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Filed Pursuant to Rule 424(b)(1)
Registration File No.: 333-64111
PROSPECTUS
IAT MULTIMEDIA, INC.
2,367,082 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale from time to time by the
stockholders named herein (the "Selling Stockholders") of an aggregate of
2,367,082 shares (the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock"), of IAT Multimedia, Inc. (the "Company"). The Shares offered
hereby are comprised of (i) 203,255 shares of Common Stock which are issued and
outstanding, (ii) 480,000 shares of Common Stock which are issuable upon
exercise of certain outstanding options ("Options"), (iii) 423,241 shares of
Common Stock which are issuable upon exercise of certain outstanding warrants
("Warrants"), and (iv) 1,260,586 shares of Common Stock (subject to adjustment
based upon the market price of the Common Stock at the time of conversion, see
"Selling Stockholders") which are issuable upon conversion of the Company's
Series A Convertible Debentures (the "Debentures"), including any accrued
interest thereon. The Selling Stockholders may sell all or a portion of the
Shares from time to time after issuance in transactions on the Nasdaq National
Market or other exchanges or markets on which the Shares may be traded, in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Shares or a combination of such methods of sale or through other
means. Sales may be effected at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
The Selling Stockholders may effect such transactions by selling the
Shares to or through broker-dealers (including broker-dealers which may be
affiliated with any such Selling Stockholder) and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Selling Stockholders" and "Plan of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company, although the Company received
$3,000,000 of loan proceeds from the sale of the Debentures and will receive
proceeds from the exercise of the Options and Warrants. The Company has agreed
to bear certain expenses in connection with the registration and sale of the
Shares being offered by the Selling Stockholders. The Company has agreed to
indemnify the Selling Stockholders against certain liabilities, including
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
The Common Stock is listed on the Nasdaq National Market under the symbol
"IATA". On October 26, 1998, the last sale price of the Common Stock as
reported on the Nasdaq National Market was $6.625 per share.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
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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.
The date of this Prospectus is October 27, 1998
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. a Registration Statement on Form S-3 under the
Securities Act covering the securities offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. 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 such statement is qualified by
reference to each such contract or document filed (or incorporated by
reference) as an exhibit to the Registration Statement. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports and
other information with the Commission. Reports and other information filed by
the Company with the Commission can be inspected without charge and copied at
the public reference facilities maintained by the Commission at the following
addresses: New York Regional Office, Seven World Trade Center, New York, New
York 10048; and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained upon
written request from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Information on
the operation of the Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy statements and other
information regarding issuers that file electronically with the Commission.
Reports and other information concerning the Company may also be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Common Shares are listed on the Nasdaq National Market under the
symbol "IATA". Certain information, reports and proxy statements of the Company
are also available for inspection at the offices of the Nasdaq National Market
Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 000-22101)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, including any documents or portions thereof incorporated
by reference therein and all amendments thereto;
2. The Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1998 and June 30, 1998;
3. The Company's Current Reports on Form 8-K dated March 5, 1998 and June
19, 1998, and on Form 8-K/A dated March 24, 1998;
4. The Company's Registration Statement on Form 8-A declared effective on
March 26, 1997, registering the Common Stock under the Exchange Act; and
5. All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of this offering, except the Compensation
Committee Report on Executive Compensation and the performance graph
included in the Proxy Statement filed pursuant to Section 14 of the
Exchange Act.
Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person to whom this Prospectus is
delivered, upon written or oral request of any such person, a copy of any or
all of the documents incorporated herein by reference (other than exhibits to
such documents which are not specifically incorporated by reference into such
documents). Requests for such documents should be directed to the Company,
Geschaftshaus Wasserschloss, Aarestrasse 17, CH-5300 Vogelsang-Turgi,
Switzerland, Attention: Chief Financial Officer, telephone (011)(41) (56)
223-5022.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus or incorporated by reference herein. Investors
should also carefully consider the information set forth under the heading
"Risk Factors."
THE COMPANY
IAT Multimedia, Inc. (the "Company") markets high-performance personal
computers ("PCs") in Germany assembled according to customer specifications and
sold under the trade name "Trinology," as well as components and peripherals
for PCs. The Company'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. The Company's clients include corporate customers,
such as industrial, pharmaceutical, service and trade companies, the military
and value-added resellers ("VARs"). Current customers of the Company include
BASF Germany, Bayer Leverkusen, Novartis Switzerland and the North Atlantic
Treaty Organization. The products of the Company are marketed directly through
its internal sales force to dealers and end-users and the Company also
maintains three retail showrooms and a mail-order department.
The Company works directly with a wide range of suppliers to evaluate the
latest developments in related technology and engages in extensive testing to
optimize the compatibility and speed of the components which are sold and
integrated into Trinology PCs. Components and peripherals used in Trinology PCs
and sold by the Company are manufactured by companies such as Actebis Computer
Handels GmbG, Peacock AG, CTX Computer GmbH, Ingram Micro GmbH, Iiyama, Asus
Computer GmbH, Yoku Computer Systems, Krystaltech, Matrox Electronic Systems
and US Robotics. The Company offers a comprehensive service and support program
to all end-users and the Company's Trinology PCs, components and peripherals
are delivered with warranties ranging from one to five years. The Company also
maintains a free service hotline providing operational and technical support
and a "support mailbox" for its customers, through which customers may send
inquiries to technical support personnel via computer.
