<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
IAT MULTIMEDIA, INC.
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- - -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - -------------------------------------------------------------------------------
(3) Per unit price of other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- - -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - -------------------------------------------------------------------------------
(5) Total fee paid:
- - -------------------------------------------------------------------------------
[ ] Fee paid previously without preliminary materials:
- - -------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
- - -------------------------------------------------------------------------------
<PAGE>
[IAT Logo]
[NOTE: DATES WILL BE FILLED IN BY B&M AFTER THE U.S. SECURITIES AND EXCHANGE
COMMISSION COMMENTS ON THIS PROXY'S SUBMISSION.]
July [__], 1998
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of IAT Multimedia, Inc. (the "Company") on Wednesday, July [__], 1998 at the
offices of Baker & McKenzie, 805 Third Avenue, 23rd Floor, New York, New York
10022 at 10:00 a.m. A Notice of the Meeting, a Proxy and a Proxy Statement
containing information about the matters to be acted upon at the meeting are
enclosed.
All holders of Common Stock as of the close of business on July [__],
1998 are entitled to vote at the Annual Meeting.
A record of the Company's activities for the year 1997 is included in
the Annual Report on Form 10-K enclosed herewith. We look forward to greeting
as many of our stockholders in person as possible. Whether or not you attend
the Annual Meeting, the Company requests that you please exercise your voting
rights by completing and returning your Proxy promptly in the enclosed
self-addressed, stamped envelope. If you attend the meeting and desire to vote
in person, your Proxy will not be used.
Thank you for your continued support of our Company.
Sincerely,
JACOB AGAM
Chairman of the Board of Directors
<PAGE>
[IAT Logo]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
July [__], 1998
To Our Stockholders:
The Annual Meeting of Stockholders of IAT Multimedia, Inc. (the
"Company"), a Delaware corporation, will be held at the offices of Baker &
McKenzie, 805 Third Avenue, 23rd Floor, New York, New York 10022, on July [__],
1998 at 10:00 a.m. to act upon the following matters:
PROPOSAL NO. 1
To elect six directors to serve for the ensuing year.
PROPOSAL NO. 2
To ratify the appointment of Rothstein, Kass & Company, P.C. as
independent auditors of the Company for the fiscal year ending December 31,
1998.
PROPOSAL NO. 3
To ratify and approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of stock to 1,875,000
shares of Series A Preferred Stock, 10 million shares of preferred stock and 50
million shares of common stock.
PROPOSAL NO. 4
To ratify and approve an amendment to the Company's By-laws to reduce
the percentage of outstanding stock to constitute a quorum at meetings of
stockholders.
In addition, the Company will consider and act upon such other matters
as may properly come before the meeting or any adjournment thereof. Information
regarding the matters to be acted upon at the Annual Meeting is contained in
the accompanying Proxy Statement.
The Board of Directors has fixed the close of business on July [__],
1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the meeting and any postponement or adjournment
thereof. Accordingly, only holders of record of the Company's voting stock at
the close of business on July [__], 1998 will be entitled to vote at the Annual
Meeting and any adjournment or postponement thereof.
Management sincerely desires the attendance of every stockholder at
the Annual Meeting. It is recognized however, that some will be unable to
attend.
IN ORDER TO ACHIEVE A QUORUM REQUIRED TO CONDUCT BUSINESS AT THE
ANNUAL MEETING, WE ASK THAT YOU VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN THE SELF-ADDRESSED, STAMPED ENVELOPE. YOU MAY REVOKE YOUR PROXY AND VOTE IN
PERSON IF YOU ARE LATER ABLE TO ATTEND IN PERSON.
By order of the Board of Directors,
--------------------------
Secretary
<PAGE>
[IAT Logo]
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
----------------
This Proxy Statement is being furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of IAT Multimedia,
Inc., a Delaware corporation (the "Company" or "Multimedia"), for use at the
Company's Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Wednesday, July [__], 1998 at the offices of Baker & McKenzie, 805 Third
Avenue, 23rd Floor, New York, New York 10022 at 10:00 a.m., and any
adjournments thereof.
The Company's principal executive offices are located at Geschaftshaus
Wasserschloss, Aarestrasse 17, CH-5300, Vogelsang-Turgi, Switzerland.
This Proxy Statement and the enclosed proxy are scheduled to be mailed
on or about July [__], 1998 to all stockholders entitled to vote at the Annual
Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
Stockholders of record of the Company's voting stock at the close of
business on July [__], 1998 are entitled to notice of, and to vote at, the
Annual Meeting. A quorum is necessary to transact business at the Annual
Meeting. The presence in person or by proxy of the holders of record of a
majority of the combined voting power of the outstanding shares entitled to
vote on each proposal shall constitute a quorum. Abstentions and broker non-
votes (i.e., shares held by a broker for its customers that are not voted
because the broker does not receive instructions from the customer or because
the broker does not have discretionary voting power with respect to the item
under consideration) will be counted as present for purposes of determining the
presence or absence of a quorum for the transaction of business.
At the record date there were issued and outstanding and entitled to
vote at the Annual Meeting, [____] [B&M TO COMPLETE] shares of the Company's
Common Stock, par value $.01 per share (the "Common Stock").
In accordance with the Amended and Restated Certificate of
Incorporation and By-Laws of the Company and the General Corporation Law of the
State of Delaware a majority of the votes duly cast is required for approval of
the Proposals to be acted upon at the Annual Meeting.
Under the General Corporation Law of the State of Delaware, although
abstaining votes and broker non-votes are deemed to be present for purposes of
determining whether a quorum is present, abstaining votes and broker non-votes
are not deemed to be votes duly cast. As a result, abstentions and broker
non-votes will not be included in the tabulation of the voting results with
respect to the proposals under consideration at the Annual Meeting and
therefore with respect to such matters, abstentions and broker non-votes do not
have the effect of votes in opposition.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by (i) filing with the Secretary of
the Company, at or before the Annual Meeting, but in any event prior to the
vote on the matter to which the revocation is sought, a written notice of
revocation bearing a later date than the proxy; (ii) duly executing and
submitting a subsequent proxy relating to the Annual Meeting; or (iii) voting
in person at the Annual Meeting (although attendance at the Annual Meeting will
not, in and of itself, constitute a revocation of proxy).
