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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|_| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 34-19218
PROJECTAVISION, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3499909
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
Two Penn Plaza, Suite 640
New York, New York 10121
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(Address of principal executive offices) Zip Code
(212)971-3000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, Par Value $.0001 Per Share
Redeemable Warrants
Series B Preferred Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
On March 24, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $22,191,953.70 based upon the average of
the closing bid and asked prices of $ 1.05 as of March 24, 1998.
As of March 24, 1998, 21,279,935 shares of the Registrant's Common Stock
were outstanding.
Documents Incorporated By Reference
Document Where Incorporated
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None. N/A
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PART I
Item 1. BUSINESS.
General
The Company is in the business of identifying, developing, patenting,
supporting, manufacturing and marketing technical innovations in the electronic
display and information industry. The Company was formed to capitalize on, and
generate revenues and profits primarily from a) the manufacture and sale of
products based on its technology and b) the licensing of its proprietary
patents, inventions, systems and technologies to manufacturers. The Company's
first commercial video production system, its Digital Home Theater(TM) ("DHT"),
is currently in production. The DHT is a modular, large screen digital
entertainment system that can be used as either a 60-inch rear projection
television, a front projector capable of casting an image up to 20 feet diagonal
in size, or as an SVGA-compatible computer monitor. The Company believes that
the DHT uniquely positions the Company in the market because the DHT represents
the convergence of front projectors, rear projection televisions, and computer
monitors. The DHT incorporates a lightweight, removable projector that utilizes
digital technology developed by Texas Instruments called Digital Light
Processing ("DLP") in concert with the Company's proprietary dual-use front/rear
projection system.
Digital technology is beginning to gain prominence in the video display
industry, and has started to replace competing technologies, such as cathode ray
tube ("CRT") and liquid crystal display ("LCD"). DLP is currently the leading
new digital video technology, and Texas Instruments has demonstrated its
commitment to this emerging technology by continuing to upgrade and improve its
proprietary DLP technology. Texas Instruments' DLP system for projection display
is based on its Digital Mirror Device ("DMD") DMD microchip. As a consequence,
DLP, an innovative yet proven technology, is increasingly being adopted by
numerous projection and consumer electronic companies.
Video Products
The Company's technologies utilize both the new Texas Instruments Digital
Light Processing (DLP) light engines and liquid crystal displays (LCDs) as light
valves and high brightness light sources in concert with the Company's
proprietary electronic and optical processing systems. The new generation
technologies differ significantly from conventional cathode ray tube ("CRT")
technology, which has been used for the past fifty years in virtually all
television and video systems. The Company's technologies are capable of
producing giant screen displays that are bright and sharp, have rich color
saturation and high contrast. The Company is the owner of seven (7) United
States patents, covering its technologies, and nine (9) foreign patents around
the world. An additional thirteen (13) patent applications have been filed by
the Company in the United States with respect to the Company's proprietary
technologies. In addition, the Company has also filed forty-seven (47) patent
applications in various foreign countries for improvements to its technologies
and for protection of related technologies.
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The Company has formed a non-exclusive strategic corporate alliance and entered
into an OEM Agreement with Texas Instruments with respect to the purchase of the
DMD, which is a component of the DLP that has been developed by Texas
Instruments. The Company has also entered into arrangements with third parties
for the manufacture and production of its video projection systems which
currently include the Projector and the proprietary Digital Home Theater
mechanical and electronics designs. The Company has entered into arrangements
with third parties for the marketing and distribution of its video projection
systems. The Company has also licensed, on a non-exclusive basis, its patented
"depixelization" micro-optics and brightness enhancement technologies, which are
applicable to a wide range of video projection systems, to Matsushita Electric
Industrial Co., a Japanese company that distributes consumer electronic products
in the U.S. under the Panasonic brand name, and to Samsung Electronics Co., a
Korean company that distributes products under the Samsung brand name. These
non-exclusive licenses offer consumer electronics manufacturers the right to use
certain of the Company's patented technologies. The Company is seeking to enter
into similar, non-exclusive patent license agreements for its depixelization and
other technologies with other parties in a variety of markets. In addition to
licensing its technologies for potential uses in the television market, the
Company also intends to offer licenses of its video projection technologies to
commercial and military users. Other potential markets for the Company's
technologies include medical imaging, laptop computers, CAD/CAE workstations,
computer monitor replacement, arcade games, video interactives, home shopping,
video teleconferencing, sports entertainment viewing, education, training and
advertising.
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The Video Display Industry
The video display industry encompasses numerous markets, and the Company
currently competes in three segments: (i) front projection systems, (ii) rear
projection television (big screen TVs) and (iii) computer monitors. Stanford
Resources, Inc., an industry research firm, estimates the revenue of these three
segments at approximately $27.2 billion in 1997. The projection display market,
which comprises primarily the front projection and rear projection television
markets, is expected to increase from 1.4 million units in 1996 to 3.1 million
units in 2002, representing an increase in revenues from $5.8 billion in 1996 to
$10.0 billion in 2002. The consumer television category captured the largest
share of projection display revenues in 1996 at 47.7% while business
applications were second with 30.5%. Education (9.4%), sports and entertainment
(6.2%), military/government (3.3%), and public information (2.6%) composed the
remainder of the projection display market.
Over the last decade, consumer interest in home theater systems and large
screen televisions has increased dramatically, fueled by decreasing equipment
prices and an ever-expanding universe of movies, sporting events and other
programming available via cable television, direct broadcast satellite,
laserdisc, VCRs, and most recently, digital video disc ("DVD"). One of the
fastest growing segments of the video display industry is the market for
direct-view televisions with diagonal screen sizes exceeding 30-inches, and
projection televisions, which have screen sizes exceeding 40-inches. Sales of
30-inch or greater direct view televisions and projection televisions increased
22% and 10%, respectively, in 1996. As screen sizes have increased, image
impairments, such as low resolution, artifacts and noise, have become more
readily apparent. Moreover, the better quality images produced by DVDs, digital
satellite transmission and high-resolution computer monitors have made viewers
more discriminating and have elevated image quality expectations. The Company
believes that this trend will accelerate with the advent of digital high
definition television ("HDTV"). The Federal Communications Commission recently
established standards for HDTV broadcasting in the U.S. and has targeted the
eventual phase-out of analog (NTSC) broadcasting by the year 2006.
Currently, one of the most significant trends in the consumer electronics
industry is that of "convergence," which refers to the merging of traditional
consumer electronics, such as audio, video and personal communications products,
with the digital world of the PC. Advances in microprocessors, the availability
of low cost memory and storage, high quality displays, sophisticated software
and the emergence of the World Wide Web have fueled the growth in multimedia
applications on the PC. In essence, the technologies of home entertainment (the
living room) and home information (the home office) are merging to create a new
product category. The advent of digital television and its convergence with the
PC, combined with the growing demand for home theater systems and projection
televisions, are effecting another convergence, that of the front projection,
projection television and, computer monitor markets. The Company believes that
it is uniquely positioned to capitalize on this convergence because the DHT,
with its front/rear projection and SVGA computer monitor capability, is the
first and currently the only product that addresses these three, heretofore
discrete, markets. These markets combined are expected to increase to $32.5
billion in revenue by 2002.
In 1996, North America represented 74.3%, or 1.18 million units, of the
global projection display market. Europe, Japan and the rest of the world each
account for less than 10% of total unit shipments. The wide gap between North
America and the other regions is caused by the tremendous difference in rear
projection television sales as well as the early adoption of multimedia
presentations in U.S. businesses and educational institutions. North America and
Europe represent 68.1% and 16.9%, respectively, of the total dollar volume of
the global projection display market in 1996, reflecting the relatively low
prices of big screen TVs in the U.S. and a higher-priced product mix in Europe.
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Front Projection
The front projection market, estimated at $2.5 billion in revenue in 1996,
comprises primarily commercial applications, including corporate presentations,
demonstrations and seminars, hotels and conference centers, bars and
restaurants, education and training, and video teleconferencing. To a lesser
extent, front projection displays are used in consumer applications, principally
customized large screen home theater systems. Front projector sales are expected
to increase to $5.8 billion by 2002 due to the rapid growth in the multimedia
business presentation market, as well as the growing popularity of home theater
systems, primarily in the U.S. Front projection systems based on liquid crystal
display ("LCD") technology currently dominate the front projection market with
approximately $1.8 billion in sales in 1996. LCD-based front projectors offer
lower prices, more compact designs, and equal or higher brightness as compared
to projectors based on cathode ray tube ("CRT") technology. As a result,
shipments of front CRT projectors, mostly for home theater applications, are
expected to peak in 1996 at $463 million in sales and decline to $213 million in
2002. New "chip-based" projectors, including those based on Texas Instruments'
digital micromirror device ("DMD") were introduced in 1996. Initially, the
business market has been the major revenue source for chip-based front
projectors. Front chip-based systems are expected to become a major player in
the commercial market due to superior picture performance and declining prices
resulting from significant cost reductions. Stanford Resources estimates that
sales of front chip-based systems will increase to over $900 million by 2002.
Projection Television (Rear Projection)
The rear projection television market, estimated at $3.0 billion in
revenue in 1996, principally consists of consumer big screen televisions. In
spite of all the new projection display technologies that have been developed,
displays based on CRT technology continue to dominate this market. While
projection televisions represent only 3.5% of the unit shipments in the overall
U.S. color television market, they account for over 20% of total revenues, which
were estimated at $8.6 billion in 1996. Growth in this category will be
propelled by lower prices, an increasing desire for bigger screens, rising
demand for replacement units, and the market penetration of digital video disc
("DVD"). Worldwide sales of rear projection televisions are expected to increase
from 975,000 units in 1996 to 1.6 million units in 2002, representing an
increase in market value from $3.0 billion in 1997 to $3.6 billion in 2002.
Developments in LCD and chip-based projectors are expected to dampen the growth
in CRT rear projectors. LCD-based rear projection systems have become successful
in some professional niche applications, and sales are expected to grow to $170
million by 2002. Chip-based systems, including the DMD, were introduced in 1997
and sales are expected to increase significantly as costs decline relative to
CRT-based systems.
Computer Monitors
The computer monitor market has widespread commercial and consumer
applications. The worldwide market for CRT display monitors is estimated at 84.2
million units and nearly $21 billion in revenues in 1997. This market is
estimated to increase to 113.5 million units and approximately $25 billion in
revenues by 2002. The continued growth of the personal computer ("PC") and
workstation market will drive the growth in computer monitors. The Company
expects that the trends toward larger computer screen sizes and enhanced picture
quality for multimedia applications will create demand for the DHT as a computer
monitor. Companies such as Compaq Computer Corp. and Gateway 2000, Inc. have
already introduced big screen PC/TV products, and the Company intends to explore
joint ventures with computer manufacturers to introduce similar PC/TV products
that incorporate the DHT.
CRT Technology
Most existing color televisions up to 35 inch screen size use CRT systems,
the basis of virtually all televisions produced since the 1940s. CRT technology
has certain inherent limitations for production of big screen picture displays,
including size, weight and vacuum. As a practical matter, CRT television is not
manufacturable in sizes in excess of 40 inches.
The cost of producing cathode ray tubes and other aspects of the CRT
technology used for big screen display is high. As a result, CRT-based big
screen television generally is disproportionately more expensive than small
screen size television.
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While some improvements in CRT big screen televisions continue to be made,
the Company's management believes it is unlikely that new CRT-based big screen
televisions will be produced competitive to the advantages of big or giant
screen LCD television technology.
The Company's Technologies
The Company's DMD and LCD projection technologies combine the Company's
patented optical and electronic processing systems with high brightness light
sources. Use of DMDs and LCDs eliminates the cathode ray tube, which in big
screen televisions is large, bulky, heavy and fragile. DMD panels and LCD
semiconductors do not pose the health hazards of CRTs and are smaller, more
compact, lighter and less fragile than cathode ray tubes. In reproducing images
in color, CRTs generate X-ray radiation that may be harmful to persons who view
the images at close range over long periods of time. Further, CRTs generate
electro-magnetic fields of considerable magnitude. The physiological effects of
these fields on persons who view the screens at close range is still under
study. The use of DMDs or LCDs in the Company's projection systems will not
result in the generation of X-rays or intense electro-magnetic fields.
LCD television technology was first developed approximately 19 years ago.
Unlike CRT technology, which is a mature technology that has been used for
approximately the past 50 years in virtually all television and video projection
systems, LCD technology is still being significantly refined and improved.
Management anticipates that LCDs, like other solid-state devices, ultimately
will be made more compact, durable, efficient and inexpensive. Like CRT-based
color televisions, LCD-based color televisions are capable of displaying 525
scanning lines and 330 lines of resolution using standard NTSC broadcast
signals. LCD projection technologies presently contain certain inherent image
quality limitations. The Company's patented technologies are designed to
overcome these limitations and produce an image offering continuous tone
photographic effect enabling substantially increased viewer perception of image
quality when compared with LCD televisions that do not utilize the Company's
depixalization system. The Company believes that its technologies overcome
limitations in current LCDs that might otherwise limit the use of LCDs for
standard NTSC and high definition television ("HDTV") displays and will improve
the ability to display images comparable in quality to those currently produced
by CRT-based projectors. Texas Instruments' DLP system for projection display is
based on its Digital Mirror Device ("DMD") DMD microchip, a highly integrated
semiconductor light switch. A DLP projector combines DMD microchips with digital
signal processing, memory, software, optical components, and an illumination
source to create extremely bright, high resolution (SVGA) display systems.
DLP is currently the leading digital video technology in the world, and
the Company believes this technology is superior to competing display
technologies, including cathode ray tube ("CRT") and liquid crystal display
("LCD"). The two-chip DLP light engine installed in the DHT produces a bright,
crisp picture without visible pixels or flicker. The DHT is lightweight and easy
to assemble, making it user-friendly for both consumers and retailers.
Furthermore, the DHT is fully digital, thus it can be upgraded to receive HDTV
broadcast signals.
The Company is aware of the development by other companies of innovative
flat panel and television systems. These technologies do not use CRT or
projection to produce an image, but instead rely on other technologies including
plasma, thin film electro-luminescence, solid-state lasers, light pipe systems,
vibrating mirror systems, cold cathode screens, PLZT, FED (field emission
display) and others. The Company believes that flat-panel displays using certain
of these technologies ultimately may be usable as HDTV receivers, and, if so
used, potentially, may be competitive with the Company's technologies.
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Digital Home Theater(TM) (DHT)
The DHT is a modular, large screen, digital entertainment system that can
be used as either a 60-inch rear projection television, a front projector
capable of casting an image of up to 20 feet in size, or as an SVGA-compatible
computer monitor. The DHT produces a bright, crisp picture without visible
pixels and it is lightweight and easy to assemble, making it user-friendly for
both consumers and retailers. The heart of the DHT is the projector, which
contains a proprietary DLP light engine supplied by Texas Instruments. The
complete projector utilizes the Company's proprietary technology and engineering
innovations, including audio/video connection docking and user interfaces, power
management sequence, audio processing and amplification, and a central control
and monitoring system. The key interface of the DHT is a 50-pin docking station
that connects the projector and the cabinet. This proprietary interface allows
for the easy removal and replacement of the projector when switching between
front and rear projection formats. The cabinet also includes storage for the
front projection lens and a second external docking station. Furthermore, since
the DHT is a 100% digital design, it can be upgraded to receive HDTV broadcast
signals.
Features of the DHT
Picture Size - The picture size produced by the DHT in the front
projection format can be varied continuously to up to a 20-foot diagonal
picture by changing the projection distance or by adjusting the DHT's
built-in zoom lens. The lens can increase the size of the projected image
by a magnitude of 100%.
No Flicker - In contrast to current CRT projection television systems,
Projectavision's DLP-based system does not employ the old scan line
technology, which causes flicker laden images.
Picture Quality - The DHT is capable of displaying large size images with
rich color and high contrast on a screen or on a white or light-colored
surface. The DHT produces images with a continuous tone photographic
effect without visible pixels, enabling viewers to perceive substantially
improved image quality.
Design - The DHT is a lightweight, modular design made up of three
components: the cabinet, screen and projector. The cabinet is made of
lightweight plastics and is only 23 inches deep. The projector is
portable, weighing only 30 pounds, resulting in an easy switch between
front and rear projection formats. The entire product can be assembled in
minutes using four wing nuts.
Other Features - The DHT has a built-in television tuner/receiver and
audio system, UHF and VHF tuning and a user-friendly interface operated by
remote control. The DHT can be connected to cable television, video games,
VCRs, laser disc players, DVD players, desktop and laptop computers, and
direct broadcast satellite systems.
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Research and Development
From the Company's inception in September, 1988 through December 31, 1997,
the Company has invested approximately $6,400,000 for research and development
of its technology. The Company has constructed production prototypes and
completed substantially all research and development activities in connection
with the Projector and the Digital Home Theater, although certain refinements
are still ongoing, including optimizing picture brightness. The Company has and
continues to explore the feasibility of using light valves other than LCDs in
its projection technologies.
The Company has applied for U.S. patent protection for a portable,
knockdown folding rear screen video display cabinet which includes its own
screen and may be used in conjunction with the Projector, as well as for its
thin screen display technology. The proposed screen is to have a 50" diagonal
measurement, only six (6) inches thick, and relies on a variation of the
Company's video projection technologies as an image source.
Partnerships, Alliances, and Licenses
Projectavision has entered into a number of key strategic alliances in
order to design, manufacture and distribute the DHT. Projectavision believes
that strong alliances are the key to insuring the successful development and
continued growth of the Company.
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Texas Instruments
Projectavision's relationship with Texas Instruments began in the fall of
1995 and initially involved a major engineering effort to jointly develop the
DLP technology that is incorporated into the Company's DHT projector. Texas
Instruments has invested approximately $500 million over the past eight years to
research and develop the DLP technology. The second phase of this alliance,
which is currently underway, involves the production of the two-chip DLP light
engine and, to date, over 300 production engines have been received from Texas
Instruments. In the first quarter of 1998, Texas Instruments transferred
manufacturing of the two-chip DLP light engine to Solectron Corporation, a
California-based global supplier of various manufacturing services to electronic
OEMs. Solectron currently manufactures single- and three-chip DLP systems for
Texas Instruments. The Company expects to continue working with Texas
Instruments on improving the DLP technology for current and future products.
C-MAC Electronic Systems Inc.
Projectavision has contracted with C-MAC Electronic Systems Inc. ("C-MAC")
to produce the DHT projector. C-MAC, a publicly traded company based in Quebec,
Canada, is a leading international manufacturer of advanced microelectronics for
major OEMs, including Northern Telecom Limited and International Business
Machines Corporation, among others. C-MAC markets its products and services to
OEMs in the telecommunications, computer, military hardware, medical equipment
and automobile industries.
Como Products
Projectavision has contracted with Como Plastics, located in Columbus,
Indiana, to manufacture the rear cabinet and to assemble and ship the DHT to
customers. Como Plastics is a subsidiary of LDM Corporation, a large, privately
held plastics design and molding company based in Detroit, Michigan. LDM is a
major supplier to Ford Motor Company and General Motors Corporation, as well as
to major consumer electronics companies such as Thomson and Toshiba.
Boxlight Corporation
Commercial distribution of the DHT will be conducted through an alliance
with Boxlight, a leading seller of projection products to the commercial market
with sales of $60 million in 1996. Boxlight distributes products directly to
corporations, educational institutions, hotels/conference centers and
bars/restaurants. Boxlight has a reputation for providing unparalleled service
to its customers and partners, and it continues to grow dramatically. In 1997,
for the fourth consecutive year, Boxlight was named by Inc. magazine as one of
the 500 fastest growing private companies in the U.S.
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Other Partnerships and Alliances
Tandy Corporation, a large publicly traded consumer electronics company,
will provide the after sales product service for the DHT nationwide. The Company
has retained the services of the Hamilton Group, a privately held marketing
services firm located in Detroit, Michigan to provide a toll-free customer
service number as well as gather and to analyze information regarding consumer
reaction to the DHT. The DHT was designed by Lunar Design, a nationally
recognized industrial design firm. The innovative quality of the DHT's design
was recognized when Projectavision was awarded the Innovations'97 Design and
Engineering Showcase Award at the recent Consumer Electronics Show. Montalbano
Development Inc., a New York-based firm, was responsible for the mechanical
design and engineering work for the DHT. In addition, the Company enjoys
strategic alliances with several high-end video enhancement companies including
Faroudja, Inc. and Genesis.
Vidikron Acquisition.
In January 1998 the Company signed a definitive agreement to acquire
substantially all of the assets of Vidikron Industries, S.p.A. ("Vidikron")
relating to its video business, including its U.S. distribution subsidiary,
Vidikron of America, Inc. In accordance with the definitive acquisition
agreement, the Company has advanced Vidikron $ 1,000,000 on a non-refundable
basis. The closing of the acquisition is expressly subject to the satisfactory
completion by the Company of all due diligence and obtaining the requisite
financing to complete the transaction. There can be no assurances that the
Company will be satisfied upon its completion of its due diligence, that it will
be able to secure the necessary financing, or that it will otherwise be able to
effect the acquisition of Vidikron.
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Marketing
Public relations, advertising and media coverage have increased consumer
awareness of the DHT. Feature articles have appeared in leading publications,
including magazines such as Home Theater, Popular Electronics, GQ, Rolling
Stone, Wired, Playboy, and Audio/Video, and newspapers such as The New York
Times. The DHT has been featured at major trade shows such as InfoComm, Comdex
and the Consumer Electronics Show, where the DHT received the coveted Industrial
Design & Engineering Award.
Distribution
The DHT is being marketed through both retail and commercial distribution
channels. Retail distribution will initially focus on high-end custom
installation retailers who have the experience and understanding to sell this
unique product to consumers. As the customer base expands and consumer
acceptance grows, the Company expects to expand retail distribution to higher
volume channels, including regional and national consumer electronics chains and
superstores, thereby increasing volume substantially. The Company employs
independent sales firms nationwide for retail distribution of the DHT.
Tamarack Investment and Purchase of Shares by Manhattan Scientifics, Inc.
In April, 1993, the Company entered into an agreement with Tamarack
Storage Devices, Inc. ("Tamarack"), a spin-off development stage company of the
Microelectronics and Computer Technology Corporation, a research consortium of
leading U.S. technology companies of which the Company is a member. Tamarack
which was established to commercialize holographic storage technology for
various uses such as for the personal computer workstation, commercial storage
and the consumer electronics market. Pursuant to the April 1993 agreement, the
Company acquired approximately 37% of Tamarack's issued and outstanding voting
securities. In addition, since Tamarack did not achieve certain revenue
benchmarks by the end of the first calendar quarter of 1995, the Company
exercised its right in March, 1996 to purchase, for minimal consideration,
additional shares of Tamarack's Common Stock such that upon effecting such
purchase, the Company assumed ownership of approximately 53% of Tamarack's
issued and outstanding voting securities.
In May, 1994, the Company loaned Tamarack an additional $1,500,000 and in
connection therewith also received warrants to purchase additional shares of
Tamarack's common stock, the precise amount of which is dependent upon the
timing and pricing of a future equity offering by Tamarack. From August through
December of 1995, the Company advanced an aggregate of an additional $97,339
either directly to or for the benefit of Tamarack for general working capital
purposes. Due to Tamarack's inability, to date, to commercialize its holographic
storage technology and Tamarack's current lack of prospects, the Company has
recorded a reserve against its entire investment in Tamarack, including the loan
of $1,500,000. In November, 1996, the Company loaned Tamarack an additional
$100,000 which has been reserved.
In January 1998, Tamarack was acquired by Manhattan Scientific, Inc.,
"MSI") (formally Grand Enterprises, Ltd.) a NASDAQ bulletin-board traded
company. All of the shares of Tamarack (97% of which were represented by the
Company's holdings in Tamarack at the time of the closing) were exchanged for 44
million shares of MSI. Simultaneously therewith, an additional 5 million shares
of MSI were sold to the public, resulting in aggregate gross proceeds of
$1 million to MSI. Further, in connection with the transaction, the Company's
$1,500,000 loan plus accrued interest thereon was exchanged for 182,525 shares
of convertible preferred stock of MSI. Each share of this convertible preferred
stock is convertible into 50 shares of MSI common stock. The Company also
received a warrant to purchase 750,000 shares of MSI common stock at an exercise
price of $0.20 per share. Subsequent to the closing of the transaction, MSI has
agreed to issue an aggregate of 7.2 million shares to purchase patents in a
portable fuel cell technology which MSI is planning to develop commercially.
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Proprietary Rights
Projectavision is the owner of seven (7) United States patents and nine
(9) foreign patents in a number of countries and has sixty (60) patent
applications pending in numerous industrialized nations around the world. The
Company has filed for further patent protection in the United States and in
various foreign countries for improvements in its technologies. Specifically in
1995, the Company filed separate patent applications covering its thin screen
system, collimation increasing means, light splitting means, input lens arrays
on opposite sides of the image forming element, double input lens array, real
illumination polarized screen and brightness enhancing technologies.
Applications covering such technologies have also been filed in Canada, China
(People's Republic), Europe (E.P.O.), India, Japan, Mexico, South Korea and
Taiwan. Also in 1995, three additional "design" patent applications were filed
in the United States covering Projectavision's rear screen technology systems.