The Company has also developed state-of-the-art, customizable proprietary
visual communications technology for multi-functional visual communications
systems, wavelet data compression/decompression software technology for
high-speed, high-quality still image transfer, and related technology. The
Company expects to receive licensing fees and royalty payments from the
licensing and sale of this technology. The Company intends to offer products
incorporating its visual communication system technology in Trinology PCs.
The Company was incorporated in Delaware in September 1996 and completed
its initial public offering ("IPO") in March 1997. Unless the context otherwise
requires, the "Company" refers to the Company and (i) its majority owned
subsidiary FSE Computer-Handel GmbH & Co. KG, a German corporation ("FSE") and
(ii) its wholly-owned subsidiaries IAT AG, a Swiss corporation ("IAT AG") and
IAT Deutschland GmbH Interaktive Medien Systeme, a German corporation ("IAT
Germany").
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RISK FACTORS
The securities offered hereby are highly speculative in nature and involve
a high degree of risk. Prior to making an investment decision, prospective
investors in the Company's securities should give careful consideration to,
among other things, the risk factors set forth below. This Prospectus contains
forward-looking statements within the meaning of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Reference is made in
particular to the description of the Company's plans and objectives for future
operations, assumptions underlying such plans and objectives and other
forward-looking terminology such as "may," "expects," "believes,"
"anticipates," "intends," "expects," "projects," or similar terms, variations
of such terms or the negative of such terms. Such forward-looking statements
are based on management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ materially
from those described in such forward-looking statements. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is based.
Factors which could cause such results to differ materially from those
described in the forward-looking statements include, amongst other items, those
set forth herein under "Risk Factors."
HISTORY OF OPERATING LOSSES. The Company has experienced significant
operating losses since inception and, at June 30, 1998, had an accumulated
deficit of approximately $20.2 million. For the year ended December 31, 1997
and the six months ended June 30, 1998, the Company incurred operating losses
of approximately $7.1 million and $746,000, respectively. In the year ended
December 31, 1997, the Company made significant expenditures of approximately
$2.4 million for the research and development of its technology. In March 1998,
the Company transferred substantially all of the assets and liabilities of its
research and development subsidiaries (the "Spinoffs") to two newly formed
corporations (the "Spinoff Entities"). In connection with the Spinoffs, the
Company contributed an aggregate of approximately $650,000 to the Spinoff
Entities, made loans of approximately $800,000 to the Spinoff Entities incurred
expenses of approximately $400,000, received approximately a 15% interest in
each of the Spinoff Entities and granted a royalty bearing license of the
Company's visual communications technology to the Spinoff Entities. As a result
of the Spinoffs, substantially all of the Company's revenues are generated from
the sale and distribution of the Company's Trinology PCs and PC components and
peripherals through its FSE subsidiary which was acquired by the Company in
November 1997. 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 addition, the Company's strategy is growth through
acquisitions. In connection with the FSE acquisition, the Company incurred
approximately $3.6 million of goodwill which is being amortized over 10 years,
resulting in annual expense of approximately $358,000 and, as the Company
acquires additional businesses, the Company may incur significant charges for
depreciation and amortization which could adversely affect the Company's future
results of operations and may result in increased net losses. There can be no
assurance that the Company will ever achieve or sustain profitability. See
"-- Limited History of Combined Operations; New Business Activities" and "--
Risks Relating to Acquisitions and Managing Growth; Future Charges to
Operations and Losses; Need for Additional Funds."
LIMITED HISTORY OF COMBINED OPERATIONS; NEW BUSINESS ACTIVITIES. Prior to
the acquisition of FSE in November 1997, the Company's sole business was
developing and marketing visual communications technology and related products.
The sale and distribution of PCs and related hardware and software is a new
business for the Company and its management group and, accordingly, the Company
and its management group has only limited experience operating FSE's business.
Although the management personnel at FSE was retained by the Company in
connection with the FSE acquisition, there can be no assurance that the Company
will be able to retain such individuals or that the Company's management group
will be successful in managing the Company's new business. The failure of the
Company's management group to successfully manage this business would have a
material adverse effect on the Company's business, financial condition and
results of operations.
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RISKS RELATING TO ACQUISITIONS AND MANAGING GROWTH; FUTURE CHARGES TO
OPERATIONS AND LOSSES; NEED FOR ADDITIONAL FUNDS. An integral part of the
Company's business strategy is growth through acquisitions. The acquisition of
FSE was the Company's first acquisition, and, therefore the Company has limited
experience in integrating and managing a new business. 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 part of its
business strategy, the Company may seek opportunities to expand the marketing
and sale of its products into markets in the United States. In the event the
Company expands into the United States, it will face substantial increased
competition from companies with substantially greater name recognition and
marketing and other resources than the Company. In addition, the Company would
be required to make substantial expenditures for, among other things,
marketing, office space, sales and marketing personnel and other employees in
the United States. The Company's executive officers have no experience
operating a business in the United States, and would need to hire additional
executive officers in the United States. 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
acquisitions. The failure to manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Based upon the Company's current level of operations, management believes
that existing cash resources and cash flow expected to be generated from
operations will be sufficient to meet the Company's capital requirements for
approximately the next 12 months, depending on cash requirements for future
acquisitions. Although the Company intends to use existing cash resources and
cash flow expected to be generated from operations for future acquisitions, it
may 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 any 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.