Management knows of no other matter to be presented at the Annual
Meeting. If any other matter should be presented at the meeting upon which a
vote may be taken, it is intended that shares represented by proxies in the
accompanying form will be voted with respect thereto in accordance with the
judgment of the person or persons
<PAGE>
voting such shares. Jacob Agam and Klaus Grissemann, or either of them, each
with full power of substitution, have been designated as proxies to vote the
shares solicited thereby.
The cost of this solicitation or proxies will be borne by the Company.
Arrangements will be made with brokerage houses, custodians, nominees and
fiduciaries to send proxies and proxy materials to their principals and, upon
request, the Company will reimburse them for their expense in so doing.
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's 1998 Annual Meeting of
Stockholders must be received by the Corporate Secretary of the Company no
later than [_______ __], 1999 in order to be included in the proxy soliciting
material relating to that meeting.
RECENT DEVELOPMENTS
Private Placement
The Company entered into a securities purchase agreement (the
"Purchase Agreement"), dated as of June 19, 1998, with two purchasers (the
"Investors") and consummated the first transaction contemplated thereby
("Tranche A") in a private placement of its securities pursuant to Regulation
D. Tranche A consisted of the issuance of 198,255 shares of its common stock
and $3 million aggregate principal amount of the Company's 5% Convertible
Debentures due 2001 ("Debentures") in exchange for $5 million in cash. In
addition, the Company issued five-year warrants to purchase 158,829 shares of
common stock at a price equal to $13.25 per share, 120% of the Average Price
(as defined in the Debentures; the "Warrants") to the Investors and the
transaction's placement agent. The Company has undertaken to register with the
Securities and Exchange Commission (the "SEC") the shares of common stock
issued and subsequently issuable upon conversion of the Debentures issued in
Tranche A within 75 days of their issuance.
The Debentures are immediately convertible into shares of
Common Stock at the option of either the Company (subject to certain
limitations) or the Investors. Resales of shares of common stock issued upon
conversions at the option of the Investors are prohibited for a period of nine
months from the date of issuance; thereafter, sales by the Investors are
subject to certain volume limitations. Any portion of the Debentures remaining
unconverted on the second anniversary of the effectiveness of the registration
statement for the underlying shares shall convert automatically. The number of
shares of Common Stock issuable upon conversion of the Debentures is the lesser
of (i) 120% of the average of the closing bid prices from the five trading
days immediately preceeding the Original Issue Date (as defined) and (ii) 87%
of the average of the five lowest closing bid prices during the 15 Trading Days
immediately preceding the conversion date. The conversion price on the Tranche
A Closing Date (as defined in the Purchase Agreement) would have been $8.265
per share. The terms and conditions with respect to conversion of Debentures
and the number of shares of Common Stock issuable thereunder are set forth in
the Purchase Agreement and the Debentures which are incorporated herein by
reference.
The Purchase Agreement also provides that, among other things,
upon or simultaneously with the consummation of an acquisition which had
positive EBITDA in its last fiscal quarter and revenues of at least DM 100
million in its most recent fiscal year, the Investors wil purchase up to $12
million aggregate principal amount of additional Debentures ("Tranche B").
Additional Warrants to purchase 141,171 shares of common stock are also
issuable in Tranche B. The amount of Debentures issuable in Tranche B is
limited to such amount, assuming the conversion of the full principal amount of
such Debentures occurs on the Original Issue Date thereof and the payment of
interest on account of such principal amount is made for the full term in
shares of Common Stock, result in the issuance of a number of underlying shares
which, when added to the number of underlying shares previously issued in
respect of conversions of Debentures and as payment of interest theron and as
are then issuable upon conversion in full of the unconverted principal amount
of all previously issued Debentures and as payment of interest thereon in
shares of Common Stock, as would equal 70% of the otherwise issuable amount.
The Company is also obligated to register the shares of
Common Stock issuable upon exercise of the Warrants and upon conversion of the
Debentures in Tranche B with the SEC and maintain such registration for three
years or until the Investors have sold all such Common Stock. The complete
terms and conditions relating to all such registration requirements are set
forth in the Registration Rights Agreement which is incorporated herein.
In compliance with NASDAQ rules, at no time may the Investors
convert Debentures into such number of shares of Common Stock as would exceed
19.99% of the outstanding Common Stock on the date of the closing of Tranche A
unless the stockholders of the IAT approved such transaction. The Company will
pay an amount in cash to the Investors for any conversions prohibited by such
restriction 22 months after the effectiveness of the Registration Statement.
- 2 -
<PAGE>
New Directors
On June 24, 1998, the Company announced the appointment of
two new members of the Board of Directors, Robert Weiss and Dr. Erich Weber.
Robert Weiss, age 51, is a European-based PC specialist with 25 years of
experience in the technology and professional computing industry. He is a
senior consultant to various leading PC companies, and publishes on the
industry. Dr. Erich Weber, 56, is an expert in data processing and related
software, as well as co-founder and member of the Board of Directors of a Swiss
EDP-consulting firm. Messrs. Weiss and Weber replace Reiner Hallauer and Arnold
Wasserman who both recently resigned.
BACKGROUND
Unless the context otherwise requires, the "Company" refers to IAT
Multimedia, Inc., a Delaware corporation and its subsidiaries. The Company has
two wholly owned subsidiaries, IAT AG, a corporation organized under Swiss law
("IAT AG"), IAT Germany, a corporation organized under German law ("IAT
Germany"), and two 15% owned subsidiaries, Communications Systems, a
corporation organized under German law ("Communications Systems") and IAT
Communication AG, a corporation organized under Swiss law ("Communication AG").
The Company also owns 100% of the capital stock of the holder of all the
general partnership interest in FSE Computer-Handel GmbH & Co. KG, a
corporation organized under German law ("FSE"), and 80% of the limited
partnership interests thereof. The Company expects to transfer its 80%
ownership of FSE to IAT Germany in the second half of 1998.