Rear screen technology utility applications were also filed in Canada, China
(People's Republic), Europe (E.P.O.), India, Japan, Mexico, South Korea and
Taiwan. Notwithstanding the Company's patent or pending patent applications,
there can be no assurance that others have not developed such technologies
without the Company's knowledge, or that such pending applications will be
allowed or that others will not independently develop similar technologies,
duplicate the Company's technologies or design around the patented aspects of
the Company's technologies. Even though the Company has been issued patents,
challenges may be instituted by third parties as to the validity, enforceability
and infringement of the patents. In the event that if others are able to design
around the Company's patents, the Company's business could be materially and
adversely affected. In addition, in the event the Company's products are based
upon the DLP developed by Texas Instruments, the Company will also be dependent
to a certain extent on the efficacy of Texas Instruments' patents relative to
the DLP, of which there can be no assurance. The Company has not conducted any
independent analysis of the patents owned by Texas Instruments relating to the
DLP.
The cost of the litigation to uphold the validity and enforceability and
prevent infringement of the Company's patents can be substantial. The Company's
patent counsel, has conducted a study to determine whether the manufacture, use
or sale in the United States of the projector would infringe patents of others.
The study reviewed patents covering active matrix LCDs, optics and LCDs and
various electronic and optical components used in conjunction with such
combinations. Counsel has determined that the combination of features disclosed
in the Company's patent application would not constitute literal infringement of
the patents reviewed.
Counsel also has reviewed certain of the patents covered by the literal
infringement study to determine whether the combination of features described in
the Company's application would infringe such patents under the doctrine of
equivalents. Under this doctrine, a product which does not literally infringe a
patent because it does not have all features of any of the patent claims might,
nevertheless, be deemed to infringe such patent, if and only if the difference
between the patented product and accused products are insubstantial. Counsel has
concluded that the combination of features described in the Company's patent
application would not infringe any of the patents included in counsel's doctrine
of equivalents study under the doctrine of equivalents. With respect to those
patents which were not included in the doctrine of equivalents study, counsel
has advised the Company that even if the combination of features described in
the Company's application would infringe such patents under the doctrine of
equivalents it is likely that either (i) suitable non-infringing alternative
components would be available, or (ii) the Company will be able to obtain a
license from the owner of such patent. In order for the Company to obtain such a
license it may be necessary for the Company to grant a cross license of the
Company's patent-pending technology to a potential licensor.
8
<PAGE>
Counsel also has reviewed the patents to determine whether the components
of the Projector set forth in the Company's patents constitute literal
infringement of the other patents reviewed. Counsel has concluded that the
manufacture, use or sale in the United States of the Projector including such
components would not constitute literal infringement of the patents reviewed;
however, Counsel will not be able to determine whether the components of the
Projector would infringe the remaining patents reviewed until certain components
to be used in the Projector are definitively selected. Counsel has not reviewed
the patents to determine whether the components of the Projector disclosed in
the Company's patent application would constitute infringement of the patents
directed to such components under the doctrine of equivalents. However, counsel
has advised the Company that, as a matter of law, any component purchased from a
seller in the normal course of business ("off the shelf") is purchased with a
warranty from the seller that such component does not constitute literal or
equivalents infringement of patents of others. In addition, counsel has advised
that if the Company arranges to have certain components manufactured to its
specifications and, therefore, is not deemed to have purchased such components
off the shelf it is likely that either (i) the seller of such component will
indemnify the Company from patent infringement claims, or (ii) the Company will
be able to obtain a license from the owner of the patent which is infringed.
However, there can be no assurance that the Company will enter into any such
arrangements and if the Company is unable to enter into such arrangements, its
business may be adversely affected.
In some cases, the Company may rely on trade secrets to protect its
innovations. There can be no assurance that trade secrets will be established or
that others will not independently develop similar or superior technologies. The
Company routinely requires employees, Directors, consultants and other third
parties to whom confidential information has been or will be disclosed, to agree
to keep the Company's proprietary information confidential and to refrain from
using such information in any manner that is adverse to the Company's interest.
However, there can no assurance that such agreements will be complied with or
will be enforceable.
The Company is the owner of the trade name Projectavision, Inc. This mark
was registered by the United States Patent and Trademark Office on February 4,
1997.
The following Trademark applications have been filed:
TRADEMARK COUNTRIES STATUS
- --------- --------- ------
DHT and DIGITAL HOME U.S.A., Europe, Japan, Korea,
THEATER Taiwan, India, China, Canada Mexico,
Brazil, Chile, Peru and Argentina Pending
COMPUTER THEATER U.S.A Pending
KANGAROO U.S.A. Pending
CHT U.S.A., and Taiwan Pending
COMPUTER HOME THEATER U.S.A., and Taiwan Pending
Generally, pending trademark applications significantly inhibit the
ability of a third party to obtain registration for identical or similar marks
to those of the Company's during the pendency of application. However, the
specific trademark laws in each of the countries vary.
The Company also registered the trademark PROJECTAVISION in Japan on
October 31, 1995. Intent-to-Use applications for this mark have also been filed
in European Countries, Korea, Taiwan, India, China, Canada, Mexico, Chile, Peru,
Argentina and Brazil. In addition to the trademark PROJECTAVISION, the Company
has applied for registration of several Intend-to-Use trademark applications
various countries.
On April 7, 1995, Eugene Dolgoff, a founder of the Company and its former
Chief Scientist, filed suit against the Company alleging, among other things,
certain ownership rights with respect to the Company's technologies. See Item 3
"Legal Proceedings."
9
<PAGE>
Competition
Projectavision's DHT is currently the only product that addresses simultaneously
the front projection, rear projection television, and computer monitor markets.
As a result, there are no direct competitors to the DHT. However, the Company
faces competition from a variety of companies in each of the distinct markets
targeted by the DHT. The following table summarizes the position of the Company
vis-a-vis its competitors in the industry.
Table 1
Competitive Product Platform
----------------------------------------------------------------------------
Rear Rear Front Front Front
Projection Projection Projection Projection Projection
VIDEO VIDEO/DATA VIDEO DATA VIDEO/DATA
----------------------------------------------------------------------------
Projectavision X X X X X
----------------------------------------------------------------------------
Vidikron X X X
----------------------------------------------------------------------------
Sony X X X X
----------------------------------------------------------------------------
RCA X
----------------------------------------------------------------------------
Zenith X X
----------------------------------------------------------------------------
Mitsubishi X X
----------------------------------------------------------------------------
Sharp X X
----------------------------------------------------------------------------
JVC X X
----------------------------------------------------------------------------
Nview X
----------------------------------------------------------------------------
InFocus X
----------------------------------------------------------------------------
Proxima X
----------------------------------------------------------------------------
Electrohome X X
----------------------------------------------------------------------------
Runco X X
----------------------------------------------------------------------------
Davis X X
----------------------------------------------------------------------------
Barco X X
----------------------------------------------------------------------------
Source: Projectavision, Inc.
<PAGE>
Front Projection
The front projection market is dominated by LCD-based products. Over the last
few years, the number of LCD projector companies has risen dramatically. Many
large electronics firms with LCD manufacturing experience and large consumer
electronics and office products divisions decided that the LCD projector market
offered attractive opportunities. Sharp Corporation was the leader in LCD
projection, introducing LCD-based front projectors in 1989. Toshiba Corp.
entered the U.S. market in 1996. In addition, companies such as Sony Corporation
("Sony"), Panasonic Broadcast and Television Systems Co. and Philips Consumer
Electronic Company ("Philips") have revamped their small LCD projector product
lines and sales efforts to become major players. The total number of companies
offering LCD front projectors under their own brand name increased from 10 in
1992 to 34 in 1996.
Table 2
LCD Front Projection Market
1996 U.S. Market Share
(Based on Unit Sales)
Rank Company Share
---- ----------------------- ---------
1 Sharp Corporation 15% - 25%
2 In Focus Systems 15% - 25%
3 Proxima Corp. 10% - 20%
4 Epson America 4% - 8%
5 nView Corp. 4% - 8%
6 Sanyo Electric Co., Ltd. 4% - 8%
7 NEC Corporation 4% - 8%
8 Polaroid Corp. 4% - 8%
9 Eiki International, Inc. 2% - 4%
10 3M Visual Systems Division 2% - 4%
All others less than 2% each
Source: Stanford Resources, Inc., Projection Displays, 1996.
10
<PAGE>
Major suppliers of CRT-based front video projectors include Sony, Zenith
Electronics Corporation, Runco International ("Runco") and Barco, Inc.
("Barco"). Sony, NEC and Barco are the leaders in the data category, and
Vidikron, Electrohome, Ltd., Sony, Barco and NEC are strongly positioned in the
high-resolution front CRT projector market.
Projection Television (Rear Projection)
CRT-based products dominate the rear projection television market. Chip-based
systems, like Projectavision's DHT, were introduced in 1997.
Table 3
Rear Projection Television Market
1996 U.S. Market Share
(Based on Unit Sales)
Rank Brand Name Share
---- -------------- -----
1 RCA-Pro Scan 14%
2 Mitsubishi 13%
3 Magnavox 11%
4 Hitachi 11%
5 Sony 10%
6 Pioneer 10%
7 Zenith 8%
8 Toshiba 6%
9 Sears LXI 3%
10 GE 2%
All others 12%
Source: Stanford Resources, Inc., Projection Displays, 1996.
DMD/DLP Licensees
A number of companies, in addition to Projectavision, have licensed Texas
Instruments' DLP technology. Projection companies marketing DLP-based desktop
projectors include nView Corp., In Focus Systems, Inc., Proxima Corp., ASK AS,
Davis A/S and Liesegang. Companies addressing the home theater market include
Runco and Vidikron Industries, however, only Projectavision currently has a
chip-based rear projection television on the market. Digital Projection Ltd. (a
Rank Brimar division), Electrohome Ltd. and Sony have all introduced
high-brightness models and a number of other companies, including Philips, are
evaluating the technology for a variety of products.
Government Regulations
The Food and Drug Administration ("FDA") of the U.S. Department of Health
and Human Services regulates television radiation emissions. State and local
governments also may regulate television radiation emissions. Compliance with
these regulations, or exemptions therefrom, will be necessary prior to
commencement of marketing of the Projector and the Digital Home Theater. The
Company believes that the Projector and the Digital Home Theater will comply
with applicable regulations. Current FDA regulations do not require FDA review
or approval prior to the manufacturing or marketing of the Projector or the
Digital Home Theater. If the Company's technology is used in the medical imaging
market, it may have to comply with FDA requirements pertaining to medical
devices, including possible extensive premarketing approval requirements. If the
Company is required to obtain premarketing approval from the FDA, use of the
technology in the medical imaging market could be significantly delayed and the
cost of obtaining such approval could be substantial.
The Company has obtained a UL listing for the Digital Home Theater
Projector.
The Company is unable to predict the extent of any governmental regulation
which might arise from future United States or foreign legislative or
administrative action.
11
<PAGE>
Personnel
As of March 15, 1998, the Company employed fourteen (14) persons, all of
whom provide management and administrative services on a full-time basis. The
Company also has consulting arrangements with a number of engineers who assist
the Company in research and development. The Company also employs its Chief
Financial Officer pursuant to a consulting agreement. See "Employment
Agreements."
The Company believes that its employee relations are satisfactory,
notwithstanding a charge of discrimination that was filed against the Company
and settled and which was related solely to the actions of Mr. Dolgoff. See Item
3, "Legal Proceedings."
Item 2. PROPERTIES
The Company presently leases approximately 12,000 square feet of office
space for executive and research facilities at Two Penn Plaza, Suite 640, New
York, NY 10121. These facilities were originally subleased from an unaffiliated
party at a rate of approximately $17,000 per month. The sublease expired on
January 30, 1996, at which time, the Company entered into a direct lease with
the landlord for the same premises until December 31, 1998 at a rent of
approximately $23,500 per month.
Item 3. LEGAL PROCEEDINGS
In June of 1995 and August of 1995, two class action lawsuits were filed
against the Company as well as certain of its officers and directors by
stockholders of the Company. In October of 1995 the plaintiffs in the second
action joined as plaintiffs in the first action, and the second action was
dismissed without prejudice. In July 1996, the class action suit was dismissed
without prejudice, and the plaintiffs were given an opportunity to replead. Upon
repleading, the class action suit alleged numerous violations of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including, but not
limited to, violations of Section 10(b) of the Exchange Act. The suit also
alleged claims for negligent misrepresentation and for common law fraud and
deceit. In response, the Company and the individual defendants submitted motions
to dismiss the action. In July 1997 these motions were granted, and the class
action suit was dismissed with prejudice by the U.S. District Court in New York.
Plaintiffs have filed a notice of appeal with the Second Circuit Appellate
Court, and the appeal is in the midst of the briefing process..
In April 1995 a legal action was brought against the Company, certain
members of the Board of Directors, and an employee of the Company by Eugene
Dolgoff, a founder and former officer of the Company. The complaint alleges,
among other actions, breach of employment and patent assignment agreements. Mr.
Dolgoff is seeking damages, punitive damages, and equitable relief totaling in
excess of $ 100 million. In April 1996, the New York State Supreme Court issued
an order and opinion which disqualified the Company's litigation counsel,
Anderson Kill, & Olick, P.C. ("Anderson, Kill") on the basis that Anderson, Kill
had a conflict of interest vis-a-vis Mr. Dolgoff, substantially denied the
Company's motion to dismiss Mr. Dolgoff's entire complaint, and denied Mr.
Dolgoff's motion to have a receiver appointed.
12
<PAGE>
The Company appealed the New York Supreme Court's decision regarding the
disqualification of Anderson, Kill and the denial of its motion to dismiss Mr.
Dolgoff's complaint. Mr. Dolgoff appealed the New York Supreme Court's denial of
his motion to have a receiver appointed. In January of 1997, the Supreme Court
of the State of New York Appellate Division First Department, affirmed the lower
court's disqualification of Anderson, Kill and the lower court's motion to
dismiss and ordered that a receiver be appointed to protect whatever interest,
if any, the former officer and employee of the Company may ultimately be able to
prove that he has in any inventions Mr. Dolgoff assigned to the Company. The
Supreme Court subsequently issued a decision restricting the scope of the
receivership sought by Mr. Dolgoff. However, the receivership order has not as
yet been entered. At this time, neither the Appellate Court, nor any other
court, has determined that Mr. Dolgoff has any proof to support his claims; the
Appellate Court has merely reaffirmed the lower court's decision that, at this
preliminary stage of the litigation, Mr. Dolgoff's complaint has satisfied
procedural pleading requirements. As a consequence of new facts having come to
the attention of the Company, the Company has amended its pleadings and filed
counterclaims against Mr. Dolgoff, his affiliated companies, Breakthrough
Enterprises, Inc. and Floating Images, Inc. for, among other things, fraud,
breach of fiduciary duty, misappropriation of trade secrets, conversion, breach
of contract, diversion of corporate assets and opportunities, unjust enrichment,
and tortious interference with contractual relations, in connection with which
the Company is seeking injunctive relief and a constructive trust, in addition
to monetary damages in excess of $ 100 million.
In 1996, a suit was filed by a individual investor against the Company and
Marvin Maslow, Chairman of the Board of Directors, alleging fraudulent
inducement in connection with the plaintiff's purchase of the Company's
securities. In March 1997 the case was dismissed by the U.S. District Court in
Florida on jurisdictional grounds.
In the remaining action outstanding with Mr. Dolgoff, the Company's management,
based upon discussions with counsel, believe that they have meritorious defenses
to Mr. Dolgoff's claims. The Company's management believes that the outcome of
these matters will not have a material adverse effect on its financial position
or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, Redeemable Warrants and Series B Preferred
Stock are quoted on NASDAQ under the following symbols:
Common Stock: PJTV
Redeemable Warrants: PJTVW
Series B Preferred Stock: PJTVP
The Common Stock and Redeemable Warrants were initially registered and
traded as Units and were not separately transferrable until August 24, 1991. The
Units commenced trading in the over-the-counter market on the closing of the
Company's initial public offering on August 1, 1990.
On February 27, 1992 the Company announced a two-for-one stock split,
effective March 2, 1992. Accordingly, all quoted prices for the Company's
securities commencing with the first quarter of 1992 are adjusted to reflect the
March 1992 two-for-one stock split.
The Series B Preferred Stock was initially registered on September 9, 1992
in connection with the Company's Redeemable Warrant incentive program (the
"Warrant Incentive Program"). Prior to that time, there was no public market for
the Series B Preferred Stock. Pursuant to the Warrant Incentive Program, holders
of the Company's Redeemable Warrants who exercised their Redeemable Warrants
within 65 days after September 9, 1992 received one (1) share of Series B
Preferred Stock for every three (3) Redeemable Warrants exercised. In connection
with the Warrant Incentive Program, the Company issued 246,452 shares of Series
B Preferred Stock.
13
<PAGE>
The Common Stock and Series B Preferred Stock of the Company are quoted on
the NASDAQ Small Cap Market. There is no public trading market for the Company's
Redeemable Warrants (which were delisted from the Nasdaq Small Cap Market in
December 1997), the Series A Preferred Stock (of which there is only one (1)
holder), the Series D Preferred Stock (of which there are only two (2) holders),
the Series E Preferred Stock (of which there is only one holder), or the Series
F Preferred Stock that was issued in February 1998 (of which there is only one
holder). The high and low bid quotations for the Common Stock, Redeemable
Warrants and Series B Preferred Stock for each full quarterly period for the
fiscal years ending December 31, 1996 and December 31, 1997 and for the Common
Stock and Series B Preferred Stock for the first quarter of 1998 through March
24, 1998 are listed below:
COMMON STOCK WARRANTS PREFERRED STOCK
1996 Calendar Quarter Quoted Bid Price Quoted Bid Price Quoted Bid Price
- --------------------- ---------------- ---------------- ----------------
High Low High Low High Low
First Quarter 4.56 4.00 5.25 5.00 6.00 5.00
Second Quarter 3.56 2.19 4.00 3.25 4.00 3.00
Third Quarter 4.00 2.81 6.13 4.25 4.50 4.00
Fourth Quarter 3.69 2.56 6.50 5.50 3.50 2.75
COMMON STOCK WARRANTS PREFERRED STOCK
1997 Calendar Quarter Quoted Bid Price Quoted Bid Price Quoted Bid Price
- --------------------- ---------------- ---------------- ----------------
High Low High Low High Low
First Quarter 3.47 2.00 5.50 2.00 3.75 2.25
Second Quarter 2.68 1.63 6.50 3.00 3.00 2.00
Third Quarter 2.19 1.50 6.50 3.00 2.75 2.00
Fourth Quarter 2.06 .75 6.50 3.00 2.00 1.06
COMMON STOCK PREFERRED STOCK
1998 Calendar Quarter Quoted Bid Price Quoted Bid Price
- --------------------- ---------------- ----------------
High Low High Low
First Quarter (through
March 24, 1998) 1.50 0.625 1.50 0.938
On March 24, 1998 the closing bid and asked prices of Common Stock
as reported on the NASDAQ system were $ 1.06 and $1.03 per share, respectively.
On December 3, 1997, the closing bid and asked prices of Warrants as reported on
the NASDAQ system were $3.00 and $3.00 per Warrant, respectively. The warrants
have since been delisted. On March 6, 1998, the last day prices were quoted for
the Series B Preferred Stock, the closing bid and asked prices of Series B
Preferred Stock on the NASDAQ system were $0.94 and $0.94, respectively.
On March 24, 1998 there were 411 holders of record of Common Stock
and 21,279,935 shares of Common Stock issued and outstanding, and there were 6
holders of record of Series B Preferred Stock and 351,258 shares of Series B
Preferred Stock issued and outstanding.
No cash dividends have been paid by the Company and management does
not anticipate paying cash dividends in the foreseeable future.
14
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected financial information set forth below is derived from the
financial statements and notes thereto. The financial statements as of December
31, 1996 and December 31, 1997 and for the three years in the period ended
December 31, 1997 are included elsewhere in this Annual Report on Form 10-K.
This information should be read in conjunction with the financial statements and
related notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Statements of Operations Data
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 105,000 $ -0- $ 200,000 $ 150,000 $ 1,017,645
Research and Development $ 276,215 $ 827,660 $ 608,651 $ 2,389,329 $ 1,240,578
Net Loss $ (2,730,242) $ (5,632,283) $ (6,471,638) $(10,880,893) $ (8,289,920)
Basic and Diluted Net Loss per Share
Attributable to Common Shareholders $ (.26) $ (.47) $ (.51) $ (.99) $ (.64)
Average Number of Common Shares
Outstanding 10,449,499 11,895,648 12,606, 678 13,586,705 17,968,876
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data
December 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital $ 5,181,003 $ 6,659,132 $ 3,341,425 $ 3,421,387 $ 1,016,223
Total assets $ 8,300,501 $ 9,850,523 $ 4,168,415 $ 10,132,488 $ 10,412,357
Total liabilities $ 390,580 $ 236,473 $ 485,710 $ 3,690,443 $ 4,725,394
Accumulated deficit $ (8,216.949) $(14,015,013) $(20,641,044) $(34,157,268) $(45,604,454)
Stockholders' equity $ 7,909,921 $ 9,614,050 $ 3,682,705 $ 6,442,045 $ 5,686,963
</TABLE>
<TABLE>
<CAPTION>
Computation of Per Share Loss
For the Years Ended December 31,
------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average Number of Common Shares
Outstanding 10,449,499 11,895,648 12,606,678 13,586,705 17,968,876
Net Loss $ (2,730,242) $ (5,632,283) $ (6,471,638) $(10,880,893) $ (8,289,920)
Dividends on Preferred Stock -- -- -- (2,635,331) (3,157,266)
Basic and Diluted Net Loss per Share
Attributable to Common Shareholders $ (.26) $ (.47) $ (.51) $ (.99) $ (.64)
-------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management discussion and analysis should be read in
conjunction with the financial statements and notes thereto in Item 14 hereof.
Liquidity and Capital Resources
As of December 31, 1997, the Company had working capital of $ 1,016,223.
To date, the Company has funded its operations primarily from sales of capital
stock and the issuance of debt securities. In January 1997, the Company
completed a private placement of preferred stock of $3.5 million, in July 1997
the Company completed a second private placement of preferred stock of $ 1.0
million, and in December 1997 the Company completed two more private placements
of preferred stock totaling $ 2.25 million. In addition, the sale of government
securities was used to fund working capital and to purchase production tooling
for the Digital Home Theater. As of December 31, 1997, the Company had cash and
cash equivalents of $1,331,925.
In February, 1996, the Company completed a private placement of
convertible debt of $10.0 million which resulted in $9.5 million in net proceeds
to the Company after paying a 5% investment banking fee. The unsecured debt
requires quarterly interest payments in cash based upon an annual interest rate
of 8%. The debt matures in three (3) years, at which time any convertible debt
then outstanding is to be repaid by the Company in cash or common stock, at the
sole option of the Company. The Company used the proceeds from this offering
principally in connection with the commencement of the production and
introduction of its Digital Home Theatre.
In June, 1996, the Company completed a private placement of 7,500 shares
of a newly created Series C Convertible Preferred stock for $ 7.5 million which
resulted in net proceeds to the Company of $7 million after paying investment
banking fees. The proceeds of this private placement were used primarily to
retire unconverted portions of the convertible debt which the Company issued in
February of 1996. There currently remains $0.6 million of convertible debt as of
March 15, 1998
As of December 31, 1997, the Company had available for Federal income tax
purposes net operating and capital loss carryforwards of approximately
$29,500,000. The Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), may impose certain restrictions on the amount of net operating
loss carryforwards which may be used in any year by the Company.
16
<PAGE>
Results of Operations
January 1, 1995 to December 31, 1995
The Company had revenues of $200,000 for the twelve month period ended
December 31, 1995, all of which was from licensing agreements. During this
period, the Company incurred cash expenses of $3,873,607. The Company also
incurred non-cash expenses of $3,160,138 during this period relating to the
issuance of stock for services incurred for salaries paid or payable to officers
and employees of, and consultants to, the Company as compensation for services
rendered to the Company, and the aforementioned reserve of the Company's
interest in its affiliate, Tamarack Storage Devices, Inc.
January 1, 1996 to December 31, 1996
The Company had revenues of $150,000 for the twelve month period ended
December 31, 1996, all of which was from licensing agreements. During this
period, the Company incurred cash expenses of $6,940,812. The Company also
incurred non-cash expenses of $ 3,868,016 during the period relating to the
issuance of warrants and options as compensation for services rendered to the
Company and for the early retirement of debt. The Company also recorded
$2,635,331 in dividends on the Series C Convertible Preferred Stock in
connection with recognizing the discount on the conversion feature.
January 1, 1997 to December 31, 1997
The Company had revenues of $1,017,645 for the twelve month period ended
December 31, 1997, all of which was from the sale of the Digital Home Theater.
Cost of goods sold of $ 990,044 was adversely affected by the high cost of the
Texas Instruments light engine as well as by expedited transportation costs.
Gross profit was $ 27,601.
During this period, the Company incurred cash expenses of $7,375,155. With
respect to changes in the full year 1997 versus the amounts recorded in the full
year of 1996, the increase in general and administrative expense is due to
increased participation in trade shows and to higher advertising and travel
expense. Higher legal fees are due to the on-going litigation with a former
officer of the Company. The Company also incurred non-cash expenses of $
1,110,221 during the period for depreciation, for the issuance of warrants and
options in connection with the sale of preferred stock, for the issuance of
common stock for compensation for services rendered to the Company, and for
accrued bonuses.
The Company also recorded $3,157,266 in dividends on the Series C, D, and E
Convertible Preferred Stock in connection with recognizing the discount on the
conversion feature, for warrants issued in connection with the issuance of
Series D and E Convertible Preferred Stock, and for Series B Preferred Stock
Dividends.