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 the Company 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 the Company and many of its competitors regularly have lowered
prices, and the Company expects these pricing pressures to continue. If these
pricing pressures are not mitigated by increases in volume, cost reductions or
changes in product mix, the Company's revenues and profits could be
substantially reduced. 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, may be able to devote greater resources
to the promotion and sale of their products and services and may be able to
respond more effectively to pricing pressures, all of which could have a
material adverse effect on the Company's business, financial condition
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and results of operations. The Company also competes with other PC direct
marketers as well as with PC manufacturers that market their products in
distribution channels in which the Company 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, if existing competitors expand their service
offerings or if the Company expands into new markets. 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. See "-- Dependence on
New Products and Rapidly Developing Technologies."
SUBSTANTIAL INDEBTEDNESS; EFFECT OF FINANCIAL LEVERAGE. As of June 30,
1998, the Company's consolidated indebtedness was approximately $4.1 million,
representing approximately 24.8% of the Company's total capitalization. The
Company's debt instruments do not limit the incurrence of additional debt by
the Company and its subsidiaries. The Company's indebtedness as of October 21,
1998, consisted of borrowings under bank lines of credit in the aggregate
amount of approximately $100,000 which are due on demand and are secured by the
Company's accounts receivable and stockholder loans in the aggregate amount of
approximately $1.0 million and convertible debentures in the aggregate amount
of $3.0 million issued in connection with a private placement by the Company in
June 1998 (the "Private Placement"), both of which are unsecured. In the event
the Company defaults under any of its debt instruments or if 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.
The degree to which the Company is leveraged could have additional
material consequences to the Company and the holders of 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 and
(ii) 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.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends upon the
contributions of its current executive officers, including Jacob Agam, the
Company's Chairman and Chief Executive Officer, as well as principal members of
its management team. The Company has not entered into an employment agreement
with Mr. Agam, who devotes only a portion of his time to the Company. There can
be no assurance that any of the Company's management personnel, 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 Company's business.
DEPENDENCE ON NEW PRODUCTS AND RAPIDLY DEVELOPING TECHNOLOGIES. The PC
industry is characterized by short product life cycles resulting from rapid
changes in technology and consumer preferences and declining product prices. To
maintain its competitive position in the PC industry, the Company 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 the Company will
be able to compete successfully by introducing products or features on a timely
basis, that the introduction of new products or features by the Company's
competitors will not adversely affect the sale of the Company's products or
that the Company will be able to adapt to future changes in the PC industry.
Although the Company does not conduct internal research and development, the
Company 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 the Company 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.
SUPPLY RISK. The Company requires a high volume of quality PC components
and peripherals for integration into its Trinology PCs and sale to its
customers. The Company does not maintain any supplier
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contracts and generally uses one or two suppliers for certain components.
Although the Company 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 the Company 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. The Company's inability to obtain key
components or peripherals in a timely manner could have a material adverse
effect on the Company's business, financial condition and results of
operations.
LIMITED PROPRIETARY PROTECTION. The Company believes the tradenames FSE
and Trinology are important to its businesses and intends to vigorously protect
these tradenames. The Company also has a copyright and has a patent pending on
certain of its visual communication technology. However, there can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of such rights.
Substantially all of the Company's revenues in the six months ended June
30, 1998 and in the years ended December 31, 1996 and 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 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 industry have frequently
demonstrated a readiness to commence litigation based on allegations of
intellectual property infringement. 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 such jurisdiction. 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.
FOREIGN MARKETS. Substantially all of the Company's revenues in the year
ended December 31, 1997 and the six months ended June 30, 1998 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 2.9% in 1996 and 2.2% in 1997 for Germany and 0.2% in 1996 and
0.7% in 1997 for Switzerland. Historically, all of the Company's revenues have
been denominated in Swiss
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Francs and Deutsche Marks. The Company anticipates that it will continue to
generate most of its revenues in these currencies in the foreseeable future.
Any depreciation 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. 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 may seek opportunities to expand its
operations into the United States and into 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.
The Company'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. While the Company has successfully
undertaken measures to obtain and maintain operating funds for its subsidiaries
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 any of the
Company's subsidiaries can be maintained. Failure to maintain the corporate
existence of FSE would have a material adverse effect on the Company.
ENFORCEMENT OF CIVIL LIABILITIES. The Company is organized under the laws
of the State of Delaware. Investors in 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 the Company are
located outside the United States. In addition, all of the Company'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 the Company's directors and
officers or to enforce judgments of U.S. courts predicated upon the civil
liability provisions of U.S. laws against the Company's directors' and
officers' assets.
The Company has been advised 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 the Company's
subsidiaries and against shareholders, directors, officers and employees of the
Company 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 Common Stock may be affected by the difficulty for investors to enforce
judgments of U.S. courts.
RISK OF SYSTEM DEFECTS; PRODUCT LIABILITY EXPOSURE. The Trinology PCs
manufactured by the Company must meet standards established by the European FCC
(CE declarations), for radio frequency emissions, and must receive appropriate
certification prior to being marketed. A delay or inability to obtain
certification may delay or prevent the Company from introducing new products or
features, and therefore, could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company had a
return rate of less than 1% in each of the year ended December 31, 1997 and the
six month period ended June 30, 1998. Any substantial increase in such rate
could have a material adverse effect on the Company's business, financial
condition and results of operations.
8
<PAGE>
In addition, Trinology PCs assembled by the Company may contain
significant undetected operating errors when first installed on the premises of
a customer or as new versions are installed. Although the Company tests its
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 the Company'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 the Company 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.