In March 1998, the Company transferred the business and certain of the
assets and liabilities of its Swiss subsidiary and one of its German
subsidiaries to newly organized companies in which the Company has a 15%
interest (the "Spinoffs"). See "--Spinoffs." Unless otherwise specified, all
references to the Company include FSE and give effect to the Spinoffs. The
Company's functional currency is the Swiss Franc. The functional currency of
FSE and IAT Germany is the German Deutsche Mark. Foreign currency amounts in
the Company's consolidated financial statements have been converted into U.S.
dollars. See "Note 2 of the Consolidated Financial Statements of IAT" contained
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997 (the "Form 10-K").
References to "U.S. Dollars" or "$" are to United States currency, and
references to "Deutsche Mark" or "DM" and "Swiss Franc" or "SF" are to the
German and Swiss currencies, respectively. The Company 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, translations of certain Deutsche Mark or
Swiss Franc amounts into U.S. Dollars have been included herein, but 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.
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership
of Common Stock as of June 17, 1998 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. Unless
otherwise indicated, the address of these directors and officers is c/o IAT
Multimedia, Inc., Geschaftshaus Wasserschloss, Aarestrasse 17, CH-5300
Vogelsang-Turgi, Switzerland. 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 Relationships and Related
Transactions."
<TABLE>
<CAPTION>
NAME AND ADDRESS Number of Shares Percentage of Shares
OF BENEFICIAL OWNER Beneficially Owned Beneficially Owned (%)
- - ------------------- ------------------ ----------------------
<S> <C> <C>
Executive Officers and Directors:
Jacob Agam(1)............................................. -- --
Klaus Grissemann.......................................... 239,395(2) 2.45
Alfred Simmet............................................. 171,949(3) 1.77
Viktor Vogt............................................... 553,795(4) 5.68
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS Number of Shares Percentage of Shares
OF BENEFICIAL OWNER Beneficially Owned Beneficially Owned (%)
- - ------------------- ------------------ ----------------------
<S> <C> <C>
Executive Officers and Directors:
Jacob Agam(1)............................................. -- --
Klaus Grissemann.......................................... 239,395(2) 2.45
Alfred Simmet............................................. 171,949(3) 1.77
Viktor Vogt............................................... 553,795(4) 5.68
Volker Walther(5)......................................... 993,254(6) 10.19
5% or Greater Stockholders:
Behala Anstalt(7)......................................... 592,804(8) 5.93
Henilia Financial Ltd.(9)................................. 594,694(10) 5.95
Lupin Investments Services Ltd.(11)....................... 592,804(12) 5.93
Klaus-Dirk Sippel(13)..................................... 1,055,923(14) 10.45
Richard Suter(15)......................................... 721,551(16) 7.29
Vertical Financial Holdings Establishment(17)............. 1,580,304(18) 15.21
All executive officers and directors of the Company
as a group (5 persons)................................ 1,958,389(19) 19.84
</TABLE>
- - ---------------
(1) Jacob Agam, the Co-Chairman of the Company, is the Chairman of the Board
of Vertical Financial Holdings Establishment, a company organized under
the laws of Lichtenstein ("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 of Orida. Mr. Agam disclaims beneficial ownership of the shares
held by Vertical.
(2) Includes 15,151 shares of Common Stock which are held in escrow but in
respect of which Mr. Grissemann retains the power to vote and includes
50,000 options which are currently exercisable. See "--Escrow Shares."
(3) Includes 25,000 options which are currently exercisable.
(4) Includes 69,605 shares of Common Stock which are held in escrow but in
respect of which Dr. Vogt retains the power to vote and 41,666 options
which are currently exercisable See "--Escrow Shares."
(5) Volker Walther's address is Pestalozziweg 8, D-34439, Willebadessen,
Germany.
(6) Includes 52,500 shares held by Volker Walther, 50,000 options which are
currently exercisable and 819,494 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."
(7) The address of Behala Anstalt is Heiligkreuz 6, PL-9490 Vaduz,
Liechtenstein.
(8) 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."
(9) The address of Henilia Financial Ltd. is 35A Regent Street, Belize City,
Belize.
(10) 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."
(11) The address of Lupin Investments Services Ltd. is P.O. Box 3186,
Tortola/BVI, Road Town, Tortola, British Virgin Islands.
(12) 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."
(13) 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
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<PAGE>
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.
(14) 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."
(15) Richard Suter's address is Lendikerstrasse 25, CH-8484 Weisslingen,
Switzerland.
(16) 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."
(17) The address of Vertical Financial Holdings Establishment is
Hombrechtikerstrasse 61, CH-8640 Rapperswil, Switzerland.
(18) 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."
(19) Includes options to purchase an aggregate of 166,666 shares of Common
Stock which are currently exercisable.
PROPOSAL ONE - ELECTION OF DIRECTORS
The By-laws of the Company authorize the Board of Directors (the
"Board") to fix the number of Directors from time to time, but at no less than
three Directors. The Board has fixed the number of Directors to be elected at
this Annual Meeting at six. All directors hold office until the next annual
meeting of stockholders following their election and until their successors are
elected and qualified, subject to the provisions of the various agreements. See
"--Rights to Nominate Directors." Officers who have not signed employment
agreements with the Company serve at the discretion of the Board.
If the enclosed Proxy is signed and returned, it will be voted FOR the
election of the persons named below, as nominees for election as Directors,
unless contrary directions are given therein. However, should any nominee
become unavailable or prove unable to serve for any reason, the Proxy will be
voted for the election of such other person as the Board may select to replace
such nominee. The Board has no reason to believe that any of the nominees will
not be available or will prove unable to serve.
DIRECTORS
Nominees
Each of Messrs. Agam, Grissemann, Walther, Vogt, Weber and Weiss
currently serve as a directors of the Company. In addition, Messrs. Grissemann
and Agam are executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Current Position with the Company
---- --- ---------------------------------
<S> <C> <C>
Jacob Agam............... 42 Chairman of the Board
Klaus Grissemann......... 54 Director and Chief Financial Officer
Viktor Vogt.............. 50 Director
Volker Walther........... 36 Director
Erich Weber.............. 56 Director
- 5 -
<PAGE>
Robert Weiss............. 51 Director
</TABLE>
Jacob Agam has served as the Co-Chairman of the Board of the Company
since its organization in October 1996 and became the sole Chairman as of April
1, 1998 Mr. Agam is a founder and Chairman of Orida Capital Ltd. ("Orida"), a
merchant banking and venture capital firm, 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 the Company
since its organization in October 1996 and was first elected to serve as a
director in December 1996. Mr. Grissemann joined IAT AG in 1989 as Chief
Financial Officer, 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 first elected to serve as a director of the Company
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.