Year 2000 Issue
The "Year 2000 Issue" is the result of computer programs being written using two
digits rather than four to define the applicable year. If the Company's programs
with date-sensitive functions are not Year-2000 compliant, they may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or in miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The Company
intends to complete its assessment of its Year 2000 issues in the near future,
but it believes at present that it has no Year 2000 issues material to its
business, operations or financial condition.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements following Item 14 of this Annual Report on Form
10-K.
17
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are listed below,
followed by a brief description of their business experience during the past
five years.
Term
Name Age Position Expires
- ---- --- -------- -------
Marvin Maslow 60 Chairman of the Board 1999
of Directors
Martin Holleran 55 President, Chief Executive
Officer and Director 2000
Martin D. Fife 70 Director 2000
Craig I. Fields 51 Director 1998
Richard S. Hickok 72 Director 1999
Arthur L. Lipper 66 Director 1998
Jules Zimmerman 63 Chief Financial Officer, 1999
Secretary and Director
Sherman Langer 51 Director 1999
Marvin Maslow, a co-founder of the Company, has served as Chairman of the
Board of Directors of the Company since its inception. Mr. Maslow also served as
the Company's Chief Executive Officer from inception through September 30, 1996,
when he voluntarily resigned as Chief Executive Officer of the Company,
endorsing the appointment by the Board of Mr. Martin Holleran as Chief Executive
Officer of the Company. Mr. Maslow also served as an officer and a director of
DKY, Inc. ("DKY"), the Company's predecessor in interest from October 1988 until
June 12, 1990, when DKY was merged into the Company. Mr. Maslow also served as
Chief Financial Officer of the Company from its inception until the consummation
of its initial public offering in August, 1990.
Martin J. Holleran, has served as President of the Company since November,
1993. On September 30, 1996, Mr. Holleran became Chief Executive Officer of the
Company, at which time, he retained the title of President but resigned as the
Chief Operating Officer of the Company, a position which he had also held since
November, 1993. Prior to 1993, Mr. Holleran served as President and Chief
Executive Officer of Thomson Consumer Electronics Marketing and Sales Company
("Thomson") from 1988 to 1992. At Thomson, Mr. Holleran had overall
responsibility for the marketing, sales and distribution of the RCA and GE
brands of consumer electronic products sold in North and South America. From
1992 until 1993, Mr. Holleran was President and Chief Operating Officer of
Emerson Radio.
18
<PAGE>
Martin D. Fife, a founder of the Company, has served on the Board of
Directors since its inception. In addition, Mr. Fife was the Secretary of the
Company from its inception until January 1993. Mr. Fife served as an officer and
a director of DKY from August 1988 until July 12, 1990 when DKY was merged into
the Company. Mr. Fife has been the Chairman of the Board of Directors of Skysat
Communication Network Corporation, a public company, since its inception in July
1992. Since 1987, Mr. Fife has been Chairman of the Board of Magar Inc., a
company of which he is a founder specializing in financial products and the
development of early stage companies. From 1985 to 1989, Mr. Fife was President
of Intergold USA, Inc., a Company involved in the sale and processing of
precious metals. From 1986 to 1989, Mr. Fife was President of Agremp Holdings
Incorporated, an operator of storage elevators. Since April 1992, Mr. Fife has
been a director of the Nova Group, a company engaged in the recycling of
industrial plastics. Since 1974, Mr. Fife has served as a director or trustee of
several investment companies advised by the Dreyfus Corporation, a registered
investment adviser, and currently serves as a director or trustee of the
following thirteen investment companies: The Dreyfus Fund Incorporated, Dreyfus
Liquid Assets, Inc., Dreyfus Municipal Income, Inc., Dreyfus New York Municipal
Income, Inc., Dreyfus California Municipal Income, Inc., Dreyfus Worldwide
Dollar Money Market Fund, Inc., Dreyfus Short-Term Fund, Inc., Dreyfus
Short-Term Income Fund, Inc., Dreyfus Asset Allocation Fund, Inc., Dreyfus
Growth Allocation Fund, Inc., Dreyfus Institutional Short-Term Treasury Fund,
Dreyfus Short-Intermediate Government Fund and Dreyfus Short-Intermediate
Municipal Bond Fund.
Dr. Craig I. Fields has served as a Director since September 1994 and has
been Chairman of the Company's Business and Technical Advisory Board since
January 1, 1993. From April 1989 to April 1990, Dr. Fields was the Director of
the United States Government's Defense Advanced Research Projects Agency
(DARPA). From July 1990 to June 1994, Dr. Fields was the Chairman and Chief
Executive Officer of the Microelectronics and Computer Technology Corporation
(MCC). Since September 1994, Dr. Fields has served as Vice Chairman of Alliance
Gaming Corporation (formerly known as United Gaming, Incorporated), a
diversified entertainment company in the gaming industry. Dr. Fields currently
serves as the Chairman of the Defense Science Board, an advisory board to the
Secretary of Defense. Dr. Fields also serves on the Science and Technology
Advisory Panel supporting the Director of Central Intelligence; on the United
States Advisory Council on the National Information Infrastructure; and on the
US-Israel Science and Technology Commission. Dr. Fields is also a member of the
Board of ENSCO, Perot Systems Corporation and Intertech. Dr. Fields is on the
Advisory Boards of SRI International, United Technologies Corporation and the
Economic Strategy Institute. Dr. Fields is also an advisor to SAIC. In 1988, Dr.
Fields was awarded the President's Distinguished Executive Rank Award for
outstanding service, and in 1990 the President's Meritorious Executive Rank
Award.
Richard S. Hickok, a certified public accountant, served as a Director of
the Company from December 1988 to March 1989. Mr. Hickok has continuously served
as a Director of the Company since February 1990. From October 1989 to December
31, 1996, Mr. Hickok served as an officer, director and stockholder of Hickok
Associates, Inc., a company that provides financial consulting services ("Hickok
Associates"). From 1948 to 1983, Mr. Hickok was associated with KMG Main
Hurdman, Certified Public Accountants in various capacities. Mr. Hickok served
as Chairman of the Board of KMG Main Hurdman from 1981 to 1983, and in 1983 he
retired and was elected Chairman Emeritus. Since 1983 Mr. Hickok has been a
financial consultant. During the past five years Mr. Hickok also has served as a
director of Marsh McLennan Companies, Inc., Comstock Resources, Inc., Marcam,
Inc. and Alpine Lace Brands, Inc.
<PAGE>
Arthur Lipper III, is an experienced, independent investment banker and
corporate advisor, and has served as a Director of the Company since March,
1996. He has a particular interest in assisting early stage, growing
enterprises. He is also an established author and lecturer on subjects relating
to investing in and financing businesses. His most recent book is entitled The
Guide for Venture Investing Angels - Financing and Investing in Private
Companies. He is also a strong advocate of independent members of boards of
directors taking an active role in representing the interests of the owners of
the companies in the management of the business. He has been a member of the New
York Stock Exchange and many other stock and commodity exchanges. Mr. Lipper has
been an advisor to the Company and has served on tits Business and Technical
Advisory Committee since 1993.
Jules Zimmerman has served as a Director since January 1993, as Secretary
of the Company since February 1994 and as the Chief Financial Officer of the
Company since 1990. Mr. Zimmerman served as an officer, director and stockholder
of Hickok Associates, Inc., a company that provides financial consulting
services ("Hickok Associates"). He was employed by Avon Products Inc. for 12
years and served as Avon's Senior Vice President and Chief Financial Officer
from 1984 to 1988. From 1992 through 1995, Mr. Zimmerman was a member of the
Board of Directors of Winners All International, as well as its
predecessor-in-interest, National Child Care Company. He is a Director of the GP
Financial and was the President of the New York Chapter of the National
Association of Corporate Directors from September 1990 through December 1992.
19
<PAGE>
Sherman Langer has been the Company's Senior Vice President of Marketing
and Sales since October 1994 and has served as a member of the Board since
February, 1996. Mr. Langer was a consultant to the Company from February 1994
until October 1994. From June 1988 through January 1994, Mr. Langer was the
General Manager of the Consumer LCD Products Division of the Sharp Electronics
Corporation.
Broad Classification and Committees and Advisory Board
The Company adopted a classified Board of Directors in February, 1990. The
Board of Directors presently consists of eight members divided into three
classes. The Company currently has three (3) Directors whose term expires in
1999, three (3) Directors whose term expires in 2000 and two (2) Directors whose
term expires in 1998. Having a classified Board of Directors may be viewed as
inhibiting a change in control of the Company and having possible anti-takeover
effects. Officers of the Company serve at the discretion of the Board of
Directors.
The Company has an Audit Committee, a Compensation Committee and an
Executive Committee. The Audit Committee reviews the engagement of the
independent accountants, reviews and approves the scope of the annual audit
undertaken by the independent accountants and reviews the independence of the
accounting firm. The Audit Committee also reviews the audit and non-audit fees
of the independent accountants and the adequacy of the Company's internal
control procedures. The Audit Committee is presently comprised of Richard S.
Hickok, Jules Zimmerman and Martin D. Fife. The Audit Committee held one (1)
meeting during 1997. The Compensation Committee reviews compensation issues
relating to executive management and makes recommendations with respect thereto
to the Board of Directors. The Compensation Committee is presently comprised of
Jules Zimmerman, Richard Hickok, Martin Fife and Craig Fields. The Compensation
Committee held one (1) meeting in 1997. The Executive Committee exercises all
the powers and authority of the Board of Directors in the management and affairs
of the Company between meetings of the Board of Directors, to the extent
permitted by law. However, the Executive Committee may not take any action
unless a meeting of the Board of Directors cannot be convened within three days
after notice thereof. The current members of the Executive Committee are Martin
D. Fife, Martin Holleran and Marvin Maslow. The Executive Committee had one (1)
meeting in 1997. The Company formed a Special Executive Committee in 1995 to
deal with all matters relative to certain litigations in which the Company is a
defendant. The Special Executive Committee is not empowered to make any
decisions on behalf of the Board of Directors. The Special Executive Committee
is comprised of Marvin Maslow, Martin Holleran, Martin Fife, Jules Zimmerman,
Richard Hickok and Craig Fields. The Special Executive Committee held no meeting
in 1997. The Board also held four (4) regular and six (6) special meetings in
1997.
Except for Mssrs. Fields and Lipper, each member of the Board of Directors
who is not an officer or employee of the Company receives $8,000 per year, plus
$1,000 for each Board of Directors or committee meetings attended for serving as
Director. In 1997, Dr. Craigs Fields received an aggregate of $ 24,000 from the
Company, and Mr. Arther Lipper, and his affiliated entities, received an
aggregate of $ 48,000 from the Company. These sums include payments to Msssrs.
Fields and Lipper by the Company for various consulting services provided by
each of them to the Company in 1997, which services were in addition to their
duties as an outside director. The Company reimburses its Directors for
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors or committee meetings attended. There are no family relationships
among any Directors or officers.
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
its Common Stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and the National
Association of Securities Dealers, Inc. Officers, directors and greater than ten
percent stockholders are required by the Commission to furnish the Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no reports on Form 5
were required for those persons, the Company believes that during 1993 all
filing requirements applicable to its officers, directors and greater than ten
percent stockholders were complied with.
20
<PAGE>
Executive Compensation
The following table sets forth the cash compensation paid by the Company
to executive officers of the Company for the year ended December 31, 1997 whose
total annual salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------------------
(b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Other
Compen- Stock LTIP Compen-
Name and Sation Awards Options/ Payouts Sation
Principal Position Year Salary($) Bonus($) $ $ SARs(#) $ $
- ------------------ ---- --------- -------- ------ ---------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin Maslow,(1) 1997 $150,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Chairman of the Board 1996 $150,000 $ -0- $ -0- $ -0- 1,000,000(1) $ -0- $100,000(2)
Of Directors 1995 $150,000 $ -0- $ -0- $ -0- $ -0- $ -0-
Martin Holleran, 1997 $220,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
President, Chief 1996 $180,000 $ -0- $ -0- $ -0- 1,000,000(4) $ -0- $100,000(5)
Executive Officer 1995 $180,000 $ -0- $ -0- $ -0- 50,000(3) $ -0- $ -0-
And Director
Sherman Langer 1997 $165,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Senior Vice President 1996 $130,000 $ -0- $ -0- $ -0- 100,000 $ -0- $ -0-
Of Marketing and
Sales and Director
</TABLE>
(1) On March 12, 1996, the Company cancelled 187,500 unvested stock options
granted in 1994 having an exercise price of $5.375 per share and granted
Mr. Maslow 1,000,000 non-qualified stock options having an exercise price
of $4.375 per share, which exercise price was subsequently reduced to
$3.00 on January 9, 1997. To date, 333,333 of these options have vested,
and the balance vest upon the Company achieving certain milestones.
(2) Represents a one-time cost-of-living adjustment made to Mr. Maslow's July
1990 employment agreement with the Company.
(3) Mr. Holleran had a restricted stock award of 50,000 shares of common stock
pursuant to his Employment Agreement with the Company dated November 1,
1993. The vesting schedule relative to all 50,000 shares of restricted
common stock was amended by the Board of Directors on October 21, 1994.
Fifty percent (50%) of such 50,000 shares previously vested in annual
increments of 1/3 each commencing November 1, 1994, and the other fifty
percent (50%) of such shares vested in annual increments of 1/3 each,
commencing November 1, 1994, provided that certain performance criteria
were met. All such 50,000 shares vested on January 1, 1995. In December
1995, Mr. Holleran's Employment Agreement with the Company was amended to
cancel the restricted stock award and replace it with 50,000 non-qualified
stock options exercisable at the then current market price of $4.375 per
share.
(4) On March 12, 1996, the Company cancelled 125,000 unvested stock options
granted in 1994 having an exercise price of $5.375 per share and granted
Mr. Holleran 1,000,000 non-qualified stock options having an exercise
price of $4.375 per share, which exercise price was subsequently reduced
to $3.00 on January 9, 1997. To date, 333,333 of these options have
vested, and the balance vest upon the Company achieving certain
milestones.
(5) Represents a one-time cost-of-living adjustment made to Mr. Holleran's
1993 employment agreement with the Company.
21
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Unexercised
Number of In-the-Money
Options/SARs Options/SARs
At Fiscal At Fiscal
Year End (#) Year End (#)
Shares
Name and Acquired on Value Exercisable Exercisable
Principal Position Exercise (#) Realized ($) Unexecisable Unexecisable
- ------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Marvin Maslow -0- N/A 1,375,000 Exercisable 0/0
Chief Executive Officer,
Chairman of the Board
Of Directors
Martin Holleran, -0- N/A 1,250,000 Exercisable 0/0
President and Chief
Operating Officer
Martin Fife, -0- N/A 150,000 Exercisable 0/0
Vice Chairman of the
Board of Directors
Jules Zimmerman, -0- N/A 120,000 Exercisable 0/0
Chief Financial Officer
And Director
Sherman Langer -0- N/A 152,000 Exercisable 0/0
Senior Vice President
Of Marketing and
Sales and Director
Craig Fields, -0- N/A 150,000 Exercisable 0/0
Director
Richard Hickok, -0- N/A 100,000 Exercisable 0/0
Director
Arthur Lipper III -0- N/A 100,000 Exercisable 0/0
Director
</TABLE>
22
<PAGE>
Executive Employment Agreements
The Company entered into an employment agreement in July 1990 with Marvin
Maslow to serve as Chief Executive Officer of the Company. Mr. Maslow's
employment agreement, which was to initially expire in July, 1995, was
automatically extended in January 1995 by its terms for an additional 30 months.
That employment agreement was terminated and replaced with a new executive
employment agreement effective March 1, 1997 The term of Mr. Maslow's new
employment agreement is six (6) years with a two-year extension, and it contains
change in control provisions.
The Company entered into a three (3) year employment agreement with Mr.
Martin Holleran in November 1993 to serve as the Company's President and Chief
Operating Officer at a salary of $180,000 per year. Upon the expiration of this
agreement (which was orally extended by the parties subsequent to its term), the
Company entered into a new executive employment agreement with Mr. Holleran
effective March 1, 1997. The term of Mr. Holleran's new executive employment
agreement is six (6) years with a two-year extension, and it contains change in
control provisions.
Effective January 1, 1997, the Company entered into an executive
employment agreement with Mr. Sherman Langer. The term of Mr. Langer's
employment agreement is three (3) years and provides for a salary of $165,000
per year and also contains certain change in control provisions.
Each of Messrs. Maslow, Holleran and Langer have agreed not to compete
with the Company during the term of his respective employment agreement or for a
period of two years after the termination thereof. All of the executive
employment agreements contain termination for cause provisions.
Subsequent to the closing of the Company's initial public offering in
1990, the Company retained Jules Zimmerman as Chief Financial Officer of the
Company. In connection therewith, the Company entered into a consulting
agreement with Mr. Zimmerman and Hickok Associates whereby the Company is billed
on an hourly basis for the work performed by Mr. Zimmerman. Hickok Associates
discontinued operations as of December 31, 1996. Since that time Mr. Zimmerman
has continued to provide his services to the Company as Chief Financial Officer
on an hourly basis.
Indemnification Agreements
The Company has entered into an Indemnification Agreement with each of its
Directors and any officer, employee, agent or fiduciary designated by the Board
of Directors which provides that the Company indemnify the Director or other
party thereto to the fullest extent permitted by applicable law. The agreement
includes indemnification, to the extent permitted by applicable law, against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any civil or criminal action or administrative proceeding arising out of
the indemnitee's performance of his duties as a Director or officer of the
Company. Such indemnification is available if the indemnitee acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Company, and, with respect to any criminal action, had no
reasonable cause to believe his conduct was unlawful.
Under the Indemnification Agreement, the entitlement of a Director or
officer to indemnification will be determined by a majority vote of a quorum of
disinterested Directors, or if such quorum either is not obtainable or so
directs, by independent counsel or by the stockholders of the Company, as
determined by such disinterested Directors. If a change of control of the
Company has occurred, the entitlement of such Director or officer to
indemnification shall be determined by independent counsel selected by such
Director or officer, unless such Director or officer requests that either the
Board or the stockholders make such determination.
23
<PAGE>
Each Indemnification Agreement will require the Company to advance
litigation expenses at the request of the Director or officer who is a party
thereto whether prior to or after final resolution of a proceeding, provided
that he undertakes to repay such advances if it is ultimately determined that he
is not entitled to indemnification for his expense. The advance of litigation
expenses will thereby be mandatory upon satisfaction of certain conditions by
such Director or officer.
The Company has entered into an Indemnification Agreement with all of its
Directors and officers. In addition, upon Dr. Fields' forming the Company's
Board of Directors, the Company also agreed to indemnify Dr. Fields with respect
to the aforementioned litigation relating to Tamarack during the period prior to
Dr. Fields' joining the Company's Board of Directors. The Company has obtained
officers' and directors' liability insurance which provides a maximum of
$4,000,000 of coverage, subject to a $100,000 deductible payable by the Company
except under certain circumstances for securities related matters in which case
the deductible is $200,000. Any payments made by the Company under an
Indemnification Agreement which are not covered by the insurance policy may have
an adverse impact on the Company's earnings.
Stock Option Plans and Agreements
Incentive Option Plan - In February 1990, the Directors of the Company
adopted and the stockholders of the Company approved the adoption of the
Company's 1990 Incentive Stock Option and Appreciation Plan which was amended in
June and July 1990. The purpose of the Incentive Option Plan is to enable the
Company to encourage key employees and Directors to contribute to the success of
the Company by granting such employees and Directors incentive stock options
("ISOs"), as well as non-qualified options and options and stock appreciation
rights ("SARs"). In November of 1993, a majority of the stockholders of the
issued and outstanding shares of common stock voted in favor of increasing the
number of shares with respect to which options and SARs may be granted under the
Incentive Option Plan from 400,000 to 1,000,000.
The Incentive Option Plan will be administered by the Board of Directors
which will determine, in its discretion, among other things, the recipients of
grants, whether a grant will consist of ISOs, non-qualified options or SARs (in
tandem with an option or freestanding) or a combination thereof, and the number
of shares to be subject to such options and SARs.
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price not less than the fair market value of the
Common Stock on the date the option is granted. Non-qualified options and
freestanding SARs may be granted with any exercise price. SARs granted in tandem
with an option have the same exercise price as the related option.
<PAGE>
The total number of shares with respect to which options and SARs may be
granted under the Incentive Option Plan is 1,000,000. ISOs may not be granted to
an individual to the extent that in the calendar year in which such ISOs first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option or SAR may be granted under
the incentive Option Plan after February 20, 2000 and no option or SAR may be
outstanding for more than ten years after its grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock
(based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. SARs may be settled, in the Board of Directors' discretion, in
cash, Common Stock, or in a combination of cash and Stock. The exercise of SARs
cancels the corresponding number of shares subject to the related option, if
any, and the exercise of an option cancels any associated SARs. Subject to
certain exceptions, options and SARs may be exercised any time up to three
months after termination of the holder's employment.
The Incentive Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
or SARs under the Incentive Option Plan or materially increase the benefits of
participants.
To date no options or SARs have been granted under the Incentive Option
Plan. No determinations have been made regarding the persons to whom options or
SARs will be granted in the future, the number of shares which will be subject
to such options or SARs or the exercise prices to be fixed with respect to any
option or SAR.
24
<PAGE>
Non-Qualified Option Plan - In February 1990, the Directors and
stockholders of the Company adopted the 1990 Non-Qualified Stock Option Plan
which was amended in June and July 1990. The purpose of the Non-Qualified Option
Plan is to enable the Company to encourage key employees, Directors and
consultants to contribute to the success of the Company by granting such
employees, Directors and consultants non-qualified options. The Non-Qualified
Option Plan will be administered by the Board of Directors in the same manner as
the Incentive Option Plan.
The Non-Qualified Option Plan provides for the granting of non-qualified
options at such exercise price as may be determined by the Board of Directors,
in its discretion. In November of 1993, a majority of the stockholders of the
issued and outstanding shares of common stock voted in favor of increasing the
number of shares with respect to which options and SARs may be granted under the
Incentive Option Plan from 400,000 to 1,000,000 and with respect to which
options may be granted under the Non-Qualified Plan from 1,500,000 to 5,000,000.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock
(based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time up
to three months after termination of the holder's employment.
The Non-Qualified Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the
Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Option Plan or materially increase
the benefits of participants.
As of December 31, 1997, an aggregate of 4,302,833 options have been
granted under the Non-Qualified Option Plan. Through December 31, 1997, 230,000
non-qualified options have been exercised.
Performance Graph
[The following table was depicted as a line graph in the printed material.]
- --------------------------------------------------------------------------------
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
100.0 208.0 81.5 89.8 48.5 18.3
100.0 114.8 112.2 158.7 195.2 239.6
100.0 163.0 184.9 286.9 318.1 340.4
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading,
the previous trading day is used.
D. The index level for all series was set to $100.00 on 12/31/92.
- --------------------------------------------------------------------------------
25
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 24, 1997,
known to the Company regarding beneficial ownership of the Company's Common
Stock by: (i) any holder of more than five percent of the outstanding shares;
(ii) the Company's directors; and (iii) the directors and officers of the
Company as a group:
<TABLE>
<CAPTION>
Shares Percentage Shares Percentage
of (%) of of (%) of
Common Total Preferred Total
Stock Common Stock Preferred
Name Owned(1)(2) Stock(3) Owned Stock
- ---- ----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Martin D. Fife (4) 211,668 1.0% -0- -0-
405 Lexington Avenue
New York, NY 10174
Richard S. Hickok (5) 105,000 .5% -0- -0-
11 Deep Pond Circle
South Orlenas, MA 02662
Marvin Maslow (6) 1,403,073 6.6% 25,000 7.1%
Projectavision, Inc.
Two Penn Plaza
Suite 640
New York, NY 10121
Jules Zimmerman (7) 120,000 .6% -0- -0-
20 West 64th Street
New York, NY 10023
Martin Holleran (8) 1,300,000 6.1% -0- -0-
Projectavision, Inc. %
Two Penn Plaza
Suite 640
New York, NY 10121
Dr. Craig I. Fields (9) 150,000 .7% -0- -0-
1101 30th Street, N.W
Suite 500
Washington, D.C. 20007
Sherman Langer (10) 152,000 .7% -0- -0-
Projectavision, Inc.
Two Penn Plaza
Suite 640
New York, NY 10121
Arthur Lipper, III -0- -0- -0- -0-
14911 Carninito Ledera
Del Mar, CA 92014
All Directors, Nominees and Officers Group
(consisting of 7 persons) (4)(5)(6)(7)
(8)(9)(10) 3,441,741 16.2% 25,000 7.1%
</TABLE>
(1) Except as otherwise indicated, all shares of Common Stock are beneficially
owned, and sole investment and voting power is held, by the persons named.
(2) Gives effect to the reverse stock split of one-for-11.3467611 shares of
Common Stock in February, 1990, two-for-three shares of Common Stock in
July, 1990, and two-for-one stock split in March, 1992.
(3) In accordance with Rule 13d-3(d), includes in addition to 21,279,935
shares of the Company's Common Stock outstanding, all of the shares of
Common Stock issuable upon the issuance of options held by officers and
directors within sixty (60) days.
26
<PAGE>
(4) Includes 150,000 non-qualified options granted to and beneficially owned
by Mr. Fife to acquire 150,000 shares of Common Stock. Does not include
100 shares of non-voting Series A Preferred Stock issued to Mr. Fife.
(5) Includes 100,000 non-qualified options granted to and beneficially owned
by Mr. Hickok to acquire an aggregate of 100,000 shares of Common Stock of
the Company.