YEAR 2000 COMPLIANCE. Computers, software, and other equipment utilizing
microprocessors that use only two digits to identify a year in a date field may
be unable to process accurately certain date-based information at or after the
year 2000. This is commonly referred to as the "Year 2000 issue", and the
Company is addressing this issue. The Company believes that all hardware
products included in Trinology PCs shipped since the fourth quarter of 1997 are
Year 2000 compliant and hardware products included in Trinology PCs shipped
prior to such time can be made Year 2000 compliant through upgrades or software
patches. The Company has requested Year 2000 compliance certification from each
of its major vendors and suppliers for their hardware and software products and
for their internal business applications and processes. The Company has also
established a separate team to coordinate solutions to the Year 2000 issue for
its own internal information systems, with the goal of having all of its
internal systems Year 2000 complaint by the end of 1998. The Company currently
does not anticipate that the cost of its Year 2000 compliance program will be
material to its financial condition or results of operations or that its
business will be adversely affected by the Year 2000 issue in any material
respect. However, achieving Year 2000 compliance is dependent on many factors,
some of which are not completely within the Company's control. The failure of
the Company to achieve Year 2000 compliance for its internal systems or the
failure of its vendors or suppliers to achieve Year 2000 compliance for its
internal systems could 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 the operating results of the Company's FSE subsidiary specifically, have
been subject to seasonality and to significant quarterly and annual
fluctuations. For the years ended December 31, 1996 and 1997, approximately 30%
of revenues of FSE were generated during the fourth calendar quarter and the
Company expects that this trend will continue for the year ending December 31,
1998. 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, product reviews
and other media coverage and seasonal reductions in business activity in Europe
during the summer months. The Company's business is also sensitive to the
spending patterns of its customers, which in turn are subject to prevailing
economic conditions. The Company's revenues and net income are subject to
fluctuations in the value of the Deutsche Mark against the U.S. dollar and the
Company 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. 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 Common Stock may
be adversely affected. See "-- Foreign Markets."
CONTROL BY EXISTING STOCKHOLDERS; POTENTIAL ANTI-TAKEOVER PROVISIONS. The
Company's officers, directors and significant stockholders currently control
approximately 44.9% of the outstanding Common Stock of the Company. As a
result, such stockholders are able to influence significantly the election of
the Company's directors and the outcome of corporate transactions or other
matters submitted for
9
<PAGE>
stockholder approval. Furthermore, pursuant to an Investor Rights Agreement
between Vertical Financial Holdings Establishment ("Vertical") and the Company,
so long as Vertical holds at least 10% of the 1,875,000 shares of Common Stock
issued by the Company upon conversion of its Series A Preferred Stock in April
1997 or the 1,875,000 shares of Common Stock issuable upon exercise of the
warrants issued to certain stockholders of the Company, 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 the 1,875,000 shares of Common Stock issued by the Company
upon conversion of its Series A Preferred Stock in April 1997 or the 1,875,000
shares of Common Stock issuable upon exercise of the warrants issued to the
certain stockholders of the Company, Vertical has the right, but not the
obligation to nominate one such person. As of the date of this Prospectus,
Vertical held 890,152 of such shares of Common Stock and held warrants to
purchase 690,152 shares of Common Stock. 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
the Company have elected, Jacob Agam as a director of the Company and may
nominate a second director in the future. Pursuant to a Stock Purchase
Agreement, Vertical nominated and Mr. Agam was elected as the Chairman of the
Company. Mr. Agam is the Chairman of the Board of Vertical. In addition,
pursuant to the Stock Purchase Agreement, the Company will maintain an
Underwriting Committee which will consist of four members with two members
appointed by each of Vertical and the Company. The Underwriting Committee
currently consists of Jacob Agam, Dr. Viktor Vogt and Klaus Grissemann, all
members of the Company's Board of Directors. Mr. Agam, as designated by
Vertical, serves as the Chairman of the Underwriting Committee. Vertical has
not yet named its second nominee to 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
provided that the resolution of any such issue by the Board of Directors shall
not be effectuated without the written consent of Vertical.
The Company is subject to a Delaware statute regulating business
combinations which could discourage, hinder or preclude an unsolicited
acquisition of the Company 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.
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 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.
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 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.
10
<PAGE>
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 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.
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
through the exercise of outstanding registration rights or through the issuance
of shares of Common Stock upon exercise of options, warrants or otherwise could
11
<PAGE>
have an adverse effect on the price of the Common Stock. Of the 11,773,126
shares of Common Stock to be outstanding after this Offering (giving effect to
the exercise of the Options and the Warrants and the conversion of the
Debentures and payment of interest thereon at the Assumed Conversion Price (as
defined)), approximately 5,426,177 shares of Common Stock, including the shares
of Common Stock offered hereby, will be freely tradeable without restriction
under the Securities Act, except if any shares are purchased by "affiliates" as
defined in Rule 144 under the Securities Act. The remaining 6,346,949 shares of
Common Stock outstanding after this Offering are "restricted securities" as
defined in Rule 144, and under certain circumstances may be sold without
registration pursuant to Rule 144 or otherwise. Such shares of Common Stock are
eligible for sale under Rule 144 at varying periods, subject to the lock-up
described below. Certain of the Company's officers, directors and stockholders
who hold, in the aggregate, approximately 4,500,000 shares of Common Stock and
approximately 2,500,000 vested options and warrants, entered into lock-up
agreements (the "Lock-Up Agreements") with the underwriters in the Company's
IPO (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 Royce Investment Group, Inc. ("Royce") until March 27,
1999; provided, however, that the stockholders of the Company subject to the
Lock-Up Agreements (other than officers and directors of the Company) may sell
or otherwise dispose of shares of Common Stock in one or more private sales
without such consent if the acquirors (and any subsequent acquirors) of such
shares enter into a Lock-Up Agreement with the IPO Underwriters restricting the
transferability of such shares for the remainder of period between March 26,
1997 and March 26, 1999.