Dr. Viktor Vogt has served as the Co-Chairman of the Board, Chief
Executive Officer and President of the Company since its organization in
October 1996 until the Spinoffs in March 1998. Since March 1998, Dr. Vogt has
been a director of IAT and a consultant to IAT. 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 from October 1996 to
March 1998. 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.
Dr. Erich Weber was appointed as a director of the Company by the
Board in June 1998, filling the vacancy created by the resignation of Arnold J.
Wasserman. He also serves on the Audit and Compensation Committees. Dr. Weber's
expertise is in information automation. He currently serves in management of
Revi Informatik following ten years as a partner and Manager EDP consulting of
Revisuisse Price Waterhouse, Zurich. Prior thereto, he was a department manager
of infomatics for Migros Genossenschaftsbund and Alusuisse. Dr. Weber earned
his doctorate in economic science from the University of Zurich in 1970.
Robert Weiss was was appointed as a director of the Company by the
Board in June 1998, filling the vacancy created by the resignation of Reiner
Hallauer. He also serves on the Audit and Compensation Committees. In 1980 he
founded Robert Weiss Consulting, an independent electrical engineering
consultancy, and has served as its president since. Previously, he served nine
years as a consultant to Alusuisse in its headquarters and department of
research and development. Mr. Weiss received a degree in chemistry from
Technical College Winterthur in 1970.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF
THE NOMINEES NAMED ABOVE.
Rights to Nominate Directors
So long as Vertical holds at least 10% of the Common Stock, Vertical
has the right, but not the obligation, to nominate two persons as members of
the management slate for election to the Company'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 Chairman of the Board, is
the person designated by Vertical. Vertical intends to nominate a second
director to the Board of Directors. The existence of such rights increases the
control over the Company by its existing stockholders. Mr. Agam is the nominee
of Vertical. See "Certain Relationships and Related Transactions -- Private
Placement and Related Transaction."
- 6 -
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Audit Committee currently consists of Messrs. Walther, Weber and
Weiss. The primary functions of the Audit Committee are to recommend engagement
of the Company's independent public accountants and to maintain communications
among such independent accountants, the Board of Directors and the Company's
internal accounting staff with respect to accounting and audit procedures, the
implementation of recommendations by such independent public accountants, the
adequacy of the Company's internal controls and related matters.
Compensation Committee
The Compensation Committee currently consists of Messrs. Walther,
Grissemann, Weber and Weiss. 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 accordingly.
Compensation Committee Interlocks and Insider Participation
During 1997 the Compensation Committee consisted of Messrs. Hallauer,
Wasserman, Walther and Grissemann, none of whom is a current or former employee
or officer of the Company, or any of its subsidiaries except Mr. Grissemann
who, while not an employee of the Company, provides the services of a Chief
Financial Officer and is indirectly compensated by the Company. See
"--Agreements with Directors and Executive Officers."
Underwriting Committee
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 the
Company. Vertical has not yet named its second nominee 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 the Company to select an
underwriter and to negotiate all of the terms and conditions of any
underwriting. 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 full Board of Directors of the Company provided that the resolution of
any such issue by the Board of Directors shall not be effectuated without the
written consent of Vertical.
BOARD MEETINGS AND COMMITTEES
The Company consummated its IPO on April 1, 1997. Since such date, the
Board met seven times, the audit committee met one time and the compensation
committee acted once by unanimous written consent.
REMUNERATION OF MANAGEMENT
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to Dr. Vogt, the Chief Executive
Officer of the Company, and the three most highly compensated executive
officers other than Dr. Vogt whose annual salary and bonus exceeded $100,000
(the "Named Executive Officers") during the fiscal year ended December 31,
1997:
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<PAGE>
SUMMARY COMPENSATION TABLE
for the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation(1) Awards Payouts
Other Annual Restricted Securities
Name and Salary Compensation Stock Underlying All other
Principal Position Year ($) Bonus ($) ($) Awards(s) Options(#) Compensation ($)
------------------ ---- --- --------- --- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Viktor Vogt............... 1997 136,458 10,000 16,965(2) -- -- --
9,387(3)
1996 120,833 -- 15,178(2)
9,325(3)
1995 120,833 6,949(3) 13,955(2)
9,325(3)
Klaus Grissemann -- --
Chief Financial Officer(4) 1997 142,083
1996 136,163 --
1995 114,635 --
Franz Muller.............. 1997 95,632 -- 7,774(2) -- -- --
8,633(3)
1996 87,299 -- 7,729(2)
8,633(3)
1995 87,299 -- 5,374(2)
8,633(3)
Alfred Simmet(5) 1997 22,066
Chief Operating Officer of FSE
</TABLE>
- - -----------------
(1) Compensation is paid in Swiss Francs and German Deutsche Marks and is
converted into U.S. dollars at the exchange rate of $1.00 = 1.44 SF and
$1.00 = 1.775DM on December 28, 1997.
(2) 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.
(3) Represents payments made by the Company for automobile leases for the
Named Executive Officers.
(4) 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."
(5) 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 See "--Employment, Consulting and Settlement
Agreements."
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
There were no options options granted or exercised in fiscal year 1997.
COMPENSATION OF DIRECTORS
Directors of the Company currently do not receive any compensation as
such, but directors who are not also executive officers of the Company are
reimbursed for expenses incurred in connection with their service on the Board.
The Company may establish differing 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 the Company nominated by Vertical. Jacob Agam is the current
nominee of Vertical.
AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
Dr. Vogt
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 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
provided that Dr. Vogt was to receive approximately, $140,000 in annual salary
(based upon a fixed exchange rate of SF 1.35 = $1.00), a non-accountable
expense allowance 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
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<PAGE>
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 contained 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 was 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 provided 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.
