
AMENDED AND RESTATED AGREEMENT, dated as of December 22,
1997, by and among Richard Suter, Klaus-Dirk Sippel and Cornelis Holthuizen
(the "Stockholders"), IAT AG, a corporation organized under the laws of
Switzerland ("IAT AG") and IAT Multimedia, Inc., a corporation organized under
the laws of Delaware ("Multimedia").
W I T N E S S E T H
WHEREAS, the Stockholders own shares of the Common Stock,
par value $.01 per share (the "Common Stock") of Multimedia;
WHEREAS, the Stockholders have guaranteed (the "Guarantee")
certain indebtedness of IAT AG to Swiss Bank Corporation in the amount of
1,900,000 Swiss Francs (the "Indebtedness");
WHEREAS, Multimedia is repaying such Indebtedness amounting
to 1,341,449.82 Swiss Francs as of October 30, 1997 on behalf of IAT AG and
Swiss Bank Corporation has assigned the Guarantee to Multimedia effective upon
full repayment of the Indebtedness to Swiss Bank Corporation; and
WHEREAS, the Stockholders wish to pledge the proceeds of the
sale of an aggregate of 120,000 shares of their Common Stock to Multimedia in
satisfaction of their obligations under the Guarantee.
NOW, THEREFORE, in consideration of the foregoing and
intending to be legally bound, the undersigned hereby agree as follows:
SECTION 1. Each of the Stockholders hereby agrees (i) to execute an
agreement with respect to the opening of an account in the Stockholder's name
(the "Accounts") at Royce Investment Group ("Royce"), (ii) to deliver promptly
the stock certificates representing 50,000 shares of Common Stock in the case
of each of Messrs. Sippel and Suter and 20,000 shares of Common Stock in the
case of Mr. Holthuizen (collectively, the "Shares") for deposit in the
Accounts, and (iii) to individually give instruction to Royce to sell,
transfer or otherwise transfer such Shares on their behalf as promptly as
possible subject to (i) the Lock-up Agreements dated as of December 22, 1997
between each of the Stockholders and Royce, (ii) the Stockholders' Agreement
dated as of February 27, 1997, and (iii) any applicable laws. Any proceeds
from the sale, transfer or other disposition of such Shares will secure their
performance under the Guarantee of the Indebtedness, up to a maximum of
1,375,000 Swiss Francs. Upon compliance with the provision of this Section 1,
Multimedia agrees to release the Stockholders from their obligations under the
Guarantee (to the extent that such obligations have been assigned to
Multimedia) and undertakes to deliver the original documents evidencing the
Guarantee upon receipt from Swiss Bank Corporation.
SECTION 2. In addition, the Stockholders hereby agree not to form a
"group" as such term is defined in Section 13 of the Securities Exchange Act
of 1934, as amended, and the regulations promulgated thereunder.
<PAGE>
SECTION 3. This Agreement will terminate upon the receipt by
Multimedia of a total of 1,375,000 Swiss Francs in net proceeds from the sale,
pledge, transfer or other disposition of the Shares. Upon termination, any
remaining Shares and any proceeds from the sale of Shares in excess of the
amounts required in the preceeding sentence shall be released from this
Agreement and be delivered to the Stockholders.
SECTION 4. The parties recognize that Multimedia would be irreparably
harmed if the Stockholders do not perform their obligations under this
Agreement and that the damages could be hard to determine. The Stockholders
hereby, jointly and severally, agree to pay Multimedia the sum of 2,000,000
Swiss Francs in the aggregate if the Stockholders do not perform their
obligations under this Agreement.
SECTION 5. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument.
SECTION 6. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
SECTION 7. This Agreement shall be governed by and construed under
the laws of the State of New York, disregarding New York principles of
conflicts of laws which would otherwise provide for the application of the
substantive laws of another jurisdiction. The parties agree that all actions
or proceedings arising in connection with this Agreement shall be tried and
litigated only in the State of New York. The parties waive any right they may
have to assert the doctrine of forum non conveniens or to object to such
venue, and hereby consent to court ordered relief.
SECTION 8. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of Vertical.
SECTION 9. Any term of this Agreement may be amended only by the
written consent of Vertical and the party or parties to be bound.