The Company has outstanding (i) warrants to purchase an aggregate of
2,771,726 shares of Common Stock (including the Warrants to purchase shares of
Common Stock being registered for resale in this Offering) issued to the IPO
Underwriters, certain investors and certain stockholders of the Company and
(ii) the Debentures (and accrued interest thereon) which are convertible into
969,681 shares of Common Stock at the Assumed Conversion Price (as defined).
The actual number of shares of Common Stock that may be issued upon conversions
of the Debentures and payments of interest on the Debentures in the form of
shares of Common Stock will depend on the conversion price in effect from time
to time during the term of the Debentures, the timing of any such conversions
and the decision by the Company to make any payments of interest in the form of
shares of Common Stock. The conversion price will vary from time to time during
the term of the Debentures. Therefore, it is not possible to estimate with any
degree of certainty the total number of shares of Common Stock that would
actually be issued upon any conversions of the Debentures, the total number of
shares of Common Stock, if available, that could be issued in payment of
interest, or the availability of shares of Common Stock for payments of
interest. The conversion price of the Debentures could be substantially below
the market price of the Company's Common Stock on any date of conversion. The
Company has also reserved for issuance 500,000 shares of Common Stock in
connection the Company's 1996 Stock Option Plan ("the Plan"), 100,000 of which
have been granted, and 430,000 shares of Common Stock issuable upon exercise of
Options granted outside of the Plan. The existence of these securities could
have an adverse effect on the price of the Company's outstanding securities. If
any of these securities 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 securities exceeds the exercise price thereof, with the
extent of such dilution depending upon such excess. These securities 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 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
securities are outstanding, the Company's ability to obtain additional
financing on favorable terms may be adversely affected.
The holders of an aggregate of approximately 2,348,485 shares of Common
Stock and warrants and options to purchase Common Stock (following this
Offering) have demand and piggy-back registration rights with respect to their
respective securities. The Company has received waivers from holders of
registration rights that are currently exercisable waiving their rights to have
their securities registered in this Offering (other than the shares of Common
Stock being registered for resale in this Offering). 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.
12
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders, although the Company will receive proceeds from the
exercise of Options and Warrants. In the event that all of the Options and
Warrants exercisable for Shares offered hereby are exercised, the Company would
receive net proceeds of approximately $7.0 million. Holders of the Options and
Warrants are not obligated to exercise their Options and Warrants and there can
be no assurance that holders of the Options and Warrants will choose to
exercise all or any of the Options and the Warrants.
The Company intends to use the estimated net proceeds received upon
exercise of the Options and Warrants, if any, for working capital and general
corporate purposes, including future acquisitions. The Company is evaluating
and is engaged in discussions in connection with the potential acquisition of
assets or equity of certain similar or complementary 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.
SELLING STOCKHOLDERS
The Shares offered hereby are comprised of (i) 203,255 shares of Common
Stock which are issued and outstanding, (ii) 480,000 shares of Common Stock
which are issuable upon exercise of Options, (iii) 423,241 shares of Common
Stock which are issuable upon exercise of Warrants, and (iv) 1,260,586 shares
of Common Stock which are issuable upon conversion of the Debentures, including
any accrued interest thereon. The Shares are being registered to permit public
secondary trading of the Shares, and the Selling Stockholders may offer all or
any portion of the Shares for resale from time to time. See "Plan of
Distribution."
The Company has filed with the Commission under the Securities Act a
Registration Statement on Form S-3, of which this Prospectus forms a part, with
respect to the resale of the Shares. The Company has agreed, among other
things, to bear certain expenses in connection with the registration and sale
of the Shares being offered by the Selling Stockholders. See "Plan of
Distribution."
In March 1997, the Company issued Warrants to purchase 335,000 shares of
Common Stock to Royce, an underwriter in the IPO. In connection with the IPO,
Royce received underwriting discounts and commissions of approximately $882,500
and a non-accountable expense allowance of $502,500. In July 1997, the Company
issued an aggregate of 5,000 shares of Common Stock to Ballin & Partner as
consideration for investor relations services rendered to the Company from
February 1997 to January 1998. In February 1998, the Company granted Options to
purchase 10,000 shares of Common Stock to Value Management & Research (U.K.),
Limited, as consideration for financing services rendered to the Company in
February 1998, and in March 1998, the Company granted Options to purchase
80,000 shares of Common Stock to Value Management & Research S.A., Luxembourg,
as consideration for financing services to be rendered to the Company for the
period from February 1998 through in March 1999.
At various times from July 1997 through June 1998, the Company granted
Options to purchase an aggregate of 390,000 shares of Common Stock to Andreas
Beyer, Klaus Grissemann, Reiner Hallauer, Viktor Vogt, Volker Walther, Arnold
Wasserman, Erich Weber and Robert Weiss. Mr. Beyer received is his Options as
consideration for investor relations services. Klaus Grissemann, is the Chief
Financial Officer and a director of the Company, Mr. Hallauer is the former
Managing Director of IAT Germany and a former director of the Company, Dr. Vogt
is a former Co-Chairman of the Company and is a director of the Company, Mr.