In connection with the Spinoffs, Dr. Vogt resigned from his positions
as Co-Chairman and CEO of the Company and from management positions in the
Company's subsidiaries and the employment agreement described above terminated
as of April 1, 1998. Dr. Vogt continues to provide service to the Company as a
director and a consultant. In addition, Dr. Vogt and the Company have agreed to
a three-year consulting contract whereby Dr. Vogt will provide the Company with
his services in respect of (i) evaluation and analysis of technology issues,
(ii) identification, evaluation and integration of acquisitions for the Company
and (iii) such other matters as the Board of Directors of the Company may
request and to which Dr. Vogt may agree. In connection with such consulting
agreement, Dr. Vogt will be entitled to receive the sum of $2,000 per month for
his normal duties. The Company and Dr. Vogt will negotiate fees for services
above Dr. Vogt's normal duties. In addition, the Company will reimburse Dr.
Vogt for his reasonable expenses in connection with his work for the Company.
Dr. Vogt has also entered into a consulting agreement with FSE to help
integrate IAT and FSE for which FSE will pay Dr. Vogt $2,000 per month, plus
reimbursement of reasonable expenses, for such services. In addition, Dr. Vogt
will receive options for 50,000 shares of Common Stock. See "--Stock Option
Agreements."
Mr. Grissemann
Mr. Grissemann's services are provided on a per diem basis by
Grissemann Consulting S.A. pursuant to an agreement (the "Grissemann Consulting
Agreement"), dated September 1, 1992, and amended on December 19, 1994, between
IAT AG and Grissemann Consulting S.A. The Grissemann Consulting 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 shall not be less than 30% of Mr. Grissemann's business time.
Grissemann Consulting S.A. is paid a fee of SF 775 (approximately $538) per day
to be amended yearly in line with increases in salary of IAT AG's other
executive officers plus expenses of an automobile to be provided to Mr.
Grissemann.
Mr. Muller
Franz Muller and IAT AG entered into an employment agreement on March
1, 1991 (the "Muller Employment Agreement") pursuant to which Mr. Muller was
appointed Director of Product Development (Hardware), Technical Support of IAT
AG. The Muller Employment 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 Employment Agreement contains a confidentiality
provision which extends beyond termination of the employment relationship. The
Muller Employment 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. In connection with the Spinoffs, the Company's
rights and obligations under the Muller Employment Agreement were transferred
to Communication AG.
Dr. Simmet
On November 12, 1997, FSE entered into an employment agreement with
Dr. Alfred Simmet 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), and reimburse him for
travel, other business-related expenses and expenses of an automobile provided
to Dr. Simmet. 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. 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.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
Certain stockholders of the Company have entered into a stockholders'
agreement (the "Stockholders' Agreement") dated as of February 27, 1997.
Pursuant to the Stockholders' Agreement, Walther Glas and Messrs. Vogt and
Sippel (the "Registration Rights Group") have agreed not to sell or otherwise
dispose of any shares of Common Stock or exercise any registration rights, or
seek the consent of Royce Investment Group, the underwriter for the IPO (the
"Representative") 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
Representative for such sale or disposition, without the prior written consent
of each member of the Registration Rights Group and Vertical until April 1,
1999. 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.
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
3.0 million to SF 10.0 million 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 had an annual interest rate of 8% and principal
and accrued interest was repaid on February 2, 1998. In December 1996, Vertical
transferred 200,000 of the warrants it had purchased in the Private Placement
(as defined herein) to Mr. Sippel.
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<PAGE>
Registration Rights
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 which 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 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 the IPO. In
addition, the Registration Rights Agreements provide that any exercise of
registration rights in such agreements is subject to Vertical's approval.
Walther Glas and Messrs. Vogt and Sippel have entered into agreements with
Royce Investment Group, Inc., (the "Representative") pursuant to which they
have agreed not to sell, pledge or otherwise dispose of their shares of Common
Stock until March 26, 2000 without the consent of the Representative 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 Representative
for such sale, disposition or exercise, without Vertical's prior written
consent until April 1, 1999.
HIBEG Loan
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. The HIBEG Loan was assumed by Communication Systems in the
Spinoffs.
Certain Loans to the Company
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
termination 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. Such shares were sold in
March 1998 pursuant to Rule 144 and the Company received approximately $494,000
of the proceeds of such sales. 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. This loan has
been assumed by Communication Systems in the Spinoffs.
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<PAGE>
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 Company's recapitalization) and the warrants to Vertical, Behala
Anstalt, Lupin Investments Services Ltd., Heinously Financial Ltd. and A.i.
Cereal for an aggregate gross purchase price of $1.5 million or $.80 per share
of Series A Preferred Stock of Multimedia (the "Private Placement").
Upon consummation of the Company's IPO in April 1997 all outstanding
shares of the Series A Preferred Stock were converted into shares of Common
Stock.
The Stock Purchase Agreement contains certain continuing obligations
of the Company. Pursuant to the Stock Purchase Agreement, Vertical has the
right to designate the Chairman of the underwriting committee which is vested
with full and exclusive responsibility and authority on behalf of Multimedia to
select an underwriter and to negotiate all of the terms and conditions of any
such underwriting. 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 Representative, 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 Representative. The Investor Rights Agreement
further provides for one demand and two piggy-back registration rights with
respect to the Common Stock issuable upon conversion of the Series A Preferred
Stock and the exercise of the Investor Warrants.
In addition, also in connection with the Private Placement, the
Company entered into the Marketing Agreement with General Capital, an affiliate
of Vertical. The Marketing Agreement provides that General Capital will assist
the Company in connection with marketing its products worldwide, arranging debt
or equity financing for the Company's products to be purchased by its
customers, and arranging financing for the Company's operations, leasing
programs, joint ventures and distribution arrangements, in each case for the
further enhancement of the Company's marketing strategy. The Marketing
Agreement has a five year term expiring on October 26, 2001. Pursuant to the
Marketing Agreement, the Company paid $100,000 at the closing of the Private
Placement and the
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<PAGE>
remaining $400,000 in connection with the IPO, which payment was made with a
portion of the proceeds of the IPO. The Company has charged the Marketing
Agreement expenses to Selling Expenses in the year ended December 31, 1997.