(6) Includes (i) 1,375,000 shares of Common Stock subject to 1,375,000
non-qualified stock options. Does not include 4,038 shares of Common Stock
owned by Mr. Maslow's adult child. Mr. Maslow disclaims beneficial
ownership of the shares of Common Stock owned by his adult child. Mr.
Maslow received 25,000 shares of Series B Preferred Stock on May 15, 1992
for services rendered in the second quarter of 1992.
(7) Includes 120,000 non-qualified options granted to and beneficially owned
by Mr. Zimmerman to acquire 120,000 shares of the Company's Common Stock.
(8) Includes 1,250,000 non-qualified options granted to and beneficially owned
by Mr. Holleran to acquire 1,250,000 shares of the Company's Common Stock.
(9) Includes 150,000 non-qualified options granted to and beneficially owned
by Dr. Fields to acquire 150,000 shares of the Company's Common Stock.
(10) Includes 152,000 non-qualified options granted to and beneficially owned
by Mr. Langer to acquire 152,000 shares of the Company's Common Stock.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through July 31, 1995 the Company made advances of approximately $300,000
to another entity, whose president is the brother of Martin Holleran, the
Company's President and Chief Operating Officer, in contemplation of making an
investment in such other entity. The Company ultimately did not make such an
investment and the advance was fully reserved for on the Company's financial
statements as of December 31, 1995. In November, 1996, $109,166 of the advance
was repaid to the Company as a final settlement of amounts advanced.
27
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements of the Company are incorporated herein
by reference to Part II, Item 8:
Independent Auditors' Report F - 1
Balance Sheets at December 31, 1996 and 1997 F - 2
Statements of Operations for the Years Ended December 31, 1995,
1996, and 1997 F - 3
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996, and 1997 F - 4
Statements of Cash Flows for the Years Ended December 31,
1995, 1996, and 1997 F - 5
Notes to Financial Statements F - 6
- ----------
(a) (2) Financial Statement Schedules
All schedules are omitted because they are not applicable or the
information required is included in the financial statements and notes thereto.
(a) (3) Exhibits
The following is a list of exhibits filed as part of the Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
Exhibit No.
3.2.1 Amended Certificate of Designation for Series D Cumulative Preferred
Stock
3.2.1 Certificate of Designation for Series E Preferred Stock
10.52 Acquisition Agreement and Related Agreements with Vidikron Industries,
S.p.A.
27 Financial Data Schedule
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Projectavision, Inc.:
We have audited the accompanying balance sheets of Projectavision, Inc. (the
"Company") as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Projectavision, Inc. as of December 31, 1996
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- --------------------------------
New York, New York
March 18, 1998
F-1
<PAGE>
PROJECTAVISION, INC
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,060,283 $ 1,331,925
Accounts receivable - net of Allowance of $ 11,540 -- 377,608
Inventory -- 1,857,604
Investments 3,437,386 --
Other current assets 851,198 1,001,629
------------ ------------
Total Current Assets 5,348,867 4,568,766
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 68,422 127,128
Tooling 4,208,005 5,907,288
Computers and software 226,019 259,048
Assets under capital leases -- 47,989
Leasehold improvements 185,030 185,030
------------ ------------
4,687,476 6,526,483
Less: Accumulated depreciation and amortization 242,896 851,250
------------ ------------
Property and equipment, net 4,444,580 5,675,233
OTHER ASSETS 339,041 168,358
------------ ------------
TOTAL ASSETS $ 10,132,488 $ 10,412,357
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,718,004 $ 2,466,676
Accrued liabilities 209,476 1,070,638
Current portion of capital lease obligations -- 15,229
------------ ------------
Total Current Liabilities 1,927,480 3,552,543
------------ ------------
LONG-TERM LIABILITIES
Long-term portion of capital lease obligations -- 22,851
Other Long-Term Liabilities -- 250,000
Convertible Debt 1,762,963 900,000
------------ ------------
Total Long-term Liabilities 1,762,963 1,172,851
------------ ------------
TOTAL LIABILITIES 3,690,443 4,725,394
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
COMMITMENTS AND CONTINGENCIES -- --
<S> <C> <C>
STOCKHOLDERS' EQUITY
Preferred stocks
Series A Preferred Stock, $.01 par value
100 shares authorized, 100 shares issued
($100,000 liquidation preference) -- --
Series B Preferred Stock, $.01 par value
434,667 shares authorized, 385,982 and 351,258 shares
outstanding as of December 31, 1996 and 1997, respectively
($ 1,756,290 liquidation preference) 3,859 3,512
Series C Preferred Stock, $.001 par value
7,500 shares authorized; 7,500 shares issued; 7,500 shares and no shares
outstanding as of December 31, 1996 and 1997, respectively ($100,000
liquidation preference) 8 --
Series D Preferred Stock, $100 par value 60,000 shares authorized; 51,000
shares issued;
($5,100,000 liquidation preference) -- 5,100,000
Series E Preferred Stock, $1,000 par value 1,650 shares authorized; 1,650
shares issued;
($1,650,000 liquidation preference) -- 1,650,000
Common stock $.0001 par value - 50,000,000 shares
authorized; 14,229,401 and 19,988,997 issued and
outstanding in 1996 and 1997 respectively 1,423 1,999
Additional paid-in capital 40,594,023 44,535,906
Accumulated Deficit (34,157,268) (45,604,454)
------------ ------------
Total Stockholders' Equity 6,442,045 5,686,963
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,132,488 $ 10,412,357
============ ============
</TABLE>
See notes to financial statements
F-2
<PAGE>
ROJECTAVISION, INC
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
REVENUE $ 200,000 $ 150,000 $ 1,017,645
------------ ------------ ------------
COST OF SALES -- -- 990,044
------------ ------------ ------------
GROSS PROFIT 200,000 150,000 27,601
OPERATING EXPENSES
General and administrative 1,562,746 2,179,132 3,230,742
Salaries 778,279 1,266,287 1,518,695
Legal fees 1,001,737 1,017,909 1,347,146
Depreciation 73,739 91,284 608,355
Research and development 608,651 2,389,329 1,240,578
Patent and license expense 243,229 362,967 283,030
------------ ------------ ------------
Total Operating Expenses 4,268,381 7,306,908 8,228,546
------------ ------------ ------------
LOSS FROM OPERATIONS (4,068,381) (7,156,908) (8,200,945)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
(Provision for)/recovery of
allowances on advances (125,017) 109,166 --
Interest income 362,107 458,979 167,855
Interest expense - 8% Debentures (352,049) (117,524)
Interest expense - Amortization of debt expense -- (3,868,016) (39,306)
------------ ------------ ------------
Other income/(expense) - Net 237,090 (3,651,920) 11,025
------------ ------------ ------------
Loss before Equity in Loss of
Unconsolidated Affiliate (3,831,291) (10,808,828) (8,189,920)
Equity in Loss of Unconsolidated Affiliate (2,640,347) (72,065) (100,000)
------------ ------------ ------------
Net Loss (6,471,638) (10,880,893) (8,289,920)
Dividends on Preferred Stock -- (2,635,331) (3,157,266)
------------ ------------ ------------
Net Loss Attributable to Common Shareholders $ (6,471,638) $(13,516,224) $(11,447,186)
============ ============ ============
Basic and Diluted Net Loss
per Share Attributable to Common Shareholders $ (.52) $ (.99) $ (.64)
============ ============ ============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 12,390,962 13,586,705 17,968,876
============ ============ ============
</TABLE>
See Notes to Financial Statements
F - 3
<PAGE>
PROJECTAVISION, INC
STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 100 $ 0 410,144 $4,101 0 $ 0
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK (24,162) (242)
ISSUANCE OF COMMON STOCK
FOR PROFESSIONAL SERVICES.
NET LOSS
------- -- ------- ------ ----- --
BALANCE, DECEMBER 31, 1995 100 0 385,982 3,859 0 0
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF SERIES C PREFERRED STOCK 7,500 8
SERIES C PREFERRED STOCK PLACEMENT FEE
CASH DIVIDEND ON SERIES C PREFERRED STOCK
EXERCISE OF STOCK OPTIONS
AMORTIZATION OF DISCOUNT ON 8% DEBENTURES
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK
ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES
NET LOSS
------- -- ------- ------ ----- --
BALANCE, DECEMBER 31, 1996 100 0 385,982 3,859 7,500 $8
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK (34,724) (347)
SERIES C PREFERRED STOCK CONVERSION (7,500) (8)
ISSUANCE OF SERIES D PREFERRED STOCK
ISSUANCE OF SERIES E PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS
FINANCING COST FOR SERIES D PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS
ISSUANCE OF COMMON STOCK FOR SERVICES
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
NET LOSS
------- -- ------- ------ ----- --
BALANCE, DECEMBER 31, 1997 100 $0 351,258 $3,512 0 $0
======= == ======= ====== ===== ==
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERIES D SERIES E
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 0 $0 0 $0 12,228,803 $1,223
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS 52,795 6
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK 24,162 2
ISSUANCE OF COMMON STOCK
FOR PROFESSIONAL SERVICES. 83,030 8
NET LOSS
------ ---------- ----- ---------- ---------- ------
BALANCE, DECEMBER 31, 1995 0 0 0 0 12,388,790 1,239
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS 37,666 4
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 1,772,945 177
ISSUANCE OF SERIES C PREFERRED STOCK
SERIES C PREFERRED STOCK PLACEMENT FEE
CASH DIVIDEND ON SERIES C PREFERRED STOCK
EXERCISE OF STOCK OPTIONS 30,000 3
AMORTIZATION OF DISCOUNT ON 8% DEBENTURES
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK
ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES
NET LOSS
------ ---------- ----- ---------- ---------- ------
BALANCE, DECEMBER 31, 1996 0 0 0 0 14,229,401 1,423
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK 34,724 3
SERIES C PREFERRED STOCK CONVERSION 4,881,656 489
ISSUANCE OF SERIES D PREFERRED STOCK 51,000 5,100,000
ISSUANCE OF SERIES E PREFERRED STOCK 1,650 1,650,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS
FINANCING COST FOR SERIES D PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS 66,740 6
ISSUANCE OF COMMON STOCK FOR SERVICES 50,000 5
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 726,476 73
NET LOSS
------ ---------- ----- ---------- ---------- ------
BALANCE, DECEMBER 31, 1997 51,000 $5,100,000 1,650 $1,650,000 19,988,997 $1,999
====== ========== ===== ========== ========== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID IN ACCUMULATED
CAPITAL DEFICIT TOTAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $23,623,739 $(14,015,013) $ 9,614,050
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS 154,388 (154,393) 0
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK 240 0
ISSUANCE OF COMMON STOCK
FOR PROFESSIONAL SERVICES. 540,284 540,292
NET LOSS (6,471,638) (6,471,638)
----------- ----------- ----------
BALANCE, DECEMBER 31, 1995 24,318,651 (20,641,044) 3,682,705
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS 154,389 (154,393) 0
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 3,020,298 3,020,475
ISSUANCE OF SERIES C PREFERRED STOCK 7,499,992 7,500,000
SERIES C PREFERRED STOCK PLACEMENT FEE (500,000) (500,000)
CASH DIVIDEND ON SERIES C PREFERRED STOCK (123,750) (123,750)
EXERCISE OF STOCK OPTIONS 24,372 24,375
AMORTIZATION OF DISCOUNT ON 8% DEBENTURES 3,333,333 3,333,333
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 2,357,188 (2,357,188) 0
ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES 385,800 385,800
NET LOSS (10,880,893) (10,880,893)
----------- ----------- ----------
BALANCE, DECEMBER 31, 1996 40,594,023 (34,157,268) 6,442,045
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK 344 0
SERIES C PREFERRED STOCK CONVERSION (481) 0
ISSUANCE OF SERIES D PREFERRED STOCK 5,100,000
ISSUANCE OF SERIES E PREFERRED STOCK 1,650,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 478,248 (478,248) 0
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK 1,700,000 (1,700,000) 0
AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK 550,000 (550,000) 0
ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS 232,620 (232,620) 0
FINANCING COST FOR SERIES D PREFERRED STOCK (75,000) (75,000)
ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS 48,900 (48,900) 0
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS 147,492 (147,498) 0
ISSUANCE OF COMMON STOCK FOR SERVICES 96,870 96,875
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 762,890 762,963
NET LOSS (8,289,920) (8,289,920)
----------- ----------- ----------
BALANCE, DECEMBER 31, 1997 $44,535,906 (45,604,454) $5,686,963
=========== =========== ==========
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
PROJECTAVISION, INC
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (6,471,638) $(10,880,893) $ (8,289,920)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 73,739 3,959,300 647,661
Issuance of common stock for services 540,292 -- 96,875
Allowance taken on investment in unconsolidated affiliate 2,129,252 -- --
Other noncash operating expenses -- -- 115,690
Provision for allowances on advances 125,017 (109,166) --
Equity in loss of unconsolidated affiliate 511,094 72,065 --
Asset and liability management
Changes in other operating assets (179,370) (597,659) 15,255
Changes in accounts receivable (377,608)
Changes in inventories (1,857,604)
Accounts payable and other liabilities 249,237 1,441,770 1,897,914
------------ ------------ ------------
Net cash used in operating activities (3,022,377) (6,114,583) (7,751,737)
------------ ------------ ------------
INVESTING ACTIVITIES
Capital expenditures (30,397) (4,322,105) (1,839,007)
Investment in and advances to unconsolidated affiliate (94,240) -- (150,000)
Interest accrued on loan to unconsolidated affiliate (67,314) -- --
Purchases and redemption of government securities 2,993,320 (3,437,386) 3,437,386
------------ ------------ ------------
Net cash (used in)/provided by investing activities 2,801,369 (7,759,491) 1,448,379
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from notes payable -- 10,000,000 --
Private placement costs -- (500,000) --
Repayment of convertible debt -- (4,958,250) (100,000)
Issuance of preferred stock -- 7,500,000 6,750,000
Issuance Fees -- (500,000) (75,000)
Series C Preferred Stock Dividend -- (123,750) --
Proceeds from stock options excercised -- 24,375 --
------------ ------------ ------------
Net cash provided by financing activities 0 11,442,375 6,575,000
------------ ------------ ------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (221,008) (2,431,699) 271,642
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR 3,712,990 3,491,982 1,060,283
------------ ------------ ------------
CASH AND CASH EQUIVALENTS-END OF YEAR $ 3,491,982 $ 1,060,283 $ 1,331,925
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ -- $ 352,049 $ 1,834
============ ============ ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
PROJECTAVISION, INC.
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------
In 1995, the Company issued 52,795 of its common stock as payment with a value
of $ 154,393 for the dividend on its series B convertible stock. In addition,
the Company issued 50,000 shares of its common stock for services rendered by an
officer and director of the Company. These shares were canceled by the Company
in December 1995. Also, the Company issued 24,162 shares of its common stock for
24,162 shares of its series B convertible preferred stock, and 83,030 shares of
its common stock for professional services rendered and to be rendered.
In 1996, the Company issued 37,666 shares of its common stock with a value of
$154,393 as payment for the dividend on its series B convertible stock. In
addition, the Company issued 1,772,945 shares of its common stock and paid
$4,958,250 in cash in exchange for retiring $8.4 million of convertible debt.
Also, the Company issued 34,724 shares of its common stock in connection with
the conversion of 34,724 shares of its Series B convertible preferred stock into
common stock.
In 1997, the Company issued 66,740 shares of its common stock with a value of
$147,498 as payment for the dividend on its series B convertible stock. In
addition, the Company issued 4,881,656 shares of its common stock to retire the
entire issue of 7,500 shares of Series C convertible preferred stock. The
Company also issued 50,000 shares of its common stock for services rendered by
an officer and director of the Company. Finally, the Company issued shares of
common stock in connection with retiring $0.6 million of convertible debt,
leaving a face value on the debt of $ 900,000.
F-6
<PAGE>
PROJECTAVISION, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Projectavision, Inc. (the "Company"), a Delaware
corporation, was incorporated on September 9, 1988. The Company was formed
to complete the development of a unique proprietary solid state projection
television and related video display technology. In addition, the Company
will seek to identify new high technology and electronic products for
consumers and commercial customers. Besides licensing the technology
developed, the Company outsources the manufacture of its products to third
party subcontractors. The Company emerged from the development stage in
1997 and has generated significant revenue from its planned principal
operations. Management of the Company believes that it has sufficient
funds to successfully sustain its operations. However, the attainment of
profitable operations is dependent upon future events including achieving
a level of revenue adequate to support the Company's then cost structure.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash Equivalents - The company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost or market. Costs
have been determined based on the first-in, first out (FIFO) method.
Property and Equipment - Property and equipment is stated at cost and
depreciated on the straight-line basis over the estimated useful lives of
the respective assets, with the exception of the plastic injection mold
design and tooling costs for the Digital Home Theater for which
depreciation is based on units-of-production, but using a maximum 10-year
straight-line floor. The estimated useful service lives of the assets are
as follows:
Tooling 100,000 units/10 years maximum
Furniture, fixtures and equipment 7 years.
Computers and software 5 years
Demo Units 3 years
Leasehold improvements lesser of 3 years or remaining
term of lease
Investments - The Company places its temporary cash with high credit
quality financial institutions and by policy, limits the amount of credit
exposure with any one financial institution.
Revenue Recognition - Revenues are recorded at the time of shipment of
products or performance of services.
<PAGE>
Research and Development - Costs are expensed as incurred.
Net Loss Per Share - Net loss per share is computed based on the number of
shares outstanding during the period after deducting dividends on
preferred stock. The effect of other potentially dilutive securities is
not included because their effect is anti-dilutive. The fully diluted
number of shares at December 31, 1995, 1996, and 1997 are 12,606,678,
13,802,421, and 18,184,592 respectively.
Earnings (Loss) Per Common Share - In 1997 the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 128 ("SFAS
128") "Earnings per Share" which the Company adopted for both interim and
annual reports. SFAS 128 specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS"). It replaces the
presentatin of primary and fully diluted EPS with basic and diluted EPS.
Basic EPS excludes the dilutive effect of stock options. It is based upon
the weighted average number of common shares outstanding during the
period. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. At present, the Company's diluted EPS and
basic EPS are the same, as all of the Company reporting periods have shown
only net losses, making the inclusion of any stock options or other
securities convertible into common stock antidilutive.
Newly Issued Accounting Standards - In 1997 Statement of Financial
Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income"
was issued. The Company is required to adopt SFAS 130 for fiscal 1998.
Also in 1997 Statement of Financial Accounting Standards No. 131 ("SFAS
131"). Disclosures about Segments of an Enterprise and Related
Information" was issued. SFAS 131 requires public enterprises to disclose
information relating to segments of their operations using a management
approach.
Income Taxes - The Company's accounting for income taxes is such that
deferred taxes, determined based on the difference between the financial
statement and tax basis of assets and liabilities, using enacted tax
rates, as well as any net operating or capital loss or tax credit carry
forwards are expected to reduce taxes payable in future years.
Stock-Based Compensation - In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December
15, 1995 and adoption of the measurement and recognition provisions for
non-employee transactions no later than after December 15, 1995. The
standard defines a fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to SFAS No.
123, companies are encouraged, but are not required, to adopt the fair
value method of accounting for employee stock-based transactions. The
Company will continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," but discloses in a note to the financial statements pro forma
net income and per share amounts as if the Company had applied the new
method of accounting.
Assessment of Asset Impairment - The Company periodically assesses the
recoverability of the carrying value of long-lived assets whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The assessment of recoverability of the carrying
amount of an asset is based on estimated undiscounted future cash flows
from the use of the asset and eventual disposition. If the estimated
undiscounted future cash flows are less than the carrying value, an
impairment loss is charged to operations based on the difference between
the carrying amount and the fair value of the asset.
F-7
<PAGE>
PROJECTAVISION, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. REVENUE
Revenue for the years ended December 31, 1995 and 1996 consisted of
royalty income from licensing agreements which is recognized when earned.
Revenue for the year ended December 31, 1997 consisted of sales of the
Digital Home Theater.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1997, the fair values of cash, cash equivalents,
investments, and accounts payable and accrued liabilities approximated
their carrying values because of the short-term nature of these accounts.
Convertible debt has a carrying value of $ 900,000 and a fair value of
$1,200,000. At December 31, 1996, convertible debt had a carrying value of
$1,762,983 and a fair value of $2,130,000.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
In 1993, the Company entered into an agreement with Tamarack Storage
Devices, Inc. ("Tamarack") pursuant to which The Company had the right to
acquire up to 50 percent of Tamarack's common stock representing 37.2
percent of the issued and outstanding voting securities of Tamarack. Under
the terms of the agreement, the Company invested $3,000,000 in the
aggregate in Tamarack and had accounted for this investment under the
equity method. The goodwill recorded with this investment, which
represented the excess of the Company's investment over the underlying net
assets of Tamarack, was $1,883,995. Such amount was being amortized over
ten years and is reported in the statement of operations as Equity in Loss
from Unconsolidated Affiliate. Amortization expense related to such
goodwill for the fiscal years ended December 31, 1994 and 1995 was
$197,884 and $148,413, respectively. The Company issued 32,000 shares of
common stock (valued at $109,120) for advisory services received in
connection with the acquisition. In 1994 the Company loaned Tamarack
$1,500,000 with interest payable at 6 percent.
In 1995, Tamarack received a commitment from Projectavision to fund its
cash needs through December 31, 1995 to continue its operations as then
constituted. Pursuant to this $94,240 was advanced to Tamarack. The
Company recorded a reserve against its investment in Tamarack of $300,000
in 1994, and at December 31, 1995 the Company reduced its investment in
and advances to Tamarack to zero recording an additional reserve of
$2,129,252 due to Tamarack's inability, to date, to commercialize its
holographic storage technology and its current lack of prospects. In
addition, in 1996 the Company classified its investment in Tamarack as
available for sale, and, in order to maximize the recovery of its
investment, loaned Tamarack an additional $ 100,000 in 1996 and was to
have been repaid following receipt of funds from a government agency. This
loan was also fully reserved in 1997. After eliminating the intercompany
accounts and reflecting previous write-offs, Tamarack's financial
statements are not material to the Company and have not been consolidated.
<PAGE>
In January 1998, Tamarack was acquired by Manhattan Scientific,
Inc., ("MSI") (formally Grand Enterprises, Ltd.) a NASDAQ bulletin-board
traded company. All of the shares of Tamarack (97% of which were
represented by the Company's holdings in Tamarack at the time of the
closing) were exchanged for 44 million shares of MSI. Simultaneously
therewith, an additional 5 million shares of MSI were sold to the public,
resulting in aggregate gross proceeds of $1 million to MSI. Further, in
connection with the transaction, the Company's $ 1,500,000 loan plus
accrued interest thereon was exchanged for 182,525 shares of convertible
preferred stock of MSI. Each share of this convertible preferred stock is
convertible into 50 shares of MSI common stock. The Company also received
a warrant to purchase 750,000 shares of MSI common stock at an exercise
price of $0.20 per share. Subsequent to the closing of the transaction,
MSI has agreed to issue an aggregate of 7.2 million shares to purchase
patents in a portable fuel cell technology which MSI is planning to
develop commercially.
5. PROVISION FOR ALLOWANCE ON ADVANCES
The Company had made advances through July 31, 1995 in contemplation of an
investment in a high technology company. The president of the Company is
related to an individual who is an executive officer and director of
Projectavision. Such advances aggregated $298,426 and had been fully
reserved for at December 31, 1995. In 1996 $ 109,166 of these funds were
paid to the Company as a final settlement of the amounts advanced, and
the balance was written off.
6. ASSIGNMENT AGREEMENT
On March 19, 1990, an officer/stockholder of the Company entered into an
assignment agreement with the Company whereby all rights, title and
interest to the projection technology were assigned to the Company. The
rights, title and interest to the United States patent and foreign patents
relating to the projector technology under development by the Company were
originally applied for by this officer/stockholder.
F-8
<PAGE>
PROJECTAVISION, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with three of its
officers and directors and a consulting agreement with one of its officers
and directors. Aggregated minimum compensation under these agreements will
be $535,000 per year through 1999. For 1995, 1996, and 1997 salary expense
was approximately $527,000, $577,450, and $710,200 respectively.
8. COMMON STOCK
In 1995 the Company issued 83,030 shares of common stock and in 1997 the
Company issued 50,000 shares of common stock for legal, financial, and
design services. These shares were accounted for as an expense equal to
the fair market value of the stock, with a corresponding increase to
capital stock and additional paid in capital.
In April 1997 the Company's shareholders approved a resolution increasing
the number of shares authorized from 30,000,000 to 50,000,000.
9. PREFERRED STOCK
The Series B Convertible Preferred Stock provides for cumulative annual
stock dividends payable in common shares of 8 percent of the liquidation
value of $5 per share (for a total of $1,756,290) to be paid semiannually
and is convertible to one share of common stock, subject to adjustment. In
1996, 34,200 shares of Series B Convertible Preferred Stock were converted
into common stock. This stock may be redeemed by the Company if certain
conditions are met for $1.00 per share.
In 1996, the Company issued 7,500 shares of Series C Preferred Stock for
$7,500,000, resulting in net proceeds to The Company of $7,000,000 after
fees. The Series C Preferred Stock converts into shares of Common Stock at
a 25% discount of the average closing bid price of the Common Stock for
the five (5) trading days immediately preceding the date of conversion.