Wasserman is a former director of the Company and Messrs. Walther, Weber and
Weiss are directors of the Company.
On June 19, 1998, JNC Strategic Fund Ltd. ("Strategic") purchased 198,255
shares of Common Stock and Warrants to purchase an aggregate of 23,529 shares
of Common Stock and JNC Opportunity Fund Ltd. ("Opportunity") purchased an
aggregate principal amount of $3,000,000 of the Debentures, due June 19, 2001
and Warrants to purchase an aggregate of 35,300 shares of Common Stock.
The Debentures are convertible (subject to certain limitations) into
shares of Common Stock at the option of the holder or at the option of the
Company. The holder of the Debentures may elect to convert
13
<PAGE>
the Debentures, in whole or in part, at any time provided that if the holder
elects to convert, the holder (the "Holder") of the Shares issuable upon
conversion of the Debentures is restricted from selling such Shares until March
16, 1999. During any 30-day period, thereafter, the Holder shall be permitted
to resell the greater of (x) the number of underlying shares issuable upon
conversion of $1,000,000 of Debentures and (y) 25% of the average of the daily
trading volume of the Common Stock during such 30-day period. In the event the
Company elects to convert the Debentures, then such Debentures may be
converted, in whole or in part, at any time after the date of this Prospectus
(the "Effective Date") into shares of the Common Stock and the Holder is not
subject to the foregoing restrictions. On the second anniversary of the
Effective Date (the "Automatic Conversion Date"), the principal amount of
Debentures then outstanding is subject to automatic conversion.
Pursuant to the terms of the Debentures, the Debentures are convertible at
a conversion price equal to the lesser of (i) $13.45 and (ii) 87% of the
average of the five lowest closing prices of the Common Stock on the Nasdaq
National Market during the 15 trading days preceding the date of conversion
(the "Conversion Price"). The Debentures accrue interest at a rate of 5% per
annum payable quarterly in arrears commencing June 30, 1998, except that
interest shall cease to accrue if the closing price of the Common Stock is
equal to or greater than $13.50 for 30 consecutive trading days during any
calendar quarter. All overdue, accrued and unpaid interest will accrue interest
at a rate of 15% per annum. At the option of the Company, interest due on the
principal amount, but not on overdue interest, is payable in the form of cash
or shares of Common Stock at the conversion price then in effect.
Based on the 15 trading day period preceding October 23, 1998, the
Conversion Price would have been $3.46 (the "Assumed Conversion Price"). If the
entire principal amount of the Debentures were converted at the Assumed
Conversion Price, the Debentures would be convertible into approximately
867,491 shares of Common Stock. Assuming that no conversions were to occur
until the Automatic Conversion Date, interest on the Debentures on the
Automatic Conversion Date would be approximately $353,400. At the Assumed
Conversion Price, such amount of accrued interest would be convertible into
approximately 102,190 shares of Common Stock assuming all such accrued interest
is paid in the form of shares of Common Stock. Based on such assumptions, an
aggregate of 969,681 number of shares of Common Stock may be issuable upon
conversion of both the Debentures and payments of accrued interest on the
Debentures. However, pursuant to the terms of the transactions with Strategic
and Opportunity, the number of shares of Common Stock required to be registered
for resale by the holders of the Debentures is 130% of the number of shares of
Common Stock issuable upon conversion of the Debentures and the interest
thereon. No assurance can be given that these assumptions would remain valid
during the term of the Debentures. The following table illustrates the varying
amounts of shares of Common Stock issuable upon conversion of the principal
amount of Debentures at the indicated conversion prices:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION
CONVERSION PRICE OF THE DEBENTURES AND INTEREST THEREON
- ------------------ ---------------------------------------
<S> <C>
15.00 224,520
13.45 250,394
10.00 336,780
5.00 673,560
2.50 1,347,120
</TABLE>
The actual number of shares of Common Stock that may be issued upon
conversions of the Debentures and payments of interest on the Debentures in the
form of shares of Common Stock will depend on the Conversion Price in effect
from time to time during the term of the Debentures, the timing of any such
conversions and the decision by the Company to make any payments of interest in
the form of shares of Common Stock. The Conversion Price will vary from time to
time during the term of the Debentures. Consequently, it is not possible to
estimate with any degree of certainty the total number of shares of Common
Stock that would actually be issued upon any conversions of the Debentures, the
total number of shares of Common Stock, if available, that could be issued in
payment of interest, or the availability of shares of Common Stock for payments
of interest. The Conversion Price of the Debentures could be substantially
below the market price of the Company's Common Stock on any date of conversion.
14
<PAGE>
In connection with the transactions with Strategic and Opportunity,
Century City Securities, Inc., an advisor in such transaction, received a
Common Stock purchase warrant to purchase an aggregate of 29,412 shares of
Common Stock.
As of October 26, 1998, (i) all of the Warrants to purchase an aggregate
of 423,241 shares of Common Stock are currently exercisable and (ii) Options to
purchase 324,166 shares of Common Stock are currently exercisable. The
remaining Options to purchase 155,834 shares of Common Stock will vest from
time to time from the date this Prospectus through March 2000. Certain of the
Selling Stockholders holding Options and Warrants to purchase an aggregate of
175,000 shares of Common Stock have agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock (other than shares of Common
Stock acquired in the public market) until March 27, 1999.