ESCROW SHARES
Immediately prior to the initial public offering ("IPO") of the
Company, the then-existing stockholders of the Company deposited an aggregate
of 498,285 shares of Common Stock into escrow (the "Escrow Shares") in
connection with the IPO. The Escrow Shares are not assignable or transferable.
Of the Escrow Shares: 166,095 would have been released from escrow if, for the
fiscal year ending December 31, 1997, the Company's minimum revenues (the
"Minimum Revenues") had equaled or exceeded $5.5 million. IAT's Minimum
Revenues for the year ended December 31, 1997 were less than $5.5 million and
accordingly, the target for release described was not met.
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.
Provisions related to the Escrowed shares and the Escrow Agreement are
set forth in the accompanying Company's Annual Report for the year ended
December 31, 1998, under the caption "Item 12--Security Ownership of Certain
Beneficial Owners and Mangement--Escrow Shares" a copy of which accompanied the
mailing of this proxy statement.
POTENTIAL CONFLICT OF INTEREST
Professor Rudolf Seiler and Dr. Vogt have 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. Dr. Vogt owns
44% of this corporation, Dr. Vogt is expected to devote substantially all of
his business time to Communication AG and Communication Systems. IAT expects to
license its wavelet technology or a portion of its technology to the new
company at some point in the future.
FSE ACQUISITION
In November 1997, the Company purchased 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 applicable 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.
In December 1995, Dr. Simmet made a loan to FSE in the aggregate
principal amount of approximately DM 252,000 (approximately $175,000) 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 $700,000) 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.
SPINOFFS
The Company has completed the restructuring of one of its German
subsidiaries and its Swiss subsidiary. These transactions were effected through
the (i) Participation Agreement dated as of March 5, 1998 by and among IAT
Communication Systems GmbH (Germany) ("Communication Systems"), IAT AG, Dr.
Viktor Vogt, and Hanseatische Industrie-Beteiligungen GmbH ("HIBEG"), (ii)
Spinoff Agreement dated March 5, 1998 by and among IAT Deutschland GmbH
Interaktive Mediensysteme (Germany) ("IAT Germany") and Communication Systems,
(iii) Agreement concerning the Assignment and Transfer of Corporate Shares
dated as of March 5, 1998 by and among HIBEG, IAT Germany, and IAT AG, (iv)
Loan Transfer Agreement dated as of March 5, 1998 by and among HIBEG, IAT
Germany, and Communication Systems, (v) Option Agreement dated as of March 5,
1998 by and among Dr. Viktor Vogt and HIBEG, (vi) Spinoff Agreement (the "Swiss
Spinoff Agreement") dated as of March 11, 1998 by and among the Company, Dr.
Viktor Vogt, and IAT Communication AG, (vii) Transfer Agreement (the "Transfer
Agreement") dated as of March 11, 1998 by and among the Company, Dr. Viktor
Vogt, and Communication AG, (viii) Agreement on the Acquisition of Assets dated
as of March 18, 1998 between IAT AG and Communication AG, (ix) Amendment No. 1
to the Transfer Agreement dated as of March 24, 1998, (x) the Restructuring
Agreement dated as of March 5, 1998 by and among IAT Germany, IAT AG, Dr. Vogt
and HIBEG, (xi) the Articles of Association of Communication Systems, (xii) the
Promissory Note by Communication AG to the
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Company, (xiii) the Promissory Note by Communication AG to IAT AG, and (xiv)
the Promissory Note by Communication AG to Dr. Viktor Vogt. The following
summary of the terms of such agreements is qualified in its entirety by
reference to such agreements, copies of each of which are incorporated by
reference or attached hereto.
German Restructuring. On March 5th and 6th, the Company spun off
substantially all of the assets and the liabilities (other than intercompany
amounts) of one of its majority-owned German subsidiaries, IAT Germany, which
has provided the Company's research and development and has functioned as the
Company's sales and marketing arm for multimedia products in Germany, into a
newly formed German company, Communication Systems. The transfer was given
economic effect at January 1, 1998.
Communication Systems will initially be owned jointly by HIBEG, a
development agency of the Federal State of Bremen, Germany (2%), Dr. Viktor
Vogt (78%), the Company's wholly-owned Swiss subsidiary, IAT AG (15%), and Mr.
Arno Lubben (in trust for the employees of Communication Systems to be selected
later by Dr. Vogt) (5%). IAT AG, Dr. Vogt and HIBEG will each have a veto over
all shareholder resolutions of Communication Systems.
In connection with the restructuring, HIBEG transferred all of its
approximately 25% interest in IAT Germany to IAT AG for a purchase price of DM
175,700 (approximately $100,000), and IAT Germany became a wholly-owned
subsidiary of IAT AG. In addition, IAT AG has agreed that it will contribute
its 80% ownership of FSE to IAT Germany, that IAT Germany will continue to
operate in Bremen and that IAT AG will not transfer IAT Germany's corporate
seat without the consent of HIBEG.
In connection with the German restructuring, the Company contributed
approximately $650,000 to IAT Germany which was transferred, along with other
assets of IAT Germany, to Communication Systems. The Company's contribution of
approximately $650,000, together with the other assets transferred to
Communication Systems, equaled the liabilities of IAT Germany assumed by
Communication Systems. Dr. Vogt has contributed approximately $600,000 to
Communication Systems. The Company expects that these funds, along with funds
that Communication Systems hopes to raise from other sources, will be used by
Communication Systems to continue research & development, sales and marketing
of multimedia and compression/decompression products. Communication Systems
assumed substantially all of the liabilities of IAT Germany (other than
intercompany amounts). IAT Germany has represented and warranted that the
liabilities assumed by Communication Systems were not be more than the assets
transferred to Communication Systems and IAT Germany has agreed to pay
Communication Systems an amount equal to the nominal value of such shortfall.
The Company has no further obligation to make future contributions to
Communication Systems.
The core business of Communication Systems involves systems, system kits,
and software system solutions for visual communications, with a focus on
tele-medicine and industrial solutions (tele-service). IAT AG intends to
cooperate with Communication Systems with regard to the Swiss, French, and
other markets. IAT AG undertook to make components and know-how available to
Communications Systems at market rates and reasonable conditions, as they are
offered to third parties.Communication AG assumed these obligations in the
Swiss restructuring.