The holder of the Series C Preferred Stock has the right to convert into
Common Stock as follows: 25% can be converted on or after November 1,
1996; 25% may be converted on or after January 1, 1997; 25% may be
converted on or after March 1, 1997; and 25% may be converted on or after
May 1, 1997. The Company, in accordance with the terms and conditions of
the sale of the Series C Preferred Stock, registered the shares of Common
Stock into which the Series C Preferred Stock is convertible in the third
quarter of 1996. The Series C Preferred Stock pays dividends
semi-annually, seven (7) business days after each of December 31st and
June 30th of each year, which may be in cash or shares of Common Stock at
the election of The Company. The dividend rate is 3% per annum of the
liquidation value of $1,000.00 per share until and through June 30, 1997;
6% per annum from July 1, 1997 through June 30, 1998; and 8% per annum
from July 1, 1998 and thereafter. The Company recognized a dividend on the
Series C Preferred Stock based on the annualized pro-rata amount of the
25% discount on the conversion into common stock and on the increase in
the dividend rate. During 1997, the Series C Preferred Stock was converted
into 4,881,336 shares of Common Stock, which resulted in retiring the
issue.
<PAGE>
<TABLE>
<CAPTION>
Original
Year Ended December 31, 1997 Total to Vest
---------------------------- -------------
<S> <C> <C>
Dividend accretion on Series C Preferred Stock $ 76,727 $ 492,650
Amortization of Warrants on Series C Preferred Stock 23,734 290,000
Amortization of Discount on Series C Preferred Stock 377,787 2,500,000
</TABLE>
In January of 1997, the Company issued an aggregate of 35,000 shares of 6%
Series D convertible preferred stock to two foreign institutional
investors for an aggregate purchase price of $ 3,500,000, resulting in net
proceeds to the Company of $ 3,500,000. In October, 1997, these 35,000
Series D shares were sold to two other foreign institutional investors. In
December 1997, the Company issued an additional 16,000 shares of 6% Series
D convertible preferred stock to the same institutional investors for a
purchase price of $ 1,600,000, resulting in net proceeds to the Company of
$ 1,525,000. Each share of Series D Preferred Stock is convertible, at the
option of the holder, into shares of the Company's Common Stock at any
time. The Series D Preferred Stock is convertible into Common Stock at a
25% discount to the then current market price of the Company's Common
Stock at the time of conversion.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Total to Vest
---------------------------- -------------
<S> <C> <C>
Amortization of Warrants on Series D Preferred Stock 232,620 232,620
Amortization of Discount on Series D Preferred Stock 1,700,000 1,700,000
</TABLE>
F-9
<PAGE>
PROJECTAVISION, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In July of 1997, the Company issued 1,000 shares of 8% Series E
convertible preferred stock to one foreign institutional investor for a
purchase price of $ 1,000,000, resulting in net proceeds to the Company of
$ 1,000,000. In December 1997, the Company issued an additional 650 shares
of 8% Series E convertible preferred stock to the same foreign
institutional investor for a purchase price of $ 650,000, resulting in net
proceeds to the Company of $ 650,000. Each share of Series E Preferred
Stock is convertible, at the option of the holder, into shares of the
Company's Common Stock at any time. The Series E Preferred Stock is
convertible into Common Stock at a 25% discount to the then current market
price of the Company's Common Stock at the time of conversion.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Total to Vest
---------------------------- -------------
<S> <C> <C>
Amortization of Warrants on Series E Preferred Stock 48,900 48,900
Amortization of Discount on Series E Preferred Stock 550,000 550,000
</TABLE>
In February of 1998, the Company issued 1,685 shares of 8% Series F
convertible preferred stock to one foreign institutional investor for a
purchase price of $ 1,685,000, resulting in net proceeds to the Company of
$ 1,525,210 after fees. The preferred stock is convertible into the
Company's common stock at $ 1.00 per shares in five equal installments
every thirty days starting in August 1998. The preferred shares may be
repurchased by the Company at a 12.5% premium over the issue price within
90 days and at a 25% premium after 90 but before 180 days from the issue
date.
10. CONVERTIBLE DEBT
In February 1996, the Company completed an offshore private placement of
$10,000,000 of convertible debt resulting in net proceeds to the Company
of $9,500,000. The convertible debt bears interest at the rate of 8% per
annum and pays interest quarterly in arrears on any unpaid or unconverted
debt. To the extent not previously converted, the convertible debt is due
in January 1999, and may be repaid in cash or common stock of the Company
at the sole option of the Company. All conversions of convertible debt
into common stock are based upon a 25% discount of the price of the
Company's common stock for five consecutive trading days immediately prior
to the date of conversion. The Company recognized as interest expense the
25% discount on the conversion into common stock equal to $ 3,333,333 in
1996. In 1996 the Company issued 1,772,945 shares of its common stock and
paid $4,958,250 in cash in exchange for retiring $8.6 million in
convertible debt. In January 1997, the Company retired $ 100,000 of
convertible debt for cash. During 1997, the Company issued an additional
476,034 shares of its common stock in exchange for retiring $0.6 million
of convertible debt. In January 1998, the Company issued 340,674 shares of
its common stock in exchange for retiring $0.3 million of convertible
debt. There currently remains as of March 18, 1998 $250,000 in convertible
debt outstanding.
F-10
<PAGE>
PROJECTAVISION, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. STOCK OPTION PLANS
Non-qualified Option Plan - The Company has reserved 5,000,000 shares of
common stock for issuance upon exercise of options under a non-qualified
stock option plan adopted in February 1990 and amended in June 1990, July
1990, and November 1993. All options granted under this plan have been
granted at fair market value at the date of grant. In January, 1997,
$2,138,000 options were repriced at $3.00. The following is a summary of
non-qualified option plan activity for the three years ended December 31,
1997:
1995 1996 1997
Outstanding at January 1 2,455,333 2,210,833 4,208,833
---------- ---------- ----------
Granted 68,000 2,682,500 2,232,000
Expired -- -- --
Canceled (312,500) (660,125) (2,138,000)
Exercised -- (24,375) --
---------- ----------
Outstanding at December 31 2,210,833 4,208,833 4,302,833
========== ========== ==========
Available for grant at December 31 2,789,167 791,167 467,180
========== ========== ==========
Weighted average option exercise price information for the years 1995,
1996, and 1997 follows:
1995 1996 1997
Outstanding at January 1 3.63 3.56 4.06
Granted 2.70 4.34 2.94
Expired -- -- --
Canceled 2.50 3.56 4.52
Exercised -- 0.81 --
Outstanding at December 31 3.56 4.06 3.25
Exercisable at December 31 3.56 3.95 3.29
Significant option groups outstanding at December 31, 1997 and related
weighted average price and life information follow:
Exercise Price Number of Weighted Average Weighted Average Number of
Range Options Price Remaining Life (Years) Exercised
$ 1.00-$2.99 84,000 $ 1.188 4 none
$ 3.00-$3.99 3,376,000 $ 3.093 6 none
$ 4.00-$4.99 105,000 $ 4.196 4 none
$ 5.00-$7.99 737,833 $ 5.375 2 none
The weighted fair value at date of grant for options granted in 1996 and
1997 was $ 2.59 and $ 2.92 per option, respectively. The fair value of
options at date of grant was estimated based on the opinion of such fair
value attributed by recipients of two of the grants with the following
weighted average assumptions:
1995 1996 1997
Expected life (Years) 5 5 5
Interest Rate 6.25 % 6.25 % 6.10 %
Volatility 89 % 89 % 72 %
Dividend Yield 0 % 0 % 0 %
Stock-based compensation costs did not impact pretax income or earnings
per share in 1995, 1996 and 1997. These costs would have been increased by
$ 0.2 million or ($ 0.02) per share in 1995, $ 4.9 million, or ($ 0.35)
per share, in 1996 and $ 4.2 million, or ($ 0.23) per share, in 1997 had
the fair values of the options been recognized as compensation expense on
a straight line basis over the vesting period of the grant.
F-11
<PAGE>
PROJECTAVISION, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. STOCK OPTION PLANS (Continued)
Incentive Option Plan - In February 1990, the 1988 Incentive Stock Option
and Appreciation Plan was terminated and a new plan, as amended in June
1990, July 1990, and November 1993 was adopted under which options to
purchase 1,000,000 shares of common stock have been reserved. The
incentive option plan provides for the granting of incentive stock options
(ISOS) at an exercise price not less than the fair market value of the
common stock on the date the option is granted. ISOS may not be granted to
an individual to the extent that, in the calendar year in which such ISOS
first become exercisable, the shares subject such ISOS have a fair market
value on the date of grant in excess of $100,000. No option may be granted
after February 20, 2000, and no option may be outstanding for more than
ten years after its grant. As of December 31, 1997, no options have been
granted under the Plan.
12. RELATED PARTY TRANSACTIONS
In 1989 advances totaling $10,833 were made to a principal stockholder of
DKY and were outstanding at December 31, 1997.
13. INCOME TAXES
As of December 31, 1996 and 1997, the composition of the Company's net
deferred taxes was as follows:
1996 1997
Deferred tax assets $ 9,800,000 $ 13,100,000
Less valuation allowance (9,800,000) (13,100,000)
------------ ------------
Net $ -- $ --
============ ============
Deferred tax assets principally result from the availability of net
operating and capital loss carry-forwards to offset income earned in
future years. The offsetting valuation allowance reduces total deferred
tax assets to an amount management believes will likely be realized.
At December 31, 1997, the Company had tax net operating and capital loss
carry-forwards of approximately $29,500,000, which expire in the years
2003 through 2013. The utilization of tax net operating and capital losses
may be subject to certain limitations.
<PAGE>
14. COMMITMENTS AND CONTINGENCIES
On November 18, 1994 the Company entered into a non exclusive,
non-transferable license without a right to sub-license, except to related
companies, with Samsung Electronics Co. pursuant to which the Company gave
to Samsung the right to use the Company's patented depixelization
technology (as defined) in connection with the manufacturing and marketing
of LCD projectors. The license is co-terminus with the life of the patents
and patent applications relating to the proprietary rights underlying the
license.
The future minimum rental commitments for office space as of December 31,
1997 are as follows:
Year Amount
---- ------
1998 $ 301,413
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
$204,832, $209,695 and $257,554, respectively.
In 1997 the Company awarded bonuses totalling $250,000.
In January 1998 the Company signed a definitive agreement to acquire
substantially all of the assets of Vidikron Industries, S.p.A.
("Vidikron") relating to its video business, including its U.S.
distribution subsidiary, Vidikron of America, Inc. In accordance with the
definitive acquisition agreement, the Company has advanced Vidikron
$1,000,000 on a non-refundable basis. The closing of the acquisition is
expressly subject to the satisfactory completion by the Company of all due
diligence and obtaining the requisite financing to complete the
transaction. There can be no assurances that the Company will be satisfied
upon its completion of its due diligence, that it will be able to secure
the necessary financing, or that it will otherwise be able to effect the
acquisition of Vidikron.
F-12
<PAGE>
PROJECTAVISION, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. COMMITMENTS AND CONTINGENCIES (Continued)
In June of 1995 and August of 1995, two class action lawsuits were filed
against the Company as well as certain of its officers and directors by
stockholders of the Company. In October of 1995 the plaintiffs in the
second action joined as plaintiffs in the first action, and the second
action was dismissed without prejudice. In July 1996, the class action
suit was dismissed without prejudice, and the plaintiffs were given an
opportunity to replead. Upon repleading, the class action suit alleged
numerous violations of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including, but not limited to, violations of Section
10(b) of the Exchange Act. The suit also alleged claims for negligent
misrepresentation and for common law fraud and deceit. In response, the
Company and the individual defendants submitted motions to dismiss the
action. In July 1997 these motions were granted, and the class action suit
was dismissed with prejudice by the U.S. District Court in New York.
Plaintiffs have filed a notice of appeal with the Second Circuit Appellate
Court, and the appeal is in the midst of the briefing process.
In April 1995 a legal action was brought against the Company, certain
members of the Board of Directors, and an employee of the Company by
Eugene Dolgoff, a founder and former officer of the Company. The complaint
alleges, among other actions, breach of employment and patent assignment
agreements. Mr. Dolgoff is seeking damages, punitive damages, and
equitable relief totaling in excess of $ 100 million. In April 1996, the
New York State Supreme Court issued an order and opinion which
disqualified the Company's litigation counsel, Anderson Kill, & Olick,
P.C. ("Anderson, Kill") on the basis that Anderson, Kill had a conflict of
interest vis-a-vis Mr. Dolgoff , substantially denied the Company's motion
to dismiss Mr. Dolgoff's entire complaint, and denied Mr. Dolgoff's motion
to have a receiver appointed.
The Company appealed the New York Supreme Court's decision regarding the
disqualification of Anderson, Kill and the denial of its motion to dismiss
Mr. Dolgoff's complaint. Mr. Dolgoff appealed the New York Supreme Court's
denial of his motion to have a receiver appointed. In January of 1997, the
Supreme Court of the State of New York Appellate Division First
Department, affirmed the lower court's disqualification of Anderson, Kill
and the lower court's motion to dismiss and ordered that a receiver be
appointed to protect whatever interest, if any, the former officer and
employee of the Company may ultimately be able to prove that he has in any
inventions Mr. Dolgoff assigned to the Company. The Supreme Court
subsequently issued a decision restricting the scope of the receivership
sought by Mr. Dolgoff. However, the receivership order has not as yet been
entered. At this time, neither the Appellate Court, nor any other court,
has determined that Mr. Dolgoff has any proof to support his claims; the
Appellate Court has merely reaffirmed the lower court's decision that, at
this preliminary stage of the litigation, Mr. Dolgoff's complaint has
satisfied procedural pleading requirements. As a consequence of new facts
having come to the attention of the Company, the Company has amended its
pleadings and filed counterclaims against Mr. Dolgoff, his affiliated
companies, Breakthrough Enterprises, Inc. and Floating Images, Inc. for,
among other things, fraud, breach of fiduciary duty, misappropriation of
trade secrets, conversion, breach of contract, diversion of corporate
assets and opportunities, unjust enrichment, and tortious interference
with contractual relations, in connection with which the Company is
seeking injunctive relief and a constructive trust, in addition to
monetary damages in excess of $ 100 million.
<PAGE>
In 1996, a suit was filed by a individual investor against the Company and
Marvin Maslow, Chairman of the Board of Directors, alleging fraudulent
inducement in connection with the plaintiff's purchase of the Company's
securities. In March 1997 the case was dismissed by the U.S. District
Court in Florida on jurisdictional grounds.
In all of the above actions, the Company's management, based upon
discussions with counsel, believe that they have a meritorious defense
against these claims and intend a vigorous defense against these claims.
The Company's management believes that the outcome of these matters will
not have a material adverse effect on its financial position or results of
operations.
15. Business Concentration
In 1997, revenues from one customer accounted for approximately 25% of
Digital Home Theater revenues. No other single customer accounts for more
than 5%.
The Company is dependent upon certain vendors for the manufacture of
significant components in its Digital Home Theater. If these vendors were
to become unwilling or unable to continue to manufacture these products in
the required volumes, the Company would have to identify and qualify
acceptable alternative vendors. The inability to develop alternate
sources, if required in the future, could result in delays or reductions
in product shipments.
F-13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 24th day of March, 1998.
PROJECTAVISION, INC.
By: /s/ Martin Holleran
--------------------------------
Martin Holleran, President
Chief Executive Officer and Director
In accordance with the Exchange Act this report has been signed below by
the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Marvin Maslow Chairman of the Board of
- ----------------------------- Directors March 24, 1998
Marvin Maslow
/s/ Martin Holleran President, Chief Executive
- ----------------------------- Officer and Director March 24, 1998
Martin Holleran
/s/ Jules Zimmerman Officer, Secretary and
- ----------------------------- Chief Financial Director March 24, 1998
Jules Zimmerman
/s/ Martin D. Fife Director March 24, 1998
- -----------------------------
Martin D. Fife
/s/ Richard S. Hickok Director March 24, 1998
- -----------------------------
Richard S. Hickok
/s/ Dr. Craig I. Fields Director March 24, 1998
- -----------------------------
Dr. Craig I. Fields
/s/ Arthur Lipper III Director March 24, 1998
- -----------------------------
Arthur Lipper III
/s/ Sherman Langer Director March 24, 1998
- -----------------------------
Sherman Langer
<PAGE>
================================================================================
AGREEMENT OF PURCHASE
AND SALE OF ASSETS
By and Between
PROJECTAVISION, INC.,
and
VIDIKRON INDUSTRIES, S.p.A.
================================================================================
January 20, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. (a) Purchase and Sale of Assets........................................1
(b) Assumed Liabilities................................................5
(c) Excluded Assets. .................................................7
(d) Consent of Third Parties...........................................7
2. (a) Purchase Price.....................................................8
(b) Purchase Price Adjustment..........................................8
(c) Purchase Price Prepayments.........................................9
(d) Allocation of Purchase Price.......................................9
(e) Acquisition by Affiliates..........................................9
3. (a) Closing............................................................9
(b) Further Action....................................................10
4. (a) The Company's Delivery Obligations at the Closing;
Covenants; Further Assurances.....................................11
(b) Billings..........................................................14
(c) Liability for Transfer Taxes......................................14
(d) Certificates of Tax Affidavits....................................15
(e) Use of Business Name..............................................15
(f) Further Assurances................................................15
5. Purchaser's Delivery Obligations at the Closing..........................16
6. Representations and Warranties of the Company............................17
(a) Organization, Standing and Qualification..........................17
(b) Subsidiaries......................................................18
(c) Transactions with Certain Persons.................................18
(d) Execution, Delivery and Performance of Agreement;
Authority.........................................................19
(e) Capitalization; Ownership of Capital Stock........................20
(f) [Intentionally Omitted]...........................................20
(g) Financial Statements..............................................20
(h) Absence of Undisclosed Liabilities................................21
(i) Taxes.............................................................21
(j) Absence of Changes or Events......................................22
(k) Litigation........................................................25
(l) Compliance with Laws and Other Instruments........................26
(m) Title to Properties...............................................26
(n) Insurance.........................................................26
(o) Territorial Restrictions..........................................27
(p) Intellectual Property.............................................27
(i) Title...........................................27
(ii) Transfer........................................27
(iii) No Infringement.................................27
(iv) Licensing Arrangements..........................27
(v) No Intellectual Property Litigation.............28
(vi) Due Registration, Etc...........................28
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
(vii) Use of Name and Mark....................................29
(q) Environmental Matters.............................................29
(r) No Guaranties.....................................................29
(s) [Intentionally Deleted]...........................................29
(t) Absence of Certain Business Practices.............................29
(u) Disclosure........................................................30
(v) Labor Disputes....................................................30
(w) Customers and Accounts............................................31
(x) Suppliers; Raw Materials..........................................31
(y) Unbilled Costs and Advance Billings...............................32
(z) Contracts and Proposals...........................................32
(aa) [Intentionally Deleted]...........................................33
(bb) Directors and Officers............................................34
(cc) Inventories.......................................................34
(dd) Real Property.....................................................34
(i) Leases..................................................34
(ii) No Proceedings..........................................35
(iii) Current Use.............................................35
(ee) Warranties........................................................35
(ff) Dealer and Distributor Arrangements...............................35
(gg) Excluded Assets...................................................36
(hh) Government Loan...................................................36
7. Representations and Warranties by Purchaser..............................36
(a) Organization......................................................36
(b) Execution, Delivery and Performance of Agreement..................37
(c) Litigation........................................................37
8. Employment Matters; Employment Contracts.................................37
9. Indemnification..........................................................40
10. Survival of Representations, Warranties and Agreements...................43
11. Conduct of Business Prior to Closing.....................................43
(i) Liabilities.............................................43
(ii) Litigation..............................................43
(iii) Compliance with Laws....................................44
(iv) Continued Effectiveness of
Representations and Warranties..........................44
12. Access to Information and Documents......................................45
13. [Intentionally Deleted.].................................................47
14. Conditions Precedent.....................................................47
(a) Conditions to Obligations of Each Party...........................47
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
(b) Conditions to Obligations of the Purchaser........................47
(c) Conditions to Obligations of the Company..........................48
15. Holdback; Post-Closing Adjustments.......................................49
(a) Holdback..........................................................49
(b) Post-Closing Audit................................................49
(c) Application of Post-Closing Audit to Financial
Holdback..........................................................50
(d) Application of Other Holdback.....................................50
(e) Tax Allocation of Escrow Interest.................................51
16. (a) Termination.......................................................51
(b) Effect of Termination.............................................52
17. Right to Designate Director..............................................53
18. Trade Payables Escrow Account............................................53
19. Earn Out.................................................................54
20. Notices..................................................................55
21. Miscellaneous............................................................57
SCHEDULES
Schedule 1(a) - Assets
Schedule 1(a)(x) - Consents
Schedule 1(a)(xv) - Government Loan
Schedule 1(b) - Assumed Liabilities
Schedule 1(b).1 - Agreed Upon Accounts Payable
Schedule 1(b).2 - Company's Bank Debt Documents
Schedule 1(c) - Excluded Assets
Schedule 2(c) - Allocation of Purchase Price
Schedule 4(a).1 - English Bill of Sale
Schedule 4(a).2 - Italian Bill of Sale
Schedule 4(a)(vi) - Opinion of Company's Counsel
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Schedule 4(a)(vii) - Peralda Non-Competition Undertaking
Schedule 4(a)(viii) - Peralda Employment Agreement
Schedule 4(a)(ix) - Macario Employment Agreement
Schedule 4(a)(x) - Macario Non-Competition Undertaking
Schedule 4(a)(xi) - Lease Assignment
Schedule 4(a)(xii) - Personal Property Assignment
Schedule 4(a)(xiii) - Intellectual Property Assignment
Schedule 5(a)(iv) - Opinion of Purchaser's Counsel
Schedule 6(a) - States where the Company is Qualified to
do Business
Schedule 6(b) - Subsidiaries
Schedule 6(c) - Transactions with Certain Persons
Schedule 6(d) - Conflicts
Schedule 6(g).1 - Historical Financial Statements of the
Company and the Subsidiary
Schedule 6(g).2 - Company's 1997 Financial Statements
Schedule 6(h) - Undisclosed Liabilities
Schedule 6(i).1 - Unpaid Taxes
Schedule 6(i).2 - Company's Tax Returns for 1995 and 1996
Schedule 6(j) - Changes or Events
Schedule 6(k) - Litigation
Schedule 6(l) - Compliance with Laws and Other
Investments
Schedule 6(m) - Encumbered Assets
Schedule 6(n) - Insurance
Schedule 6(o) - Territorial Restrictions
-iv-
<PAGE>
TABLE OF CONTENTS
(continued)
Schedule 6(p)(i) - Intellectual Property
Schedule 6(p)(ii) - Non-Transferable Intellectual Property
Schedule 6(p)(iv) - Licensing Arrangements
Schedule 6(p)(v) - Intellectual Property Litigation
Schedule 6(p)(vii) - Restrictions on Use of Name and Mark
Schedule 6(r) - Guaranties
Schedule 6(t) - Certain Business Practices
Schedule 6(v).1 - List of Company's Employees
Schedule 6(v).2 - List of Company's Employees to be
Employed by Purchaser
Schedule 6(w) - Customers and Accounts
Schedule 6(x) - Suppliers; Raw Materials
Schedule 6(y) - Unbilled Costs and Advance Billings
Schedule 6(z) - Contracts and Proposals
Schedule 6(z)(i) - Contracts and Proposals - Consents and
Italian Law
Schedule 6(z)(iv) - Powers of Attorney
Schedule 6(bb) - List of Directors and Officers of each
of the Company and Subsidiary
Schedule 6(cc) - Obsolete/Discontinued Inventory
Schedule 6(dd) - Real Property Leases
Schedule 6(ee) - Warranties
Schedule 6(ff) - Exclusive Dealer Arrangements
Schedule 8(a) - Employees
Schedule 8(b) - Employee Plans
Schedule 8(g) - Italian Employment Matters
-v-
<PAGE>
TABLE OF CONTENTS
(continued)
Schedule 12(a) - Certain Distributors and Suppliers
Schedule 16(b)(i) - Escrow Agreement
-vi-
<PAGE>
AGREEMENT OF PURCHASE AND SALE OF ASSETS
AGREEMENT (this "Agreement"), dated January 20, 1998, by and between
PROJECTAVISION, INC., a Delaware corporation having its principal office at Two
Penn Plaza, Suite 640, New York, New York 10121 ("Purchaser"), VIDIKRON
INDUSTRIES, S.p.A., an Italian corporation having its principal office at Via
Dei Guasti, 29, 20020 Misinto (Milano), Italy (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business, among others, of
designing, manufacturing, sourcing and distributing high-end video projection
systems for the consumer (the "Company's Video Business");
WHEREAS, the Company owns eighty five percent (85%) of all of the issued
and outstanding equity securities of Vidikron of America, Inc., a Delaware
corporation, having its principal executive offices at 150 Bay Street, Jersey
City, New Jersey (the "Subsidiary"); and
WHEREAS, the Company desires to sell to Purchaser, and Purchaser desires
to acquire from the Company, substantially all of the assets constituting the
Company's Video Business, and certain of the Company's liabilities, on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and in order to set forth the terms and conditions of the
purchase and sale of assets and the manner of carrying the same into effect, the
parties hereto hereby agree as follows:
1. (a) Purchase and Sale of Assets. Except as set forth on Schedule 1(c)
annexed hereto, subject to and upon the terms and conditions set forth in this
Agreement, the Company agrees to sell, transfer, convey, assign and deliver to
Purchaser, and Purchaser agrees to purchase at the "Closing" (as defined in
Section 3 hereof), those certain assets and properties, and that certain
business, goodwill and rights of the business as a going concern, of every
nature, kind and description whatsoever, whether tangible and intangible,
wheresoever located and whether or not carried or reflected on the books and
records of the Company with respect to the Company's Video Business, all of
which shall be referred to in the form of Bill of Sale as set forth in Schedule
1(a) annexed hereto (hereinafter sometimes collectively called the "Assets"),
including, without limitation:
(i) subject to the provisions of Sections 6(p) and 6(o) below, all
right, title and interest in and to
<PAGE>
any and all United States, Italian and other: (A) industrial
designs, and improvements thereto; (B) trademarks, service marks,
trade names (including, without limitation, any trade names acquired
by the Company in connection with its acquisition of the business),
trade dress, logos, business and product names, slogans, and
registrations and applications for registration thereof; (C)
copyrights (including software) and registrations, if any, thereof;
(D) inventions, processes, designs, formulae, trade secrets,
know-how, industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product
specifications and confidential business information; (E) mask work
and other semiconductor chip rights and registrations, if any,
thereof; (F) intellectual property rights similar to any of the
foregoing; (G) copies and tangible embodiments thereof (in whatever
form or medium, including electronic media) (collectively,
"Intellectual Property");
(ii) the assets reflected on the Pro Forma Financial Statements
referred to in Section 6(g) hereof, with only such disposition of
such assets as shall have occurred in the ordinary course of the
Company's business between the date of the Pro Forma Financial
Statements and the Closing;
(iii) all machinery, equipment, fixtures, leasehold improvements,
trucks, vehicles, parts and other tangible personal property
(including, but not limited to, any of the foregoing purchased
subject to any conditional sales or title retention agreement in
favor of any other party);
(iv) all inventory of equipment held for sale or lease, spare parts,
replacement and component parts, and office and other supplies
("Inventories"), including Inventories held at any location for the
Company and Inventories previously purchased and in transit to or
from the Company;
(v) all rights in and to Inventories (including, but not limited to,
products hereafter returned or repossessed and unpaid, Company's
rights of rescission, replevin, reclamation and rights to stoppage
in transit);
(vi) all rights (including, but not limited to, any and all
Intellectual Property rights) in and to the products and services
sold, rented or leased and in and to any products and services sold,
rented or leased and
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<PAGE>
in and to any products or other Intellectual Property rights under
research or development prior to or on the Closing Date;
(vii) all of the rights of the Company under all Contracts (as
defined in Section 6(z) hereof) and, including, without limitation,
any right to receive payment for products sold or services rendered
(exclusive, however, of the "Accounts Receivables" that the Company
shall retain upon the Closing of this Agreement in accordance with
the provisions of, and as such term is defined in, Section 1(c)
below), and to receive goods and services, pursuant to such
Contracts and to assert claims and take other rightful actions in
respect of breaches, defaults and other violations of such
Contracts;
(viii) all credits (exclusive of the Accounts Receivables that the
Company shall retain in accordance with the provisions of Section
1(c) below), and, if any, prepaid expenses, deferred charges, return
allowances, advance payments, security deposits and prepaid items;
(ix) only to the extent that they relate solely to the Company's
Video Business, and are discrete with respect thereto, all books,
records, manuals and other materials (in any form or medium whether
now known or hereafter devised), including, without limitation, all
records and materials maintained by the Company, advertising matter,
catalogues, consumer manuals, price lists, correspondence, mailing
lists, lists of customers, distribution lists, photographs,
production data, sales and promotional materials and records,
purchasing materials and records, manufacturing and quality control
records and procedures, blueprints, research and development files,
records, data and laboratory books, Intellectual Property
disclosures, media materials and plates, accounting records, and
sales order files; provided, however, that it is expressly
understood that in the event that any of the foregoing also sets
forth information relative to the Company in connection with matters
unrelated, in whole and in part, to the Company's Video Business,
then notwithstanding the foregoing, all such books and records shall
remain the property of the Company, and will not be deemed to be an
asset transferred hereunder but rather, will be deemed to be an
"Excluded Asset" (as that term is defined in Section 1(c) below),
and consequently, shall be retained by the Company in accordance
with the provisions of Section 12(c) below;
3
<PAGE>
(x) to the extent their transfer is permitted by law, all consents,
approvals, authorizations, waivers, permits, grants, franchises,
concessions, agreements, licenses, exemptions or orders of
regulation, certificate, declaration or filing with, or report or
notice to any entity issued, executed, delivered or otherwise made
to or for the benefit of the Assets or any assets of the Subsidiary,
including all applications thereof (collectively, the "Consents"),
all of which Consents are set forth on Schedule 1(a)(x) hereof,
including, but not limited to, the Consent (the "Governmental
Approval") of any nation, or government, any state or other
political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any
government authority, agency, department, board, commission or
instrumentality of the United States or Italy, any state of the
United States or any municipality thereof, any region or province of
Italy or any municipality thereof, and any tribunal or arbitrator(s)
of competent jurisdiction, and any self-regulatory organization of
the United States or Italy (collectively, the "Governmental
Authority" or "Governmental Authorities);
(xi) except with respect to the Accounts Receivables to be retained
by the Company in accordance with the provisions of Section 1(c)
below, all rights to choses in action, causes of action, claims and
rights of recovery or setoff, lawsuits, judgments, claims and
demands of any nature available to or being pursued by the Company
with respect to the Company's business or the ownership, use,
function or value of any of the Assets whether arising by way of
counterclaim or otherwise;
(xii) all guarantees, warranties, indemnities and similar rights in
favor of the Company with respect to any of the Assets or the
Company's Video Business;
(xiii) accrued sales (in respect of outstanding proposals or
work-in-process), commitments, proposals, Contracts, understandings
or commitments, whether oral or written, to perform services,
advanced billings and unbilled costs (as set forth on Schedule 6(y)
annexed hereto);
(xiv) the tangible assets (the "Tangible Assets") that are part of
Schedule 1(a) annexed hereto and as provided on the Balance Sheet;
4
<PAGE>
(xv) cash and cash equivalents of Seller relating to (A) prepayments
for goods or services relative to the Company's Video Business to be
delivered or performed, in whole or in part, subsequent to the
Closing, and (B), to the extent applicable, that certain seven (7)
year, low interest loan in the principal amount of 1,745,000,000Li.