Based on information provided by each Selling Stockholder, the following
table sets forth the names of each of the Selling Stockholders and for each,
the number of shares of Common Stock beneficially owned before the commencement
of the Offering, the number of shares of Common Stock issuable upon conversion
of the Debentures, the number of shares of Common Stock issuable upon exercise
of the Warrants, the number of shares of Common Stock issuable upon exercise of
the Options, the number of shares of Common Stock offered for sale in this
Offering and the number of shares and percentage of Common Stock owned after
this Offering:
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
OF COMMON SHARES ISSUABLE NUMBER OF
STOCK UPON SHARES
BENEFICIALLY CONVERSION OF ISSUABLE UPON
SELLING OWNED PRIOR TO DEBENTURES AND EXERCISE
SECURITY HOLDER OFFERING (1) INTEREST THEREON OF WARRANTS
- ------------------------- ------------------ ------------------ ---------------
<S> <C> <C> <C>
Ballin & Partner ........ 5,000
Value Management &
Research S.A.,
Luxembourg .............
Value Management &
Research (U.K.),
Ltd. ...................
Andres Beyer ............
Klaus Grissemann ........ 189,395(2)
Reiner Hallauer .........
Viktor Vogt ............. 262,129(2)
Volker Walther .......... 890,750(3)
Arnold Wasserman ........
Erich Weber .............
Robert Weiss ............
Royce Investment
Group, Inc. ............ 335,000(5)
JNC Opportunity
Fund, Ltd. ............. 969,681(4) 35,300(5)
JNC Strategic Fund,
Ltd. ................... 198,255 23,529(5)
Century City
Securities, Inc. ....... 29,412(5)
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF COMMON STOCK BENEFICIALLY
SHARES OWNED AFTER OFFERING(14)
ISSUABLE UPON ----------------------------------
SELLING EXERCISE OF SHARES BEING NUMBER OF PERCENT OF
SECURITY HOLDER OPTIONS OFFERED (5) SHARES OUTSTANDING (15)
- ------------------------- ----------------- -------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Ballin & Partner ........ 5,000 0 0
Value Management &
Research S.A.,
Luxembourg ............. 80,000(6) 80,000 0 0
Value Management &
Research (U.K.),
Ltd. ................... 10,000(7) 10,000 0 0
Andres Beyer ............ 25,000(8) 25,000 0 0
Klaus Grissemann ........ 50,000(10) 50,000 189,395 1.6
Reiner Hallauer ......... 75,000(7) 75,000 0 0
Viktor Vogt ............. 75,000(9) 75,000(12) 262,129 2.2
Volker Walther .......... 50,000(10) 50,000(13) 890,750(3) 7.6
Arnold Wasserman ........ 95,000(7) 95,000 0 0
Erich Weber ............. 10,000(11) 10,000 0 0
Robert Weiss ............ 10,000(11) 10,000 0 0
Royce Investment
Group, Inc. ............ 335,000 0 0
JNC Opportunity
Fund, Ltd. ............. 1,295,886(14) 0 0
JNC Strategic Fund,
Ltd. ................... 221,784 0 0
Century City
Securities, Inc. ....... 29,412 0 0
</TABLE>
- ----------
* Represents less than 1% of the outstanding Common Stock.
(1) Excludes shares of Common Stock issuable upon exercise of the Debentures,
Warrants and Options.
(2) Such shares are not being registered for resale in this Offering.
(3) All of the shares of Common Stock are held by Walther Glas GmbH of which
Mr. Walther is the majority shareholder. Such shares are not being
registered for resale in this Offering.
(4) Based upon the Assumed Conversion Price. The actual number of shares of
Common Stock that will be issued upon conversions of the Debentures and
payments of interest on the Debentures in the form of shares of Common
Stock will depend on the conversion price in effect from time to time
during the term of the Debentures, the timing of any such conversions and
the decision by the Company to make any payments of interest in the form
of shares of Common Stock. Excludes an additional
15
<PAGE>
290,905 shares of Common Stock which are required to be registered for
resale in this Offering pursuant to terms of the transactions with
Strategic and Opportunity to provide for fluctuations of thie Assumed
Conversion Price. The Debentures prohibit a holder thereof from utilizing
its ability to convert Debentures to the extent such conversion would
result in such holder beneficially owning in excess of 4.999% of the then
issued and outstanding shares of Common Stock following such conversion.
Such prohibition may be waived as to a particular holder upon not less than
75 days prior notice to the Company.
(5) All of the Warrants are exercisable within 60 days of this Prospectus.
(6) Of these Options, 40,000 are exercisable within 60 days of the date of
this Prospectus. Of the remaining 40,000 Options, 20,000 will become
exercisable on December 31, 1998 and 20,000 will become exercisable on
March 31, 1999.
(7) All of these Options are exercisable within 60 days of the date of this
Prospectus.
(8) Of these Options, 12,500 are exercisable within 60 days of the date of
this Prospectus. The remaining 12,500 options will become exercisable on
June 30, 1999.
(9) Of these Options, 41,666 are exercisable within 60 days of the date of
this Prospectus. Of the remaining 33,334 Options, 16,667 will become
exercisable on March 24, 1999 and 16,667 will become exercisable on March
24, 2000.
(10) Of these Options, 25,000 are exercisable within 60 days of the date of
this Prospectus. The remaining 25,000 Options will become exercisable on
April 21, 1999.