In connection with the German restructuring, Dr. Vogt has granted HIBEG an
option to acquire approximately 23% of the outstanding shares in Communication
Systems at their nominal (par) value. HIBEG may exercise its option at any time
until June 30, 1998.
Communication Systems has also assumed all rights and obligations under a
credit agreement dated December 19, 1995 between HIBEG, as creditor, and IAT
Germany, as debtor, relating to a loan in the aggregate principal amount of DM
750,000.
IAT Germany has agreed not to compete for a period of five years with the
present core business of Communication Systems (systems, system kits and
software system solutions for visual communications) within Germany.
Swiss Restructuring. The Company has reached agreements with Dr. Vogt to
transfer certain of the assets and liabilities of IAT AG, other than, among
others, the Company's intellectual property and the ownership interests in IAT
Germany, to Communication AG, a newly formed Swiss corporation which is owned
jointly by Dr. Vogt (69%), other key managers and directors of Communication AG
(16%) and IAT AG (15%). The Company closed this transaction on March 24, 1998
(the "Closing Date").
On the Closing Date,Communication AG gave IAT AG its three year note (the
"Purchase Price Note"), denominated in U.S. Dollars, with an aggregate
principal amount equal to the book value of the transferred assets less the
book value of the assumed liabilities as of the January 1, 1998 plus the
pro-rata portion of any prepaid expenses and any portion of the liabilities
assumed by Communication AG which were paid by IAT AG prior to the Closing
Date. The Purchase Price Note has an aggregate principal amount of
approximately $325,000 (which will be reduced by the amount of certain expenses
of IAT AG to be paid by Communication AG). The Purchase Price
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Note will pay interest at the rate of 3% per annum, payable semi-annually on
March 1 and September 1 beginning September 1, 1998. The Purchase Price Note
will be due and payable on the third anniversary of the Closing Date.
The Purchase Price Note may be pre-paid at any time without penalty.
On the Closing Date, the Company loaned Communication AG $250,000 (the
"IAT Loan") which is evidenced by Communication AG's note (the "IAT Note"). The
IAT Note will pay interest at the rate of 3% per annum, payable semi-annually
on March 1 and September 1 beginning September 1, 1998. The IAT Note will be
due and payable on the earlier of (i) the third anniversary of the Closing Date
and (ii) the date on which Communication AG closes one or more funding
transactions resulting in issuance of Communication AG's (A) debt with an
aggregate principal amount of SF 1,000,000 or more, (B) capital stock for
consideration of SF 1,000,000 or more, or (C) any combination of (A) or (B)
amounting to SF 1,000,000 or more. The IAT Note may be pre-paid at any time
without penalty. The Company has no further obligation to make future
contributions to Communication AG.
On the Closing Date, Dr. Vogt loaned Communication AG $250,000 (the "Vogt
Loan") which is evidenced by Communication AG's note (the "Vogt Note"). The
Vogt Note will pay interest at the rate of 3% per annum, payable semi-annually
on March 1 and September 1 beginning September 1, 1998. The Vogt Note will be
due and payable on the third anniversary of the Closing Date. The Vogt Note may
be pre-paid at any time without penalty; provided, however, that the Vogt Note
may not be paid prior to the time that the IAT Note and the Purchase Price Note
are paid in full. The Vogt Note is subordinated to the IAT Note and the
Purchase Price Note.
The Company will maintain its ownership of all intellectual property
developed for its multimedia and compression/decompression hardware and
software products and expects, through its subsidiary IAT AG, to derive future
revenue through licensing fees and royalty generation associated with its
technology. In connection with such Swiss restructuring, the Company has
granted Communication AG a non-exclusive five-year license to use IAT AG's
intellectual property for multimedia and compression/decompression
applications.Communication AG has the right to grant sublicenses to
Communication Systems and other affiliates. In most cases, the royalty varies
between 10% and 20% of the sales price of the software sold.Communication AG
has a five-year option to purchase a 50% co-ownership of IAT AG's intellectual
property for $1 million. Upon the exercise of such option, the royalty paid by
Communication AG to IAT AG would be cut in half and IAT AG would pay
Communication AG half of the royalties received by IAT AG from third-parties.
In addition, after exercise of the option,Communication AG can grant
sub-licenses to third-parties or transfer the license or co-ownership interest,
in each case subject to the consent of IAT AG.
Future Agreements. The Company expects to enter into additional agreements
with Communication Systems and Communication AG covering the marketing of
products developed by the Company and to be produced by Communication Systems
and Communication AG as a result of the Spinoffs. However, there can be no
assurances that any such agreements will be entered into.
Subsidiaries. After the Spinoffs, the Company will own 80% of FSE, 100% of
IAT AG and IAT Germany and 15% of each of Communication Systems and
Communication AG. The Company expects to transfer its 80% ownership of FSE to
IAT Germany in the second half of 1998.
Dr. Vogt. In connection with the restructuring of IAT AG and IAT GmbH, Dr.
Vogt has resigned from his positions as Co-Chairman and CEO of Multimedia and
from management positions in Multimedia's subsidiaries. Dr. Vogt continues to
provide services to Multimedia as a director and a consultant. In addition, Dr.
Vogt and the Company have agreed to a three-year consulting contract whereby
Dr. Vogt will provide the Company with his services in respect of (i)
evaluation and analysis of technology issues, (ii) identification, evaluation
and integration of acquisitions for the Company and (iii) such other matters as
the Board of Directors of Multimedia may request and Dr. Vogt may agree to. In
connection with such consulting agreement, Dr. Vogt will be entitled to receive
the sum of $2,000 per month for his normal duties. The Company and Dr. Vogt
will negotiate fees for services above Dr. Vogt's normal duties. In addition,
the Company will reimburse Dr. Vogt for his reasonable expenses in connection
with his work for the Company. The Company expects that Dr. Vogt has entered
into a consulting agreement with FSE to help integrate FSE and IAT for which
FSE will pay Dr. Vogt $2,000 per month, plus reimbursement of reasonable
expenses, for such services. In addition, Dr Vogt will receive options to
purchase 50,000 shares of Common Stock.