SECTION 10. This effectiveness of this Agreement is subject to (i)
the approval of Royce pursuant to the Lockup Agreements between each
Stockholder and Royce and (ii) the approval of Vertical Financial Holdings
Establishment ("Vertical") pursuant to the Stockholders' Agreement among
Vertical, the Stockholders and certain other parties.
SECTION 11. The Stockholders waive any claims they may have against
IAT AG as a result of the Guarantee effective upon completion of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
IAT MULTIMEDIA, INC.
By: /s/ Viktor Vogt
----------------------------
Name: Viktor Vogt
Title: Co-Chairman
IAT AG
By: /s/ Viktor Vogt
----------------------------
Name: Viktor Vogt
Title: Co-Chairman
/s/ Richard Suter
-------------------------------
RICHARD SUTER
/s/ Klaus-Dirk Sippel
-------------------------------
KLAUS-DIRK SIPPEL
/s/ Cornelis Holthuizen
-------------------------------
CORNELIS HOLTHUIZEN
AGREED TO:
VERTICAL FINANCIAL HOLDINGS ESTABLISHMENT
/s/ Jacob Agam
- -----------------------
By: Jacob Agam
Name: Chairman
<PAGE>
AMENDMENT No. 1
to
STOCK OPTION AGREEMENT
FOR
ARNOLD J. WASSERMAN
This Amendment No. 1 to the Stock Option Agreement for Arnold J.
Wasserman is effective as of January 27, 1998, by and between IAT MULTIMEDIA,
INC., a Delaware corporation with its principal office at IAT AG, Geschaftshaus
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 973-228-3336
("Mr. Wasserman").
W I T N E S S E T H:
WHEREAS, the Company and Mr. Wasserman previously entered into a Stock
Option Agreement, dated as of July 18, 1997 (the "Agreement") relating to the
granting by the Company of certain stock options to Mr. Wasserman; and
WHEREAS, the parties mutually desire to modify certain portions of the
Agreement.
NOW, THEREFORE, the parties hereby agree to amend the above-referenced
Agreement by adding the following new language:
1. Modify Section 2(c) in its entirety to read:
"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 June 26, 2001,
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."
Except as herein amended, the provisions of the Agreement remain
unchanged and in full effect.
[NYCORP] 73264.1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 as of the day and year first written above.
IAT MULTIMEDIA, INC.
By: /s/ Jacob Agam
----------------------------
Name: Jacob Agam
Title: Co-Chairman of the
Board
/s/ Arnold J. Wasserman
----------------------------
Arnold J. Wasserman
<PAGE>
AMENDMENT No. 1
to
STOCK OPTION AGREEMENT
FOR
REINER HALLAUER
This Amendment No. 1 to the Stock Option Agreement for Reiner Hallauer
is effective as of January 27, 1998, by and between IAT MULTIMEDIA, INC., a
Delaware corporation with its principal office at IAT AG, Geschaftshaus
Wasserschloss, Aarestrasse 17, CH-5300 Vogelsang- Turgi, Switzerland, fax number
41-56-223-5023 (the "Company") and REINER HALLAUER, an individual residing at
Weltersteinstrasse 2, D-86949 Windach, Germany, fax number 49-8193 999 483 ("Mr.
Hallauer").
W I T N E S S E T H:
WHEREAS, the Company and Mr. Hallauer have previously entered into a
Stock Option Agreement, dated as of August 25, 1997 (the "Agreement") relating
to the granting by the Company of certain stock options to Mr. Hallauer; and
WHEREAS, the parties mutually desire to modify certain portions of the
Agreement.
NOW, THEREFORE, the parties hereby agree to amend the above-referenced
Agreement by adding the following new language:
1. Modify Section 2(c) in its entirety to read:
"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 June 26, 2001 or the
date of Mr. Hallauer's death or disability, whichever is
earlier, 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."
Except as herein amended, the provisions of the Agreement remain
unchanged and in full effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment No. 1 as of the day and year first written above.
IAT MULTIMEDIA, INC.
By: /s/ Jacob Agam
----------------------------
Name: Jacob Agam
Title: Co-Chairman of the
Board
/s/ Reiner Hallauer
----------------------------
Reiner Hallauer
[NYCORP] 73262.1
<PAGE>
_______ __, 1998
IAT Multimedia, Inc.