(11) All of these Options are exercisable on June 30, 1999.
(12) Represents 75,000 shares of Common Stock underlying Options held by
Viktor Vogt.
(13) Represents 50,000 shares of Common Stock underlying Options held by
Volker Walther.
(14) Includes an additonal 290,905 shares of Common Stock which are required
to be registered for resale in this Offering pursuant to the terms of the
transactions with Stratigic and Opportunity and which may be sold by such
Selling Stockholder in this Offering in the event the conversion price on
the actual date of conversion is less than the Assumed Conversion Price.
(15) Assuming the sale of all Shares by such Selling Stockholder.
(16) The number of shares of Common Stock to be outstanding after this
Offering includes that number of shares of Common Stock which are
issuable upon conversion of the Debentures and payment of interest
thereon at the Assumed Conversion Price.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Stockholders, their
pledgees, donees, transferees or other successors-in-interest, may from time to
time, sell all or a portion of the Shares in privately negotiated transactions
or otherwise, at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices related to such market prices or at negotiated
prices. The Shares may be sold by the Selling Stockholders by one or more of
the following methods, without limitation: (a) block trades in which the broker
or dealer so engaged will attempt to sell the Shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction,
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus, (c) an exchange
distribution in accordance with the rules of the applicable exchange, (d)
ordinary brokerage transactions and transactions in which broker solicits
purchasers, (e) privately negotiated transactions, (f) short sales, (g) a
combination of any such methods of sale and (h) any other method permitted
pursuant to applicable law. The Selling Stockholders are not restricted as to
the price or prices at which they may sell their Shares. Sales of Shares by the
Selling Stockholders may depress the market price of the Company's Common Stock
since the number of Shares which may be sold by the Selling Stockholders is
relatively large compared to the historical average weekly trading of the
Company's Common Stock, and therefore, if the Selling Stockholders were to
sell, or attempt to sell, all of such Shares at once, the Company believes such
a transaction could adversely impact the market price for the Company's Common
Stock.
From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and can sell and deliver the
Shares in connection therewith or in settlement of securities loans. From time
to time the Selling Stockholders may pledge their Shares pursuant to the margin
provisions of its customer agreements with its brokers. Upon a default by the
Selling Stockholders, the broker may offer and sell the pledged Shares from
time to time.
In effecting sales, brokers and dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate in such
sales. Brokers or dealers may receive commissions or discounts from the Selling
Stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in
16
<PAGE>
the types of transactions involved. Broker-dealers may agree with the Selling
Stockholders to sell a specified number of such Shares at a stipulated price
per share, and to the extent such broker-dealer is unable to do so acting as
agent for a Selling Stockholder, to purchase as principal any unsold Shares at
the price required to fulfill the broker-dealer commitment to the Selling
Stockholders. Broker-dealers who acquire Shares as principal may thereafter
resell such Shares from time to time in transactions (which may involve block
transactions and sales to and through other broker-dealers, including
transactions of the nature described above) in the over-the counter market or
otherwise at prices and on terms then prevailing at the time of sale, at prices
then related to the then-current market price or in negotiated transactions
and, in connection with such sales, may pay to or receive from the purchasers
of such Shares commissions as described above. The Selling Stockholders may
also sell the Shares in accordance with Rule 144 under the Securities Act,
rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to
be underwriting commissions or discounts under the Securities Act.
The Company has been advised that Royce and Century City Securities, both
Selling Stockholders, are members of the NASD and engage in market making
activities with respect to the Common Stock. Royce and Century City Securities
will be deemed to be "underwriters" as that term is defined in the Securities
Act, and any commissions received by them and profit on any resale of the
Shares as principal will be deemed to be underwriting discounts and commissions
under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act. Selling Stockholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the Shares against certain liabilities, including
liabilities arising under the Securities Act. The Company will not receive any
proceeds from the sale of Shares by the Selling Stockholders although the
Company will receive proceeds from the exercise of the Options or Warrants.
At the time a particular offer of Shares is made, to the extent required,
a supplement to this Prospectus will be distributed which will identify and set
forth the aggregate amount of Shares being offered and the terms of the
offering.
The Selling Stockholders are subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including without
limitation, Regulation M, which provisions may limit the timing of purchases
and sales of the Shares by the Selling Stockholders.
In order to comply with certain states' securities laws, if applicable,
the Shares may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Shares may not be sold
unless the Shares have been registered or qualified for sale in such state, or
unless an exemption from registration or qualification is available and is
obtained.
LEGAL MATTERS
The validity of the securities offered hereby have been passed upon for
the Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Company's Annual Report on Form 10-K, as of December 31, 1997 and 1996, and
for each of the three years ended December 31, 1997, 1996 and 1995 have been
incorporated herein in reliance on the report of Rothstein, Kass & Company,
P.C., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
17
<PAGE>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE ANY OF THE DATES AS OF WHICH
INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information ............... 2
Incorporation of Certain Documents by
Reference ........................ 2
Prospectus Summary .................. 3
Risk Factors ........................ 4
Use of Proceeds ..................... 13
Selling Stockholders ................ 13
Plan of Distribution ................ 16
Legal Matters ....................... 17
Experts ............................. 17
</TABLE>
IAT MULTIMEDIA, INC.
2,367,082 SHARES OF COMMON STOCK
-----------------
PROSPECTUS
-----------------
OCTOBER 27, 1998
================================================================================