(or any portion thereof) extended to the Company by the Italian
Government in accordance with that letter to the Company dated
October 30, 1997 (the "Government Loan"), the true and complete
documentation of which is annexed hereto as Schedule 1(a)(xv); and
(xvi) all shares of stock of the Subsidiary owned by Company and any
other equity ownership interests and rights to acquire equity
ownership interests in the Subsidiary (it being expressly understood
and agreed that Purchaser shall have no obligation whatsoever to
enter into any agreements of any kind with those shareholders of the
Subsidiary other than the Company, including, without limitation
agreements regarding such shareholders' shareholdings with respect
to the Subsidiary or such shareholders' employment arrangements
therewith).
(b) Assumed Liabilities.
(i) The Assets shall be conveyed free and clear of all liabilities,
obligations, liens, claims and encumbrances, excepting only those
liabilities, obligations, liens, claims and encumbrances which are
expressly to be assumed by Purchaser hereunder, if any. Purchaser
shall assume at the Closing, and thereafter timely pay, perform or
discharge, when due, the "Assumed Liabilities," except to the extent
that any of such Assumed Liabilities have been paid or satisfied as
of the Closing Date. As used herein, the term "Assumed Liabilities,"
all of which shall be set forth on Schedule 1(b) annexed hereto,
shall be expressly limited to:
(A) the sum of (w) the Company's accounts payable incurred in
the ordinary course of the Company's Video Business (the
"Trade Payables") in the aggregate amount as set forth in the
Company's written advice to Purchaser no later than five (5)
business days prior to the Closing Date, which written advice
shall also individually set forth such Trade Payables on an
account by account basis, including the amount of time each of
such Trade Payables has been outstanding and when same is due
and owing (x) certain of the principal
5
<PAGE>
amount of the Company's existing bank indebtedness (the
precise amount of which shall be determined by the parties at
Closing) with [names(s) of bank] as annexed hereto as Schedule
1(b).2 (the "Company's Bank Debt"), plus (y) the accrued
employee severance benefits set forth on the Company's Closing
Balance Sheet, plus (z) the Government Loan, if any, to the
extent that prior to Closing the Company has actually received
funds with respect to the Government Loan and such funds have
either been retained by or used in connection with the
Company's Video Business; provided, however, sum of (x), (y)
and (z) shall in no event exceed Three Million Five Hundred
Thousand ($3,500,000) U.S. Dollars (such sum being hereinafter
referred to as the "Agreed Upon Accounts Payables");
(ii) In addition, upon the Closing, Purchaser shall be responsible
for the full and timely payment of the Bill of Sale Registration Tax
and Stamp Duties under Italian law.
(iii) Purchaser shall not and does not assume any liabilities,
obligations or commitments of the Company, other than the Assumed
Liabilities, and the Company shall be solely responsible, without
limitation, for the following:
(A) Legal, accounting, brokerage and finder's fees and income,
excise, if any, or other Transfer Taxes (as defined in Section
4(c) hereof and which shall not include the Bill of Sale
Registration Tax and Stamp Duties) or other expenses incurred
by the Company in connection with this Agreement or the
consummation of the transactions contemplated hereby; provided
that Purchaser agrees that it shall be solely responsible for
any and all payments of any nature whatsoever due and owing to
Hambro America Securities, Inc. and Purchaser hereby agrees to
indemnify the Company with respect thereto;
(B) Debts, liabilities or obligations of any nature of the
Company except for the Assumed Liabilities;
(C) Except for the Bill of Sale Registration Tax and Stamp
Duties, any domestic, value added, if any, federal,
international, regional, provincial, state or local or foreign
income, franchise, excise, use, property, payroll or similar
or other
6
<PAGE>
Taxes (as defined in Section 6(i) hereof)(or penalties and
interest thereon) imposed on the Company including, without
limitation, those due as a result of the operation of the
Company's Video Business through the Closing Date;
(D) Any claim, legal action, suit, arbitration or other legal
or administrative proceeding (or governmental investigation)
pending or in effect, or threatened against or relating to
either the Company's Video Business, the officers and
directors of the Company (as such litigation, if any, may
relate to the Company's Video Business), or the Assets or the
properties or business relative to the Company's Video
Business, all of which shall be expressly retained by the
Company; provided, however, that Purchaser shall provide the
Company (at no cost to the Purchaser) with whatever
cooperation and assistance that the Company may reasonably
require subsequent to the Closing hereof in connection with
the foregoing; and
(E) Except as Purchaser shall have otherwise expressly agreed
to assume herein, liabilities and obligations of the Company,
if any, accruing prior to, on or after the Closing Date
relating to the Company's employment of any of the Company's
employees, including, without limitation, compensation,
severance payments, if any, contributions to employee benefit
plans, workers' compensation or other insurance claims.
(c) Excluded Assets. Except as set forth on Schedule 1(c) annexed
hereto, the Company is selling to Purchaser hereunder all, and is not excluding
any, of the assets of any nature whatsoever that are used by the Company to
conduct the Company's Video Business as presently operated and as currently
contemplated to be operated subsequent to the consummation of the transaction
contemplated by this Agreement (hereinafter referred to as the "Excluded
Assets"). Schedule 1(c) shall include, among other things, a detailed listing on
an account by account basis of the Company's accounts receivables as of the
Balance Sheet Date with respect to those goods and services that the Company has
fully delivered or performed, as the case may be, all of which shall be retained
by the Company (the "Accounts Receivables").
(d) Consent of Third Parties. Notwithstanding anything to the
contrary in this Agreement, but subject, nevertheless, to Section 14 hereof,
this Agreement shall not
7
<PAGE>
constitute an agreement to assign or transfer any Governmental Approval,
instrument, Contract, lease, permit or other agreement or arrangement or any
claim, right or benefit arising thereunder or resulting therefrom if an
assignment or transfer or an attempt to make such an assignment or transfer
without the consent of a third party would constitute a breach or violation
thereof or affect adversely the rights of Purchaser or the Company thereunder;
any transfer or assignment to Purchaser by the Company or the Subsidiary of any
interest under any such instrument, Contract, lease, permit or other agreement
or arrangement that requires the consent or approval of a third party shall be
made subject to such consent or approval being obtained. In the event any such
consent or approval is not obtained on or prior to the Closing Date, the Company
shall continue to use its best efforts to obtain such approval or consent after
the Closing Date until such time as such consent or approval has been obtained,
and the Company will cooperate with Purchaser in any lawful and economically
feasible arrangement to provide that Purchaser shall receive the interest of the
Company, and/or the Subsidiary, as the case may be, in the benefits under any
such instrument, Contract, lease or permit or other agreement or arrangement,
including performance by the Company or the Subsidiary as agent, if economically
feasible, provided, that Purchaser shall undertake to pay or satisfy the
corresponding liabilities for the enjoyment of such benefit to the extent
Purchaser would have been responsible therefor hereunder if such consent or
approval had been obtained. The Company shall pay and discharge, and shall
indemnify and hold Purchaser harmless from and against any and all out-of-pocket
costs of seeking to obtain or obtaining any such consent or approval whether
before or after the Closing Date. Nothing in this Section 1(d) shall be deemed a
waiver by Purchaser of its right to have received on or before the Closing an
effective assignment of all of the Assets nor shall this Section 1(d) be deemed
to constitute an agreement to exclude from the Assets any assets described in
Section 1(a) hereof.
2. (a) Purchase Price. As full and total consideration for the sale,
transfer, conveyance, assignment and delivery of the Assets by the Company to
Purchaser, and in reliance upon the representations and warranties made herein
by the Company, Purchaser agrees, subject to any adjustments or holdbacks herein
provided for, to deliver to the Company the aggregate sum of $2,000,000, by wire
transfer or certified or official bank check drawn on a bank which is a member
of the New York Clearing House Association payable to the order of the Company
(the "Purchase Price").
(b) Purchase Price Adjustment. The Purchase Price set forth in
Section 2(a) above (which is subject to the provisions of Section 15 below)
shall be subject to adjustment as hereinbelow set forth in this Section 2(b).
Specifically, in the
8
<PAGE>
event that the Agreed Upon Accounts Payable are less than Three Million Five
Hundred Thousand Dollars ($3,500,000), the Purchase Price shall be increased on
a dollar-for-dollar basis. By way of example, in the event that the Agreed Upon
Accounts Payables is Three Million Four Hundred Thousand Dollars ($3,400,000),
the Purchase Price shall be increased by $100,000 to Two Million One Hundred
Thousand Dollars ($2,100,000).
(c) Purchase Price Prepayments. Upon the execution hereof, Purchaser
shall pay to Company Four Hundred Thousand Dollars ($400,000) by certified or
cashiers bank check (the "First Prepayment"). In the event that the Purchaser
and the Company have not effected a Closing on or before February 28, 1998, and
Purchaser is desirous of effecting a Closing thereafter, Purchaser shall be
required to pay to Company an additional Six Hundred Thousand Dollars ($600,000)
(the "Second Prepayment") by certified or cashiers bank check or wire transfer
on or before February 28, 1998; provided, however, notwithstanding the
foregoing, in no event shall Purchaser be required to make such Second
Prepayment any sooner than fourteen (14) days after Company has responded to all
reasonable inquiries and delivered all reasonably requested documentation in
connection with Projectavision's due diligence, including but not limited to the
"Projected Balance Sheet" and the "1996 Balance Sheet" referred to and defined
in Section 6(g) below.
(d) Allocation of Purchase Price. The Purchase Price payable
pursuant to Section 2(a) hereof shall be allocated as provided on Schedule 2(c)
annexed hereto. The parties hereto agree that Purchaser may use such allocation
for purposes of filing Internal Revenue Service Form 8594 (Asset Acquisition
Statement under Section 1060) pursuant to the provisions of the Internal Revenue
Code of 1986, as amended (the "Code").
(e) Acquisition by Affiliates. Notwithstanding anything to the
contrary in this Agreement, Purchaser may cause some or all of the Assets to be
acquired hereunder by one (1) or more affiliates of Purchaser; provided,
however, that Purchaser shall remain liable, jointly and severally, with any
such affiliate(s) for any and all obligations under this Agreement. The term
"affiliates" as used in this Section 2(d) shall have the same meaning as set
forth under the definition of "affiliates" in Rule 405 of the Securities Act of
1933, as amended.
3. (a) Closing. The closing of the transactions contemplated under this
Agreement (the "Closing") shall take place at the offices of Zukerman Gore &
Brandeis, LLP, 900 Third Avenue, New York, New York 10022 no later than April
30, 1998, provided that all conditions precedent set forth in Section 14 hereof,
or at such other time and place as the parties may agree. Notwithstanding the
foregoing, in the event that all of the conditions set forth in Section 14 below
have been satisfied or
9
<PAGE>
waived, except for Purchaser's delivery obligation pursuant to Section 5(a)(i),
Purchaser shall have the right to extend the Closing Date to May 31, 1998 by
paying to Company, pursuant to and in accordance with the holdback provisions of
Section 15 below, on or before April 30, 1998, One Million Dollars ($1,000,000)
(the "Third Prepayment") by certified or cashiers bank check or wire transfer.
The First Prepayment, the Second Prepayment (if any) and the Third Prepayment
(if any) are sometimes hereinafter collectively referred to as the
"Prepayments." The day on which the Closing actually takes place is herein
sometimes referred to as the "Closing Date."
(b) Further Action.
(i) The Company and Purchaser agree to use all reasonable good faith
efforts to take all actions and to do all things necessary, proper
or advisable to consummate the transactions contemplated hereby by
the Closing Date, including but not limited to (A) fulfilling the
provisions of Section 12 below, and (B) delivering all of the
Schedules required to be annexed to this Agreement; provided that a
Schedule shall not be deemed to have been delivered hereunder unless
and until same is complete and accurate in its entirety.
(ii) The Company and Purchaser shall, as promptly as practicable,
file or supply, or cause to be filed or supplied, all applications,
notifications and information required to be filed or supplied
pursuant to all applicable provisions of (A) constitutions,
treaties, statutes, laws (including common law), rules, regulations,
ordinances, codes or orders of any Government Authority; and (B)
orders, decisions, injunctions, judgments, awards and decrees of or
agreements with any Governmental Authority (collectively, the
"Applicable Laws") in connection with this Agreement, the sale and
transfer of the Assets pursuant to this Agreement and the
consummation of the other transactions contemplated hereby.
(iii) The Company and Purchaser, as promptly as practicable, will
use all reasonable efforts to obtain, or cause to be obtained, all
consents of any Governmental Authority and of any third party
(collectively, the "Consents") necessary to be obtained in order to
consummate the sale and transfer of the Assets pursuant to this
Agreement and the consummation of the other transactions
contemplated hereby.
(iv) The Company shall coordinate and cooperate with Purchaser in
exchanging such information and supplying such assistance as may be
reasonably required
10
<PAGE>
by Purchaser pursuant to Applicable Laws in connection with this
Agreement and the "Company's Related Agreements" (as that term is
defined in Section 6(d) below).
(v) At all times prior to the Closing, the Company shall promptly
notify Purchaser in writing, and the Purchaser shall promptly notify
the Company in writing, upon becoming aware of any fact, condition,
event or occurrence that will or may result in the failure to
satisfy any of the conditions precedent to the transactions
contemplated by this Agreement as set forth in Section 14 hereof.
(vi) The Company shall use its good faith, reasonable efforts to
enter into such agreements and other arrangements (including
sublicenses and subleases) with Purchaser as are necessary to ensure
that Purchaser receives benefits under the Contracts set forth on
Schedule 6(z) annexed hereto and the other agreements to be
transferred to Purchaser hereunder that are the same as received
under the Contracts prior to the Closing or as contemplated to be
received after the Closing.
4. (a) The Company's Delivery Obligations at the Closing; Covenants;
Further Assurances. At the Closing, the Company agrees to deliver or cause to be
delivered to Purchaser (and, as applicable, execute):
(i) a Bill of Sale in English and a Bill of Sale in Italian, each of
which shall be duly executed by the Company in substantially the
form of Schedule 4(a).1 and Schedule 4(a).2, respectively, annexed
hereto;
(ii) such other good and sufficient deeds, bills of sale,
endorsements, assignments, documents of title and other instruments
of conveyance, assignment and transfer, in form and substance
reasonably satisfactory to Purchaser's counsel, as shall be
effective to vest in Purchaser good title to the Assets;
(iii) all contracts, files and other data (including, without
limitation, lists of orders and computer disks and tapes) and
documents pertaining to the Assets;
(iv) certified copies of resolutions adopted by the Company's Board
of Directors authorizing the execution, delivery and performance of
this Agreement;
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<PAGE>
(v) an authenticated copy of the Subsidiary's Certificate of
Incorporation, as amended, certified by the Office of the Secretary
of State of the State of Delaware, and a true and correct copy of
the by-laws of the Subsidiary as certified by the secretary of the
Subsidiary;
(vi) the opinion of Company's counsel, substantially in the form of
Schedule 4(a)(vi) annexed hereto which opinion shall cover, among
other things, the due authorization, execution and delivery of this
Agreement and the transactions contemplated hereby;
(vii) the Non-Competition Undertaking of Mr. Flavio Peralda, which
shall include, among other things, a provision prohibiting any
further use, directly or indirectly, of the names and words
"Vidikron Industries S.p.A." or Vidikron of America, Inc.," or any
other name confusingly similar to such names and marks or any
variation thereof (the "Peralda Non-Competition Undertaking"), in
the form of Schedule 4(a)(vii) annexed hereto;
(viii) the Employment Agreement (the "Peralda Employment Agreement")
between Purchaser and Mr. Flavio Peralda in the form of Schedule
4(a)(viii) annexed hereto;
(ix) the Employment Agreement (the "Macario Employment Agreement"),
which shall include, among other things, a provision prohibiting any
further use, directly or indirectly, of the names and words
"Vidikron Industries S.p.A." or Vidikron of America, Inc.," or any
other name confusingly similar to such names and marks or any
variation thereof, between Purchaser and Mr. Emilio Baj Macario in
the form of Schedule 4(a)(ix) annexed hereto;
(x) the Non-Competition Undertaking of Mr. Emilio Baj Macario, which
shall include, among other things, a provision prohibiting any
further use, directly or indirectly, of the names and words
"Vidikron Industries S.p.A." or Vidikron of America, Inc.," or any
other name confusingly similar to such names and marks or any
variation thereof (the "Macario Non-Competition Undertaking") in the
form of Schedule 4(a)(x) annexed hereto;
(xi) approvals, if required by the terms thereof, in respect of and
an assignment and assumption agreement for the Leases (as defined in
Section 6(dd)
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<PAGE>
hereof) in substantially the form of Schedule 4(a)(xi) annexed
hereto (the "Lease Assignment");
(xii) an assignment and assumption agreement for the equipment
leases in substantially the form of Schedule 4(a)(xii) annexed
hereto to be prepared by Purchaser (the "Personal Property
Assignment);" provided, however, Purchaser expressly agrees that in
the event that any Personal Property Assignment cannot be executed
and delivered at the Closing, it shall be acceptable for the
Company, in lieu thereof, to keep in existence the applicable
equipment lease for the benefit of Purchaser and the Purchaser shall
reimburse the Company on a timely basis for any ongoing lease
payments from time to time as same become due and owing;
(xiii) a notarized assignment agreement for the Intellectual
Property to be included in each of the Bills of Sale referred to in
Section 4(a)(i) above, in accordance with applicable laws and in
substantially the form of Schedule 4(a)(xiii) annexed hereto (the
"Intellectual Property Assignment");
(xiv) all Consents, including, without limitation, those necessary
in connection with the Lease Assignment, if required, the Personal
Property Assignment and the Intellectual Property Assignment;
(xv) a Certificate of the Registry of the Companies which shall
cover the Company's continued registration in the Registry of
Companies as of the Closing Date;
(xvi) a Certificate signed by a managing director of the Company
dated the Closing Date, reaffirming that all of the representations
and warranties set forth in Section 6 below;
(xvii) the lease with the Purchaser for the premises at the
Company's address first set forth above (the "Italian Lease") for a
term of not less than six (6) years at a rate of 140,000,000Li. per
annum (plus normal operating expenses and value added taxes, if any,
all consistent with the terms and conditions as are applicable to
the Italian Lease upon the execution hereof);
(xviii) the "Financial Holdback Escrow Agreement" and the "Other
Holdback Escrow Agreement" as those terms are defined in Section
16(a) below and the "Earn Out Escrow Agreement" as that term is
defined in Section 19
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below, and the "Trade Payables Escrow Agreement" as that term is
defined in Section 18 below;
(xix) Governmental Approvals;
(xx) the original stock certificate(s) representing the Company's
eighty-five percent (85%) beneficial equity ownership interest in
the Subsidiary, accompanied by undated stock powers executed in
blank with signatures guaranteed;
(xxi) all of the books and records, stock ledger, bank accounts,
agreements, contracts, understandings, correspondence, and all other
materials of any nature whatsoever relative to the Subsidiary;
(xxii) evidence in form and substance satisfactory to Purchaser that
all notices required to be given to the Company's employees pursuant
to Italian laws have been properly given in a timely fashion in
accordance with applicable Italian Laws; and
(xxiii) all other documents and instruments required to be delivered
to Purchaser in order to consummate the transactions herein
contemplated.
(b) Billings. The Company agrees that from and after the Closing
Date, Purchaser shall have the right and authority to bill and collect for its
own account all billings in respect of work-in-process, if any, that are being
transferred to Purchaser as provided herein. The Company agrees that it will
promptly transfer and deliver to Purchaser any cash or other property which the
Company may receive in respect of such billings.