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<PAGE>
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT AUDITORS
Audited financial statements of the Company and its consolidated
subsidiaries are included in the Company's annual report, a copy of which has
been furnished to all stockholders of record. Upon recommendation of the Audit
Committee, the Board of Directors has appointed Rothstein, Kass & Company, P.C.
to examine its consolidated financial statements for the year ended December
31, 1998 and has determined it desirable to request that the stockholders
approve such appointment. Representatives of Rothstein, Kass & Company, P.C.
will be present at the Annual Meeting and will have the opportunity to make a
statement, if they desire to do so, and are also expected to be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ROTHSTEIN, KASS & COMPANY, P.C. AS INDEPENDENT AUDITORS FOR THE
COMPANY FOR THE YEAR ENDED DECEMBER 31, 1998.
PROPOSAL NO. 3
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES
On June [__], 1998, the Board of Directors of the Company unanimously
adopted a resolution setting forth a proposed amendment to the Amended and
Restated Certificate of Incorporation of the Company (the "Certificate")
increasing the authorized total number of shares of the Company from 22,375,000
to 61,875,000, and increasing the authorized number of shares of Common Stock
of the Company, par value $.01 per share, from 20,000,000 to 50,000,000, and
increasing the authorized number of Preferred Stock of the Corporation, par
value $.01 per share, from 500,000 to 10,000,000 and directed that the
amendment be submitted to the stockholders of the Company for their review,
adoption and approval at the Company's 1998 annual meeting of stockholders.
If approved by the Stockholders, Section 4A(ii) of the Amended and
Restated Certificate of Incorporation shall be amended to read in its entirety
as follows:
"(ii) Classes of Stock. The Corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock"
and "Preferred Stock." The total number of shares which the
Corporation is authorized to issue is 61,875,000; 50,000,000 shares
shall be Common Stock, par value $.01 per share, 10,000,000 shall be
Preferred Stock, par value $.01 per share, and 1,875,000 shares shall
be Series A Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock")."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT.
PROPOSAL NO. 4
AMENDMENT TO BYLAWS TO AMEND THE REQUIREMENTS
FOR A QUORUM AT A MEETING OF STOCKHOLDERS
On June [__], 1998, the Board of Directors of the Company unanimously
adopted a resolution setting forth a proposed amendment to the By-laws of the
Company reducing the number of stockholders required to constitute a quorum at
meeting thereof. Currently, the By-laws state that a quorum requires the
holders of a majority of the common stock be present (in person or proxy) at a
meeting of stockholders.
If approved by the Stockholders, the paragraph beginning "-Quorum." of
Section 6 of the By-Laws would be amended to read in its entirety as follows:
"--QUORUM. The holders of one third of the outstanding voting shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT.
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OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers and persons who
own more than 10% of a class of the Company's equity securities which are
registered under the Exchange Act to file with the Commission initial reports
of ownership and reports of changes of ownership of such registered securities.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, no person required to file such a report
failed to file on a timely basis.
DELIVERY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K for the year ended December
31, 1997, including consolidated financial statements and other information
(the "1997 Annual Report"), accompanies this Proxy Statement but does not form
a part of the proxy soliciting material. Although the 1997 Annual Report is
being provided to stockholders, in accordance with applicable rules of the
Commission, the Company notes the following:
The Company will provide each of its stockholders, without charge,
upon the written request of any such person, a copy of the 1997 Annual
Report, required to be filed with the Commission pursuant to Rule
13a-1 under the Exchange Act for the Company's most recent fiscal
year. Exhibits to the 1997 Annual Report will not be supplied unless
specifically requested, for which there may be a reasonable charge.
Those stockholders wishing to obtain a copy of the 1997 Annual Report
should submit a written request to the Company, Geschaftshaus
Wasserschloss, Aarestrasse 17, CH-5300, Vogelsang-Turgi, Switzerland.
Attention: Klaus Grisseman.
JUNE [__]. 1998
BY ORDER OF THE BOARD OF DIRECTORS
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<PAGE>
PROXY CARD
IAT MULTIMEDIA, INC. PROXY FORM
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS
JUNE [__], 1998
The undersigned hereby appoint(s) Jacob Agam and Klaus Grissemann, or either of
them, each with full power of substitution, as proxies to vote all stock in IAT
Multimedia, Inc. that the undersigned would be entitled to vote on all matters
that may come before the 1998 Annual Meeting of Stockholders and any
adjournments thereof.
Returned proxy forms will be voted: (1) as specified on the matters listed on
the reverse side of this form; (2) in accordance with the Directors'
recommendations where a choice is not specified; and (3) in accordance with the
judgment of the proxies on any other matters that properly come before the
meeting.
Your shares will not be voted unless your signed Proxy Form is returned to IAT
Multimedia, Inc. or you otherwise vote at the meeting.
INSTRUCTIONS Mark votes by placing an "x" in the appropriate [ ]. The Board of
Directors recommends a vote FOR the proposals relating to:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Election of Directors (to withhold vote for any nominee, write his FOR AGAINST ABSTAIN
name on the line provided) [ ] [ ] [ ]
Jacob Agam, Klaus Grissemann, Volker Walther, Viktor Vogt,
Erich Weber and Robert Weiss
2. To ratify the appointment of Rothstein, Kass & Company, P.C. as [ ] [ ] [ ]
independent auditors of the Company for the fiscal year ending
December 31, 1998.
3. To amend the Company's Certificate of Incorporation to increase the [ ] [ ] [ ]
number of authorized shares to 60 million, of which, 50 million will
be common shares and 10 million will be preferred shares.
4. To amend the Company's Bylaws to reduce the number of [ ] [ ] [ ]
stockholders required to present at a meeting thereof to constitute a
quorum from holders of a majority of outstanding stock to holders
of one-third of outstanding stock.
</TABLE>
SIGNATURE(S) Dated: , 1998
--------------------------------------- ---------------
Please sign as registered and return promptly in the enclosed envelope.
Executors, trustees and others signing in a representative capacity should
include their names and the capacity in which they sign.
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