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi, Switzerland
Gentlemen:
You have agreed that Royce Investment Group, Inc. ("Royce")
may act as a non-exclusive finder or financial consultant for you in various
transactions in which IAT Multimedia, Inc. (the "Company") may be involved,
such as mergers, acquisitions, joint ventures, debt or lease placement and
similar or other on or off balance sheet corporate finance transactions,
product or technology licensing arrangements, research and development
sponsorships or product or service sales. The Company hereby agrees that in
the event that Royce or an agent, representative or other designee of Royce
shall first introduce to the Company another party or entity, and that as a
result of such introduction, a transaction in the nature described above is
consummated (a "Consummated Transaction"), then the Company shall pay to Royce
a finder's fee as follows:
a. 5% of the first $2,000,000 of the consideration
paid in such transaction;
b. 4% of the second $2,000,000 of the consideration
paid in such transaction; and
c. 3% of any consideration in excess of $4,000,000.
The fee due Royce shall be paid by the Company in cash at
the closing of the Consummated Transaction, without regard to whether the
Consummated Transaction involves payment in cash, in stock, or a combination
of stock and cash, or is made on an installment basis. By way of example, if
the Consummated Transaction involved securities of the acquiring entity
(whether securities of the Company, if the Company is the acquiring party, or
securities of another entity, if the Company is the selling party) having a
value of $5,000,000, the cash consideration to be paid by the Company to Royce
at closing shall be $210,000. The
-1-
<PAGE>
consideration paid in the Consummated Transaction shall include, for purposes
of calculating Royce's fee hereunder, assumption of liabilities by, and any
payments or distributions of cash or other assets made to the Company or to
the principals of the Company prior to, simultaneously with or subsequent to
the Consummated Transaction if such payments or distributions are made in
contemplation of or in connection with the Consummated Transaction.
Notwithstanding the foregoing, in the event the Consummated Transaction
involves continuing payments to the Company such as product sales to a
customer introduced to the Company by Royce or royalties based on sales (a
"Continuing Transaction"), the fee due Royce shall be calculated as a royalty
on net sales or royalty payments at the percentages set forth above during the
five year period following the first payment received by the Company in
connection with the Continuing Transaction.
In the event that for any reason the Company shall fail to
pay to Royce all or any portion of the finder's fee payable hereunder when
due, interest shall accrue and be payable on the unpaid cash balance due
hereunder from the date when first due through and including the date when
actually collected by Royce, at a rate equal to four percent above the prime
rate of Citibank, N.A., in New York, New York, computed on a daily basis and
adjusted as announced from time to time.
This agreement shall be effective on the date hereof and
shall expire on the fifth anniversary from the date hereof provided, however,
that the obligation of the Company to pay fees in connection with a Continuing
Transaction shall survive termination of this agreement.
Notwithstanding anything herein to the contrary, if the
Company shall, within 180 days immediately following the termination of the
five year period provided above, conclude a Consummated Transaction (which
shall be deemed to include the right to received a payment in connection with
a Continuing Transaction) with any party introduced to the Company by Royce or
its agent, representative or other designee prior to the termination of said
five year period, the Company shall also pay Royce the fee determined above.
The Company represents and warrants to Royce that Royce's
engagement hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State
of New York and shall be governed by the laws of such state, without giving
effect to the conflicts of laws rules thereunder. The Company hereby submits
and consents to the jurisdiction of the state or federal courts of New York in
connection with any action arising under this agreement.
This agreement shall be binding upon, and enforceable
against, the successors and assigns of each of the undersigned.
-2-
<PAGE>
This agreement embodies the entire and final agreement of the parties
on the subject matter stated herein. No amendment or modification of this
agreement shall be valid or binding upon the Company or Royce unless made in
writing and signed by both parties. All prior understandings and agreements
relating to the subject matter of this agreement including, without
limitation, that certain merger and acquisition agreement dated April 1, 1997,
are hereby expressly superseded and terminated.
Please sign this letter at the place indicated below,
whereupon it will constitute our mutually binding agreement with respect to
the matters contained herein.
Very truly yours,
ROYCE INVESTMENT GROUP, INC.
By:
-------------------------------
Agreed to and accepted:
IAT MULTIMEDIA, INC.
By:
-------------------------------
-3-
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment No. 3 to 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
January 28, 1998
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment No. 3 to 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
January 28, 1997