(c) Liability for Transfer Taxes. Except for the Bill of Sale
Registration Tax and Stamp Tax Duties, the Company shall be responsible for the
payment in the ordinary course of, and shall indemnify and hold harmless
Purchaser against, all income, sales (including, without limitation, bulk
sales), use, value added, documentary, stamp, gross receipts, transfer,
conveyance, excise (if any), license and other similar Taxes (as defined in
Section 6(i) hereof) and fees (collectively, "Transfer Taxes"), arising out of
or in connection with or attributable to the transactions effected pursuant to
this Agreement and the Company's Related Agreements. The Company shall prepare
and timely file all tax returns required to be filed in respect of Transfer
Taxes (including, without limitation, all notices required to be given with
respect to bulk sales taxes), provided that Purchaser shall be permitted to
prepare any such tax returns that are the primary responsibility of Purchaser
under Applicable Law. Purchaser's preparation of any such tax returns shall be
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<PAGE>
subject to the Company's approval, which approval shall not be unreasonably
withheld or delayed.
(d) Certificates of Tax Affidavits. On or before the Closing Date,
Purchaser shall obtain copies of certificates from appropriate taxing
authorities with respect to value added taxes relative to any country, federal,
state, regional, provincial or other taxing authority for which Purchaser or the
Company could have liability to withhold or pay with respect to the transfer of
the Assets or any of the transactions herein contemplated, provided, that
Purchaser's failure to obtain such certificates (provided that such failure
shall not be the fault of the Company) shall not relieve the Purchaser of its
obligations to enter into and complete the Closing. In the event that
notwithstanding its good faith efforts to the contrary, Purchaser is unable to
obtain such certificates prior to the Closing, Purchaser shall withhold or,
where appropriate, escrow such amount as necessary based upon the Purchaser's
reasonable estimate of the amount of such potential liability, or as determined
by the appropriate taxing authority, to cover such value added taxes until such
time as certificates are provided.
(e) Use of Business Name. Contemporaneously with the Closing, the
Company will change its name, and the Company will not, directly or indirectly,
use or do business, or allow any Affiliate (as hereinafter defined) to use or do
business, or assist any third party in using or doing business, under the names
and marks "Vidikron Industries S.p.A." or "Vidikron of America, Inc.," or any
other name confusingly similar to such names and marks or any variation thereof.
It is expressly acknowledged and agreed by the Company that the provisions of
this Section 4(e) are of the essence hereof.
(f) Further Assurances. At any time and from time to time after the
Closing, at Purchaser's request and expense, without further consideration, the
Company shall execute and deliver such other additional instruments of sale,
transfer, conveyance, assignment and confirmation and take such other action as
Purchaser may reasonably deem necessary or desirable in order to transfer,
convey and assign to Purchaser the Assets, subject to this Agreement, to put
Purchaser in actual possession and operating control thereof and to assist
Purchaser in exercising all of the Company's rights with respect thereto and to
take such action and execute such documents or instruments as may be reasonably
requested by the Purchaser in connection with any governmental or regulatory
matters or filings required to be made by Purchaser, including, without
limitation, any filings, documents or instruments to be delivered to the United
States Securities and Exchange Commission or any other Governmental Authority,
The Nasdaq Stock Market, Purchaser's, the Company's and the Subsidiary's,
lenders, auditors or any other appropriate party.
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<PAGE>
5. Purchaser's Delivery Obligations at the Closing. (a) At the Closing,
Purchaser agrees to deliver, or cause to be delivered, as the case may be, to
the Company (and, as applicable, execute):
(i) a certified or cashier's check for the Purchase Price as
provided in Section 2 hereof, less any and all Prepayments thereto
for delivered, subject to any adjustment herein and the holdback
provisions of Section 15 below;
(ii) a certified copy of resolutions adopted by the Board of
Directors of Purchaser authorizing the execution, delivery and
performance of this Agreement and the Purchaser's Related Agreements
(as defined in Section 7(a) hereof);
(iii) a certificate of good standing issued by the Secretary of
State of the State of Delaware as to the good standing and corporate
existence of Purchaser;
(iv) an opinion of Purchaser's counsel substantially in the form of
Schedule 5(a)(iv) annexed hereto which opinion shall cover, among
other things, the due authorization, execution and delivery of this
Agreement and the transactions contemplated hereby;
(v) the Macario Employment Agreement;
(vi) the Macario Non-Competition Undertaking;
(vi) the Peralda Non-Competition Agreement;
(vii) the Peralda Employment Agreement;
(viii) such appropriate release documentation as shall be reasonably
required by the Company to evidence that the Company's liability
with respect to the Company's Bank Debt upon the Closing hereof
shall have been reduced by the amount that the parties have agreed
to;
(ix) the Personal Property Assignment;
(x) the Lease Assignment;
(xi) all other documents and instruments required to be delivered to
the Company pursuant to the provisions of this Agreement;
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<PAGE>
(xii) the Financial Holdback Escrow Agreement, the Other Holdback
Escrow Agreement, the Earn Out Escrow Agreement and the Trade
Payables Escrow Agreement;
(xiii) the Lease;
(xiv) the Bill of Sale in Italian and the Bill of Sale in English
duly executed by the Purchaser in substantially the form of Schedule
4(a).2 annexed hereto; and
(xv) One Million Dollars ($1,000,000) (the "Earn Out Deposit") to be
deposited in the "Earn Out Escrow Account" (as that term is defined
in Section 19 below), in accordance with the terms and conditions of
the Earn Out Escrow Agreement; and
(xvi) such amount as is required to be deposited into the "Trade
Payables Escrow Account" (as that term is defined in Section 18
below), in accordance with the terms and conditions of the Trade
Payables Escrow Agreement.
(b) At any time and from time to time after the Closing, at the
Company's request and expense, Purchaser shall execute and deliver such other
additional instruments as the Company may reasonably deem necessary to evidence
Purchaser's obligations under this Agreement, and Purchaser agrees to take such
actions as may be reasonably necessary to carry out the purposes and intentions
of this Agreement. For a reasonable period of time following the Closing,
Purchaser shall provide the Company with reasonable access to all books and
records of the Company that are delivered to Purchaser hereunder relating to the
Assets and the period through the Closing Date.
6. Representations and Warranties of the Company. The Company represents
and warrants to Purchaser, as of the date of this Agreement and as of the
Closing Date, as follows:
(a) Organization, Standing and Qualification. Each of the Company
and the Subsidiary (i) is a corporation duly organized, validly existing and in
good standing under the laws of Italy and the State of Delaware, respectively;
(ii) has all requisite corporate power and authority and is entitled to carry on
the business as now being conducted and to own, lease or operate its properties
in the places where such business is now conducted and such properties are now
owned, leased or operated; and (iii) the Subsidiary is duly qualified, licensed
and in good standing as a foreign corporation authorized to do business in the
states listed on Schedule 6(a) annexed hereto, which are the only states where
the failure to be so qualified would have a material adverse effect on the
condition, financial or otherwise,
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<PAGE>
of the Company or the Subsidiary. The Company has delivered to Purchaser a true
and complete copy of the certificate of incorporation of the Subsidiary and all
amendments thereto, certified as true and correct by the Secretary of State of
the State of Delaware, as well as the by-laws of the Subsidiary as presently in
effect, certified as true and correct by the secretary of the Subsidiary.
(b) Subsidiaries. The Subsidiary has no subsidiaries except those
listed on Schedule 6(b) annexed hereto. Except as set forth on Schedule 6(b)
annexed hereto, the Subsidiary owns all of the outstanding capital stock of all
of the subsidiaries of the Subsidiary listed on Schedule 6(b) annexed hereto.
Except as set forth on Schedule 6(b) annexed hereto, the Subsidiary has no
interest, directly or indirectly, and has no commitment to purchase any
interest, directly or indirectly, in any other corporation or in any
partnership, joint venture or other business enterprise or entity. Except as set
forth on Schedule 6(b) annexed hereto, the Company's Video Business has not been
conducted through any other direct or indirect subsidiary or affiliate of the
Subsidiary or the Company other than the Subsidiary. Except as set forth on
Schedule 6(b) annexed hereto, there are no securities of any subsidiary of the
Company or the Subsidiary directly or indirectly convertible, exercisable or
exchangeable for any of the capital stock of the Subsidiary, including, but not
limited to, any options, warrants, rights, agreements, understandings or
commitments, vested or unvested, of any nature whatsoever relating to the
capital stock of the Subsidiary.
(c) Transactions with Certain Persons. Except as set forth on
Schedule 6(c) annexed hereto, neither the Company with respect to the Company's
Video Business nor the Subsidiary has directly or indirectly, purchased, leased
from others or otherwise acquired any property or obtained any services from, or
sold, leased to others or otherwise disposed of any property or furnished any
services to, or otherwise dealt with (except with respect to remuneration for
services rendered as a director, officer or employee of the Company or the
Subsidiary), in the ordinary course of business or otherwise (i) any shareholder
of the Company or the Subsidiary, or (ii) any person, firm or corporation which,
directly or indirectly, alone or through one or more intermediaries controls, is
controlled by, or is under common control with the Company or the Subsidiary or
any shareholder of the Company or the Subsidiary (an "Affiliate"). Except as set
forth on Schedule 6(c) annexed hereto, neither the Company with respect to the
Company's Video Business, nor the Subsidiary, owes any amount to, or has any
contract with or commitment to, any shareholders, officers, employees or
consultants (other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of
business), and none of such persons owes any
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<PAGE>
amount to either the Company with respect to the Company's Video Business or by
the Subsidiary. Except as set forth on Schedule 6(c) annexed hereto, no part of
the property or assets of any of the shareholders of the Company or the
shareholders of the Subsidiary are used by the Company in connection with the
Company's Video Business or the Subsidiary. Except as set forth on Schedule 6(c)
annexed hereto, no part of the property or Assets of the Company's Video
Business or the Subsidiary are used by any of the shareholders of the Company or
shareholders of the Subsidiary for their personal benefit or any purpose not
related to the business of the Company's Video Business or the Subsidiary.
(d) Execution, Delivery and Performance of Agreement; Authority.
Except as set forth on Schedule 6(d) annexed hereto, neither the execution,
delivery nor performance of this Agreement and all other agreements to which the
Company or the Subsidiary is a party that are required to be delivered by the
Company, pursuant to Section 4(a) hereof (which documents are sometimes herein
collectively referred to as the "Company's Related Agreements") will, with or
without the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any lien, charge or encumbrance pursuant to any provision of the
Company's charter documents or the Subsidiary's certificate of incorporation or
by-laws or any franchise, mortgage, deed of trust, lease, license, Contract,
agreement, Applicable Law, rule or regulation, or any order, judgment or decree
to which the Company or the Subsidiary are a party or by which either of them
may be bound or materially or adversely affected or require any consent,
authorization, approval or any other action by, or any notice to, or filing or
registration with, any Governmental Authority or other third party. Except as
set forth on Schedule 6(d) annexed hereto, no other party, including, without
limitation, any present or former partner, shareholder, or employee of the
Company or the Subsidiary has, may or will have any right (tangible or
intangible, choate or inchoate) to any interest in the Assets or the proceeds
from the sale of the Assets. Except as set forth on Schedule 6(d) annexed
hereto, no Consent is required to be obtained or made by the Company or the
Subsidiary in connection with the execution and delivery of this Agreement or
the Company's Related Agreements, and to consummate the transactions
contemplated thereby. The Company has the full right, power and authority to
enter into this Agreement and, if applicable, the Company's Related Agreements,
and to carry out the transactions contemplated hereby and thereby, as
applicable, and all proceedings required to be taken by it to authorize and
approve the execution, delivery and performance of this Agreement and the
Company's Related Agreements have been properly taken, and this Agreement and
the Company's Related Agreements constitute valid and binding obligations of the
Company, enforceable in accordance with their
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<PAGE>
terms, except that such enforcement may be subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights generally. The execution, delivery and performance
of this Agreement and the Company's Related Agreements have been duly
authorized, to the extent required by Applicable Law and by all requisite
corporate and shareholder action of the Company.
(e) Capitalization; Ownership of Capital Stock. The authorized
capital of the Subsidiary consists of two hundred (200) shares of common stock,
no par value, of which one hundred (100) shares are issued and outstanding on
the date hereof, all of which have been duly authorized and validly issued and
are fully paid and non-assessable. All of the presently authorized, issued and
outstanding shares of capital stock of the Subsidiary are legally and
beneficially owned, free and clear of any liens, claims, encumbrances, voting
trusts, or any agreement, understanding or arrangement regarding the transfer,
sale, disposition, purchase or acquisition thereof, by those individuals and
entities in the amounts set forth on Schedule 6(g).2 annexed hereto. Except as
otherwise disclosed on Schedule 6(g).1 annexed hereto, there are no outstanding
subscriptions, rights, options, warrants, calls, contracts, demands,
commitments, convertible securities or other agreements or arrangements of any
character or nature whatsoever under which the Subsidiary is, or may become
obligated to, issue, assign or transfer any shares of the capital stock of the
Company or the Subsidiary, as the case may be.
(f) [Intentionally Omitted]
(g) Financial Statements. Annexed hereto is a true and correct copy
of each of the Company's income statement relative to the Company's Video
Business, and the Subsidiary's audited income statement and balance sheet (
which audited income statement and balance sheet of the Subsidiary shall include
footnotes, and shall be all prepared in accordance with generally accepted
accounting principles), all with respect to the fiscal years ending December 31,
1995 and 1996 (collectively, the "Historical Financial Statements") and which
shall all be annexed hereto as Schedule 6(g).1; (ii) a projected consolidated
income statement with respect to the Company's Video Business throughout the
world (i.e., inclusive of all data relative to the Subsidiary) for the fiscal
year ending December 31, 1997 (the "1997 Projected Financial Statements") which
shall be annexed hereto on Schedule 6(g).2 and which shall set forth, among
other things, the Company's earnings before income, taxes, depreciation and
amortization, on a consolidated basis, which shall be no less than One Million
Two Hundred Thousand Dollars ($1,200,000) for the twelve (12) months ended
December 31, 1997, net of so-called "directors fees" paid to Mr. Flavio Peralda
and Mr. Emilio Baj
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Macario (the "1997 Projected EBITDA"); (iii) a final balance sheet relative to
the Company's overall business (the "Company's 1996 Balance Sheet") dated as of
December 31, 1996 (the "Balance Sheet Date") which is included in 6(g).1; and
(iv) an actual balance sheet relative to the Company's Video Business dated as
of December 31, 1996 (the "1996 Balance Sheet") and a projected balance sheet
relative to the Company's Video Business (the "Projected Balance Sheet") dated
as of December 31, 1997, neither of which balance sheets, notwithstanding
anything set forth herein to the contrary, need not be delivered by the Company
to Purchaser until February 14, 1998. The Historical Financial Statements, the
1997 Projected Financial Statements, the 1997 Projected EBITDA, the Company's
1996 Balance Sheet, the 1996 Balance Sheet and the Projected Balance Sheet are
herein referred to collectively as the "Pro Forma Financial Statements", all of
which have been prepared in good faith from the books and records of the Company
and the Subsidiary, are true and accurate in all material respects, and fairly
presents the financial position of each of them at such dates and for the
periods indicated thereon.
Subsequent to the execution hereof, the 1997 Projected Financial
Statement, including the 1997 Projected EBITDA, and the Projected Balance Sheet
shall be audited, at the expense of the Purchaser, by Purchaser's regular
accountants, Deloitte & Touche, LLP, in accordance with United States generally
accepted accounting principles, consistently applied. Such audit shall be
subject to the provisions of Section 15 below.
(h) Absence of Undisclosed Liabilities. Except as set forth on
Schedule 6(h), as of the Balance Sheet Date, neither the Company's Video
Business nor the Subsidiary had any material debts, liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature whatsoever.
(i) Taxes. Except as set forth on Schedule 6(i).1 annexed hereto,
(i) all Taxes imposed by the United States, Italy or by any other country or by
any state, municipality, region, province, subdivision or instrumentality of the
United States, Italy or of any other country, or by any other taxing authority,
which are due or payable by the Company, the Subsidiary or any Affiliate of the
Company or the Subsidiary, and all interest and penalties thereon, whether
disputed or not, have been paid in full, all tax returns required to be filed in
connection therewith have been accurately prepared and duly and timely filed
prior to the expiration of any available extension periods; and all deposits
required by law to be made by the Company or the Subsidiary or any Affiliate of
the Company or the Subsidiary with respect to employees' withholding or similar
taxes have been duly made, except for the current reporting period which will be
paid when due. Neither the Company nor the Subsidiary is currently delinquent in
the payment of any foreign or domestic tax,
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assessment or governmental charge or deposit and has no tax deficiency or claim
outstanding, or, to its knowledge, proposed or assessed against it, and, to its
knowledge, there is no basis for any such deficiency or claim. There is not now
in force any extension of time with respect to the date on which any tax return
was or is due to be filed by or with respect to the Company or the Subsidiary.
As used in this Agreement, "Taxes" shall include, without limitation, all
federal, state, regional, provincial, local, foreign or other income,
alternative minimum, accumulated earnings, add-on, personal holding company,
franchise, capital stock, net worth, capital, profits, gross receipt, value
added, sales, use, goods and services, transaction, excise, customs, duties,
transfer, conveyance, mortgage, registration, stamp, documentary, recording,
premium, charges, fees, severance, environmental (including, taxes under Section
59A of the United States Internal Revenue Code of 1986, as amended), real
property, personal property, ad valorem, intangibles, rent, occupancy, license,
occupational, employment, unemployment insurance, social security, disability,
workers' compensation, payroll, withholding, estimated or other similar tax,
duty or other governmental charge or assessment or deficiency thereof, including
all interest and penalties thereon and additions thereto whether disrupted or
not, which is imposed by any Governmental Authority. Upon the execution hereof,
the Company shall deliver to Purchaser its tax returns for the years ended
December 31, 1995 and 1996, which shall be annexed hereto as Schedule 6(i).2.
(j) Absence of Changes or Events. Except as set forth on Schedule
6(j) annexed hereto, since the Balance Sheet Date, each of the Company with
respect to the Company's Video Business and the Subsidiary has conducted their
business only in the ordinary course and has not, with respect to the Company's
Video Business and the Subsidiary:
(i) incurred any material obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due,
except current liabilities for trade or business obligations in the
ordinary course of business and consistent with its prior practice,
none of which liabilities, in any case or in the aggregate,
materially and adversely affects the business, properties, assets,
liabilities or condition, financial or otherwise, of the Company or
the Subsidiary;
(ii) discharged or satisfied any lien, charge or encumbrance other
than those then required to be discharged or satisfied, or paid any
obligation or liability, absolute,
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<PAGE>
accrued, contingent or otherwise, whether due or to become due,
other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the Balance Sheet Date in the
ordinary course of business and consistent with its prior practice;
(iii) declared or made any payment of dividends or other
distribution to its shareholders or upon or in respect of any shares
of its capital stock, or purchased, retired or redeemed, or
obligated itself to purchase, retire or redeem, any of its shares of
capital stock or other securities (it being understood that this
Section 6(j)(iii) shall only be applicable to the Subsidiary);
(iv) mortgaged, pledged or subjected to lien, charge, security
interest or any other encumbrance or restriction any of its
property, business or assets, tangible or intangible;
(v) sold, transferred, leased to others or otherwise disposed of any
of its assets except in the ordinary course of business, or
cancelled or compromised any debt or claim, or waived or released
any right of substantial value;
(vi) received any notice of termination of any contract, lease or
other agreement or suffered any damage, destruction or loss (whether
or not covered by insurance) which, in any case or in the aggregate,
has had a materially adverse effect on its assets, properties,
operations or prospects;
(vii) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slow-downs or
lock-outs or had any material change in its relations with its
employees, agents, customers or suppliers;
(viii) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, any United
States, Italian or any other license, patent, copyright, trademark,
trade name,
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invention or similar rights, or modified any existing rights with
respect thereto;
(ix) made any material change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable,
or paid or agreed or orally promised to pay conditionally or
otherwise, any bonus, extra compensation, pension or severance or
vacation pay, to any shareholder, director, officer, employee,
salesman, distributor or agent of the Company with respect to the
Company's Video Business or the Subsidiary;
(x) issued or sold any shares of its capital stock or other
securities, or issued, granted or sold any options, rights or
warrants with respect thereto, or, solely with respect to the
Subsidiary, acquired any capital stock or other securities of any
corporation or any interest in any business enterprise, or otherwise
made any loan or advance to or investment in any person, firm or
corporation;
(xi) made any capital expenditures or capital additions or
betterments in excess of an aggregate of $25,000;
(xii) changed its banking, credit, borrowing or safe deposit
arrangements;
(xiii) instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body relating
to the property of either the Company's Video Business or the
Subsidiary;
(xiv) failed to replenish its inventories and supplies in a normal
and customary manner consistent with its prior practice or made any
purchase commitment in excess of the normal, ordinary and usual
requirements of its business or at any price in excess of the then
current market price or upon terms and conditions more onerous than
those usual and customary in the industry, or made any material
change in its selling, pricing, marketing, advertising or personnel
practices inconsistent with its prior practice or;
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<PAGE>
(xv) suffered any change, event or condition which, in any case or
in the aggregate, has had or may have a materially adverse affect on
either the Company's Video Business or the Subsidiary's condition
(financial or otherwise), properties, assets, liabilities,
operations or prospects including, without limitation, any change in
either the Company's Video Business or the Subsidiary's revenues,
costs, levels of committed business or relations with its employees,
agents, customers or suppliers;
(xvi) entered into any transaction, contract or commitment other
than in the ordinary course of business or paid or agreed to pay any
legal, accounting, brokerage, finder's fee, taxes or other expenses
in connection with or incurred any severance pay obligations by
reason of, this Agreement or the transactions contemplated thereby;
or
(xvii) entered into any agreement or made any commitment, whether
written or oral, to take any of the types of action described in
subparagraphs (i) through (xvi) above.
(k) Litigation. Except as set forth on the Pro Forma Financial
Statements, there is no claim, legal action, suit, arbitration or other legal or
administrative proceeding (or governmental investigation) or any order, decree
or judgment in progress, pending or in effect, or threatened against or relating
to either the Company's Video Business or the Subsidiary, the officers or
directors of the Company (as such litigation, if any, may relate to the
Company's Video Business) or the Subsidiary, nor the Assets or the properties or
business relative to the Company's Video Business or the properties, assets or
business relative to the Subsidiary, and neither the Company nor the Subsidiary
knows or has reason to be aware of any basis for the same, which if determined
adversely to the Company or the Subsidiary would have a material adverse affect
on the Company's Video Business or the Subsidiary. Except as set forth on
Schedule 6(k) annexed hereto, there is no claim, legal action, suit, arbitration
or other legal or administrative proceeding (or governmental investigation) or
any order, decree or judgment in progress, pending or in effect, or threatened
against or relating to either the Company's Video Business or the Subsidiary,
the officers or directors of the Company (as it may relate to the Company's
Video Business) or the Subsidiary, the Assets or the properties or business
relative to the Company's Video Business or properties, assets or business of
the Subsidiary, and neither the Company nor the Subsidiary knows or has reason
to be aware of any basis for the same, which if determined adversely to the
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<PAGE>
Company or the Subsidiary would have a material adverse affect on the Company's
Video Business or the Subsidiary.
(l) Compliance with Laws and Other Instruments. Except as set forth
in Schedule 6(l) annexed hereto, each of the Company, with respect to the
Company's Video Business, and the Subsidiary has complied with all existing
laws, rules, regulations, ordinances, orders, judgments and decrees now or
hereafter applicable to their Assets, business, properties assets and
operations. Neither the ownership nor use of the Assets nor the conduct of the
Company's Video Business conflicts with the rights of any other person, firm or
corporation, or violates, or with or without the giving of notice or the passage
of time, or both, will violate, conflict with or result in a default, right to
accelerate or loss of rights under, any terms of provisions of either the
Company's or the Subsidiary's certificate of incorporation or by-laws as
presently in effect, or any lien, encumbrance, mortgage, deed of trust, lease,
license, agreement, law, ordinance, rule or regulation, or any order, judgment
or decree to which it is a party or by which it may be bound or affected.
(m) Title to Properties. Each of the Company and the Subsidiary have
good, marketable and insurable title to the Assets, and the Subsidiary's assets,
respectively. Except as set forth on Schedule 6(m) annexed hereto, none of the
Assets or the Subsidiary's assets are subject to any loan agreement, conditional
sale or title retention agreement, equipment obligations, lease purchase
agreement, mortgage, indenture, pledge, security agreement, guaranty, lien,
charge, security interest, encumbrance, restriction, lease, license, easement,
liability or adverse claim of any nature whatsoever (excluding trade and account
payables), direct or indirect, whether accrued, absolute, contingent or
otherwise.
(n) Insurance. Set forth on Schedule 6(n) annexed hereto is an
accurate and complete list and description of all fire, theft, casualty,
liability and other insurance policies procured by the Company with respect to
the Company's Video Business and the Subsidiary, specifying with respect to each
such policy the name of the insurer, the risk insured against, the limits of
coverage, the deductible amount (if any), the premium rate and the date through
which coverage will continue by virtue of premium already paid. Except as set
forth on Schedule 6(n) annexed hereto, all insurance policies relating to the
Company's Video Business and the Subsidiary are in full force and effect, and
all premiums due thereon have been paid. Set forth on Schedule 6(n) annexed
hereto, is a description of all open claims made by the Company with respect to
the Company's Video Business and the Subsidiary under any policy of insurance
and all claims which in the opinion of the Company or the Subsidiary reasonably
formed and held, should or could be made under any such policy.
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(o) Territorial Restrictions. Except as set forth in Schedule 6(o)
annexed hereto, neither the Company nor the Subsidiary is restricted by any
written agreement or understanding with any party from carrying on the Company's
Video Business or the business conducted by the Subsidiary, respectively,
anywhere in the world. Purchaser, solely as a result of its purchase of the
Assets and the assumption of the Assumed Liabilities, will not thereby become
restricted in carrying on any business anywhere in the world.
(p) Intellectual Property.
(i) Title. Schedule 6(p)(i) annexed hereto contains a complete and
correct list of all Intellectual Property that is owned by the
Company with respect to the Company's Video Business and the
Subsidiary (the "Owned Intellectual Property") other than
Intellectual Property that is not registered or subject to
application for registration. Except as set forth on Schedule
6(p)(i), the Company and the Subsidiary owns or has the exclusive
right to use pursuant to license, sublicense, agreement or
permission all Owned Intellectual Property, free from any
encumbrances and free from any requirement of any past, present or
future royalty payments, license fees, charges or other payments, or
conditions or restrictions whatsoever. Except as set forth on
Schedule 6(p)(i), the Owned Intellectual Property comprise all of
the Intellectual Property necessary for Purchaser to conduct and
operate the Company's Video Business and the Subsidiary's business
as same are currently being conducted and are intended to be
conducted upon the consummation of the transaction herein
contemplated.
(ii) Transfer. Except as set forth on Schedule 6(p)(ii) hereof, upon
the Closing, Purchaser will own all of the Owned Intellectual
Property and will have the right to use all Owned Intellectual
Property, free from any liens, claims or encumbrances and on the
same terms of any person in effect prior to the Closing.
(iii) No Infringement. The conduct of the Company's Video Business
and the Subsidiary's business does not infringe or otherwise
conflict with any rights of any person in respect of any
Intellectual Property.
(iv) Licensing Arrangements. Schedule 6(p)(iv) annexed hereto sets
forth all material agreements, arrangements or laws (A) pursuant to
which the Company and the Subsidiary has licensed Owned Intellectual
Property to, or the use of Owned Intellectual Property
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is otherwise permitted (through non-assertion, settlement or similar
agreements or otherwise) by, any other party, and (B) pursuant to
which the Company and the Subsidiary has had Intellectual Property
licensed to it, or has otherwise been permitted to use Intellectual
Property. All of the agreements or arrangements set forth on
Schedule 6(p)(iv) annexed hereto (x) are in full force and effect in
accordance with their terms and no default exists thereunder by the
Company by any other party thereto, (y) are free and clear of all
liens, and (z) except as set forth in Schedule 6(p)(iv) annexed
hereto, do not contain any change in control or other terms or
conditions that will become applicable or inapplicable as a result
of the consummation of the transactions contemplated by this
Agreement. The Company has delivered to the Purchaser true and
complete copies of all licenses and arrangements (including
amendments) set forth on Schedule 6(p)(iv) annexed hereto. All
royalties, license fees, charges and other amounts currently payable
by, on behalf of, to, or for the account of, the Company or the
Subsidiary in respect of any Intellectual Property are disclosed in
the Pro Forma Financial Statements.
(v) No Intellectual Property Litigation. No claim or demand has been
made nor is there any proceeding that is pending, or to the
knowledge of the Company threatened, which (A) challenges the rights
of the Company or the Subsidiary in respect of any Intellectual
Property, (B) asserts that the Company or the Subsidiary is
infringing or otherwise in conflict with, or is, except as set forth
on Schedule 6(p)(v) annexed hereto, required to pay any royalty,
license fee, charge or other amount with regard to, any Intellectual
Property, or (C) claims that any default exists under any agreement
or arrangement listed on Schedule 6(p)(v) annexed hereto. None of
the Intellectual Property is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any court,
arbitrator, or administrative agency.
(vi) Due Registration, Etc. The Owned Intellectual Property, to the
extent required, has been duly registered with, filed in or issued
by, as the case may be, the United State Patent and Trademark
Office, United States Copyright Office, the Ufficio Italiano
Brevgtti E Marchi, and the Company has taken such other actions, to
ensure full protection under any Applicable Laws or regulations, and
such registrations, if any, filings, issuances and other actions
remain in full force and effect.
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(vii) Use of Name and Mark. Except as set forth on Schedule 6(vii)
annexed hereto, there are and immediately after the Closing will be,
no contractual restrictions or limitations pursuant to any orders,
decisions, injunctions, judgments, awards or decrees of any
Governmental Authority on the Purchaser's right to use the name and
mark "Vidikron Industries, S.p.A." or "Vidikron of America, Inc." in
the conduct of business as carried on by the Company and the
Subsidiary upon the execution hereof.
(q) Environmental Matters. Purchaser shall have no liability of any
nature with respect to, shall not be deemed to violate, and shall not violate,
any environmental laws or regulations or orders, or be required to take any
action to be in compliance with any environmental laws or regulations or orders
by virtue of the entering into of the Agreement, the acquisition of the Assets,
or effecting the transactions contemplated hereby.
(r) No Guaranties. Except as set forth on Schedule 6(r), none of the
obligations or liabilities of the Company's Video Business or the Subsidiary is
guaranteed by any other person, firm or corporation, nor has the Company with
respect to the Company's Video Business or the Subsidiary guaranteed the
obligations or liabilities of any other person, firm or corporation. There are
no outstanding letters of credit, surety bonds or similar instruments of the
Company with respect to the Company's Video Business or the Subsidiary in
connection with the Assets and the Subsidiary's assets, as the case may be.
(s) [Intentionally Deleted]
(t) Absence of Certain Business Practices. Except as set forth on
Schedule 6(t) annexed hereto, neither the Company nor the Subsidiary nor any
executive officer of the Company and the Subsidiary, nor any other person acting
on its behalf, has, directly or indirectly, given or agreed to give any gift or
similar benefit, of a material nature to any customer, supplier, governmental
employee or other person who is or may be in a position to help or hinder the
Company's Video Business or the Subsidiary (or assist the Company with respect
to the Company's Video Business or the Subsidiary in connection with any actual
or proposed transaction) which (i) might subject the Company with respect to the
Company's Video Business or the Subsidiary to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given in
the past, might have had an adverse effect on the assets, business or operations
of the Company's Video Business or the Subsidiary as reflected on the Pro Forma
Financial Statements or (iii) if not continued in the future, might adversely
affect the Assets, business, operations or prospects of the Company's Video
Business or the Subsidiary or which might subject the Company or the Subsidiary
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to suit or penalty in any private or governmental litigation or proceeding.
(u) Disclosure. No representation or warranty by the Company
contained in this Agreement or in any other document furnished or to be
furnished relative to the Company or the Subsidiary in connection herewith or
pursuant hereto, including but not limited to any Schedule, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to make the statements herein or therein contained
not misleading or necessary in order to provide a prospective purchaser of the
Assets and the Subsidiary with adequate information as to the Company or the
Subsidiary and its condition (financial and otherwise), properties, assets,
liabilities, business and prospects, and the Company or the Subsidiary have
disclosed to Purchaser in writing all material adverse facts known to them
related to the same. The representations and warranties contained in this
Section 6 shall not be affected or deemed waived by reason of the fact that
Purchaser and/or its representatives should have known that any such
representation or warranty is or might be inaccurate in any respect.
(v) Labor Disputes. Neither the Company with respect to the
Company's Video Business nor the Subsidiary is a party to or bound by any
collective bargaining agreement and there are no labor unions or other
organizations representing, purporting to represent or attempting to represent
any employees employed by the Company with respect to the Company's Video
Business or the Subsidiary. With respect to the Company's Video Business and the
Subsidiary (i) no work stoppage by employees of the Company with respect to the
Company's Video Business or the Subsidiary has occurred and is continuing or to
the best of the Company's knowledge is threatened, (ii) the Company does not
have any actual knowledge of any pending or threatened charges against the
Company with respect to the Company's Video Business or the Subsidiary of unfair
labor practices or discrimination based on age, race or sex, (iii) there are no
pending labor negotiations with or union organization efforts by any employees
of the Company or the Subsidiary or with any union representing or attempting to
represent any employees of the Company with respect to the Company's Video
Business or the Subsidiary and (iv) the Company does not have any actual
knowledge of employee grievances which in the aggregate would be material and
adverse to the Company's Video Business or the business of the Subsidiary that
have not been settled or otherwise resolved to the satisfaction of the Company
or the Subsidiary and the employees. Schedule 6(v).1 annexed hereto sets forth
the name and title of each director, officer, employee, consultant and agent of
the Company's Video Business, and the functions actually performed by each of
such employees correspond to the position ("categoria") specified on Schedule
6(v).1. The employees of the Company's
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Video Business have been duly and timely remunerated for all the services
performed in the course of their working relationship with the Company in
compliance with the applicable provisions of law and the provisions of the
relative labor agreements (including the applicable collective labor agreement,
if any). With respect to the remuneration paid to the employees, all
contributions have been made to compulsory health insurance and social security
and the relevant amounts have been duly paid as provided under the applicable
law. The overall remuneration, including bonuses and benefits due to each
employee that was formerly employed by the Company and is to be employed by the
Purchaser subsequent to the Closing, and the amount of each such employee's
accrued benefits, is set forth in Schedule 6(v).2 and no other form of
remuneration or particular benefit has been agreed to in addition to those set
out therein. The terms of employment applicable and actually applied to the
employees are solely those provided for by the applicable law and by the
provisions of the applicable collective labor agreement, if any. No verbal
commitments of any kind exist between the Company and any of its employees. No
claims by any of the employees or by the relevant trade unions are pending and
no situation exists which could give rise to any such claim in the future. No
claim has been made by any of the Company's consultants and agents that any of
such persons is entitled to compensation and/or benefits as if that he or she
were an employee of the Company.
(w) Customers and Accounts. Except as set forth on Schedule 6(w)
annexed hereto, the Company does not have any knowledge or information that any
person or entity whose payments to the Company with respect to the Company's
Video Business or the Subsidiary, whether alone or together with any party
actually known by the Company or the Subsidiary to be such person's Affiliate,
who accounted for five percent (5)% or more of the gross revenues of the Company
and/or the Subsidiary in either of its fiscal years ending in 1995 or 1996 or in
the ten (10) month period ending October 31, 1997 has ceased or will cease doing
business with the Company or the Subsidiary or Purchaser as its successor, for
any reason, or will or has reduced its payments to the Company with respect to
the Company's Video Business or the Subsidiary by more than ten (10%) percent
for any reason. Schedule 6(w) annexed hereto correctly lists the twenty (20)
largest clients of each of the Company with respect to the Company's Video
Business and the Subsidiary during each of the fiscal years ended in 1995 and
1996 and the twelve (12) month period ending December 31, 1997, together with
the amount of billings made by each of the Company with respect to the Company's
Video Business or the Subsidiary to each such account during each such year or
period.
(x) Suppliers; Raw Materials. Schedule 6(x) annexed hereto sets
forth (i) the names and addresses of all suppliers from which the Company with
respect to the Company's Video
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Business and the Subsidiary ordered raw materials, supplies, equipment,
merchandise and other goods and services with an aggregate purchase price for
each supplier of one hundred thousand dollars ($100,000) or more during the
twelve (12) month period ended December 31, 1996 and (ii) the amount for which
each supplier invoiced the Company with respect to the Company's Video Business
during such period. The Company has not received any notice or have any reason
to believe that there has been any material adverse change in the price of such
raw materials, supplies, merchandise and other goods or services, or that any
supplier will not sell raw materials, supplies, merchandise and other goods or
services to Purchaser at any time after the Closing on terms and conditions
similar to those currently enjoyed by the Company with respect to the Company's
Video Business, subject to general and customary price increases. No supplier of
the Company with respect to the Company's Video Business described in clause (i)
of the first sentence of this Section 6(x) has threatened to take any action
described in the immediately preceding sentence as a result of the consummation
of the transactions contemplated by this Agreement. Schedule 6(x) annexed hereto
lists the twenty (20) largest vendors to each of the Company with respect to the
Company's Video Business and the Subsidiary in terms of cash payments made
during the 1995 and 1996 fiscal years and the twelve (12) month period ending
December 31, 1997.
(y) Unbilled Costs and Advance Billings. All costs incurred on jobs
in process, whether reflected as unbilled costs or a reduction of advance
billings to clients, reflected on the Pro Forma Financial Statements (a true and
correct schedule of which is listed on Schedule 6(y) annexed hereto) were
calculated in accordance with the percentage of completion method of accounting,
applied on a basis consistent with the principles used in preparing the Pro
Forma Financial Statements and are realizable in the ordinary course of business
and were incurred in accordance with applicable budgets in respect thereof.
(z) Contracts and Proposals.
(i) Schedule 6(z)(i) annexed hereto contains (A) a complete and
correct list of all agreements, contracts, licenses, commitments and
other instruments and arrangements (whether written or oral) by
which each of the Company with respect to the Company's Video
Business and the Subsidiary is bound, including but not limited to
sales representation and distribution agreements (collectively, the
"Contracts"), (B) the written anticipated revenues and costs for
each written or oral Contract and scheduled completion dates with
respect to each job that is yet to be completed and the Company has
no reason to believe that any of such jobs
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will not be completed and (C) a list of all outstanding proposals,
or other writings prepared in an effort to obtain business, prepared
by the Company with respect to the Company's Video Business or the
Subsidiary, or on either of their behalf, and forwarded to
prospective clients or customers (the "Proposals").
(ii) The Company has delivered to Purchaser complete and correct
copies of all written Contracts, together with all amendments
thereto, including (A) an accurate descriptions of all material
terms of all oral Contracts and (B) all Proposals, set forth or
required to be set forth in Schedule 6(z)(i) hereto.
(iii) All Contracts are in full force and effect and enforceable
against each party thereto. There does not exist under any Contract
any event of default or event or condition that, after notice or
lapse of time or both, would constitute a violation, breach or event
of default thereunder on the part of the Company or the Subsidiary,
as the case may be, or any other party thereto except as set forth
in Schedule 6(z)(i) annexed hereto and except for such events or
conditions that, individually and in the aggregate, (A) has not had
or resulted in, and will not have or result in a default or an event
which, after notice or lapse of time, or both, would constitute a
default or result in a right to accelerate a loss of right (a
"Material Adverse Effect") and (B) has not and will not materially
impair the ability of the Company or the Subsidiary, as the case may
be, to perform its obligations under this Agreement and under the
Company's Related Agreements. None of existing or completed
Contracts of the Company with respect to the Company's Video
Business or the Subsidiary, as the case may be, are subject to
renegotiation with any governmental body. Except as set forth in
Schedule 6(z)(i), and except as provided for by Italian law as set
forth on Schedule 6(z)(i), no consent of any third party is required
under any Contract as a result of or in connection with, and the
enforceability of any Contract will not be affected in any manner
by, the execution, delivery and performance of this Agreement or any
of the Company's Related Agreements or the consummation of the
transactions contemplated thereby.
(iv) Except as set forth on Schedule 6(z)(iv), neither the Company
nor the Subsidiary has outstanding power of attorney in favor of any
party relating to either the Company's Video Business or the
Subsidiary.
(aa) [Intentionally Deleted]
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(bb) Directors and Officers. Schedule 6(bb) annexed hereto contains
a complete and accurate list of the names of the Subsidiary's directors and
officers, the name of each bank in which the Subsidiary has an account or safe
deposit box and the names of all persons authorized to draw thereon or have
access thereto.
(cc) Inventories. All inventory of equipment of the Company with
respect to the Company's Video Business, all of which are included in the
Assets, and of the Subsidiary held for sale or rent, spare parts, replacement
and component parts, and office and other supplies (solely with respect to the
Subsidiary) (collectively, "Inventories") are of good and usable quality in all
material respects and except as set forth on Schedule 6(cc) annexed hereto, do
not include obsolete or discontinued items. Except as set forth on Schedule
6(cc) annexed hereto, (i) all Inventories that are finished goods are saleable
or rentable as current inventories at the current prices thereof in the ordinary
course of business, (ii) all Inventories are recorded on the Pro Forma Financial
Statements on a last cost basis in accordance with generally accepted accounting
principles and (iii) no write-down in Inventory has been made or should have
been during the past two (2) years. Schedule 6(cc) annexed hereto lists the
locations of all Inventories.
(dd) Real Property.
(i) Leases. Schedule 6(dd) annexed hereto contains a complete and
correct list of all real estate leases (the "Leases") pursuant to
which the Company or the Subsidiary occupies or uses real property
in connection with the Company's Video Business and the Subsidiary's
business, respectively, setting forth the address, landlord,
remaining terms, base rent and tenant for each Lease. The Company
has delivered to the Purchaser correct and complete copies of the
Leases. Each Lease is legal, valid, binding, enforceable, and in
full force and effect, except as may be limited by bankruptcy,
insolvency, reorganization and similar Applicable Laws affecting
creditors generally and by the availability of equitable remedies.
Neither the Company or the Subsidiary nor the landlord under any of
the Leases is (or upon the consummation of the transactions
contemplated hereby, will be) in default, violation or breach in any
respect under any Lease, and no event has occurred and is continuing
that constitutes or, with notice or the passage of time or both,
would constitute a default, violation or breach in any respect under
any Lease. None of the Leases have been pledged, mortgaged,
assigned, modified or amended by the Company or the Subsidiary. Each
Lease grants the tenant under
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the Lease the exclusive right to use and occupy the demised premises
thereunder. Each of the Company and the Subsidiary, as the case may
be, has good and valid title to the leasehold estate under each
Lease free and clear of all liens created by the Company or the
Subsidiary, as the case may be. Each of the Company and the
Subsidiary, as the case may be, enjoys peaceful and undisturbed
possession under its respective Leases for the leased real property.
Except as set forth on Schedule 6(dd) annexed hereto, no consent is
required by any landlord, lessor, ground lessor, mortgagee, or other
party holding any interest in connection with or in respect of any
of the Leases, by virtue of the transactions contemplated hereby.
(ii) No Proceedings. There are no eminent domain or other similar
proceedings pending or, to the knowledge of the Company threatened
affecting any portion of the leased real property and there is no
proceeding pending or, to the knowledge of the Company threatened
for the taking or condemnation of any portion of the leased real
property. There is no writ, injunction, decree, order or judgment
outstanding, nor any action, claim, suit or proceeding, pending or
threatened, relating to the ownership, lease, use, occupance or
operation by any person of any of the leased real property.
(iii) Current Use. The use and operation of the real property in the
conduct of the Company's Video Business and the Subsidiary's
business does not violate in any material respect any instrument of
record or agreement affecting the real property. There is no
violation of any covenant, condition, restriction, easement or order
of any Governmental Authority having jurisdiction over such property
or of any other person entitled to enforce the same affecting the
real property or the use or occupancy hereof. No damage or
destruction has occurred with respect to any of the real property.
(ee) Warranties. Set forth on Schedule 6(ee) annexed hereto is an
accurate list, and full description, of all of the standard warranties by the
Company with respect to the Company's Video Business or the Subsidiary in
respect of its products and services and a description of the annual costs to
the Company and the Subsidiary with respect thereto for the fiscal years ended
December 31, 1995 and 1996 in connection with such warranties.
(ff) Dealer and Distributor Arrangements. Set forth on Schedule
6(ff) annexed hereto is an accurate and complete list by product, service,
territory and term of all dealer and
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distributors of products and/or services of the Company and the Subsidiary.
Except as set forth on Schedule 6(ff) annexed hereto, the Company does not any
knowledge or information that any person or entity who distributed products on
behalf of each of the Company with respect to the Company's Video Business
and/or the Subsidiary who accounted for five (5%) or more of the gross revenues
of the Company with respect to the Company's Video Business and/or the
Subsidiary in either of the fiscal years ending in 1995 or 1996 or in the ten
(10) month period ending October 31, 1997 has ceased or will cease doing
business with the Company with respect to the Company's Video Business or the
Subsidiary or Purchaser as its successor, for any reason, or will or has reduced
its contribution to the Company's gross revenues with respect to the Company's
Video Business by more than ten (10%) percent for any reason. Schedule 6(ff)
annexed hereto correctly lists the twenty (20) largest distributors, indicating
whether they are exclusive or non-exclusive, of each of the Company with respect
to the Company's Video Business and the Subsidiary during each of the fiscal
years ended in 1995 and 1996 and the ten (10) month period ending October 31,
1997, together with the sales effected by each such distributor during each such
year or period.
(gg) Excluded Assets. Except as set forth on Schedule 1(c) annexed
hereto, the Assets constitute all of the assets and properties that the Company
is currently using to conduct the Company's Video Business and the business of
the Subsidiary as same are currently being conducted or are intended to be
conducted upon the consummation of the transactions contemplated by this
Agreement.
(hh) Government Loan. The Company is current and in compliance in
all respects with respect to all matters relative to the Government Loan.
7. Representations and Warranties by Purchaser. Purchaser represents and
warrants to the Company as follows:
(a) Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to enter into this Agreement and all other
agreements to which Purchaser is a party required to be delivered by Purchaser
pursuant to Section 5(a) hereof (which documents are hereinafter sometimes
collectively referred to as "Purchaser's Related Agreements") and to carry out
the transactions contemplated by this Agreement. Purchaser has delivered to the
Company copies of Purchaser's certificate of incorporation, and all amendments
thereto, and the by-laws of Purchaser as presently in effect, each certified as
true and correct by Purchaser's secretary. [Note: This may be subject to
technical, but not
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substantive, modification depending upon the final structure of the
transaction.]
(b) Execution, Delivery and Performance of Agreement. Neither the
execution, delivery nor performance of this Agreement and Purchaser's Related
Agreements by Purchaser will, with or without the giving of notice or the
passage of time, or both, conflict with, result in a default, right to
accelerate or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to any provision of Purchaser's certificate of
incorporation or by-laws or any franchise, mortgage, deed of trust, lease,
license, agreement, understanding, law, ordinance, rule or regulation or any
order, judgment or decree to which Purchaser is a party or by which it may be
bound or affected. Purchaser has the full power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby, all proceedings
required to be taken by Purchaser to authorize the execution, delivery and
performance of this Agreement and Purchaser's Related Agreements have been
properly taken, and this Agreement and Purchaser's Related Agreements constitute
the valid and binding obligation of Purchaser, enforceable in accordance with
their respective terms, except that such enforcement may be subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium and
similar law affecting creditors' rights generally.
(c) Litigation. Except as disclosed in the Company's public filings,
there is no claim, legal action, suit, arbitration, governmental investigation
or other legal or administrative proceeding, nor any order, decree or judgment
in progress, pending or in effect or, to Purchaser's knowledge, threatened
against or relating to Purchaser in connection with or relating to the
transactions contemplated by this Agreement and the Purchaser's Related
Agreements and Purchaser does not know or have any reason to be aware of any
basis for the same.
8. Employment Matters; Employment Contracts. (a) The Company shall be
responsible for, and shall discharge, all obligations with respect to their
respective currently existing salary, wages, bonuses, commissions and other
compensation, group insurance claims, medical benefits reimbursable by the
Company or the Subsidiary under existing medical reimbursement policies,
severance and all other benefits accrued through the Closing Date to all
employees of the Company with respect to the Company's Video Business, all of
which are set forth on Schedule 8(a) (the "Employees") or the employees of the
Subsidiary and any such costs arising after the Closing Date under the terms of
any of the foregoing attributable to employment prior to the Closing Date.
(b) Schedule 8(b) annexed hereto contains:
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(i) an accurate and complete list and description of all collective
in house bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred
compensation agreements, employee stock options or stock purchase
plans and group life, health and accident insurance and other
employee benefit plans, agreements, arrangements or commitments,
whether or not legally binding, including, without limitation,
holiday, vacation, Christmas and other bonus practices, to which the
Company with respect to the Employees or the Subsidiary is a party
or is bound;
(ii) the names and current annual salary rates of all Employees and
all persons who are currently employed by the Subsidiary showing
separately for each such person the amount paid or payable as
salary, bonus payments and any indirect compensation for the year
ended December 31, 1996 as well as each of their current
compensation;
(iii) all material written agreements providing for the services of
an independent contractor to which the Company with respect to the
Company's Video Business or the Subsidiary is a party or by which it
is bound; and
(iv) true and correct copies of all employee retirement plans,
pension plans, welfare plans and all employee benefits covering the
Employees and the Subsidiary's employees (and any summary plan
descriptions in effect for such plans and benefits). Solely with
respect to the Subsidiary's employees, except as set forth on
Schedule 8(b) annexed hereto, all requirements of applicable law,
including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
have been fulfilled with regard to said plans and the administration
thereof and will be fulfilled with regard to the termination of any
of said plans. With respect to the Company's employees, all
requirements of applicable Italian law have been satisfied.
(c) The execution and performance of this Agreement will not
constitute a stated triggering event under any plan or arrangement which will
result in payment (whether of deferred compensation, or otherwise) becoming due
to any Employee or former Employee of the Company or any employee of the
Subsidiary.
(d) There exist no obligations or liabilities, including claims
incurred (as defined herein) but not reported
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under any uninsured plan providing medical benefits, arising out of or in
connection with any Employee or any Subsidiary's employee benefit plan or
arrangement, except to the extent funded or accrued as a liability. For purposes
of the preceding sentence, a medical claim shall be deemed to be incurred on the
date of occurrence of an injury, the diagnosis of an illness, or any other event
giving rise to such claim or series of related claims. No plan provides health,
medical, death or survivor benefits to any former employee of the Subsidiary in
connection with the Subsidiary or beneficiary thereof, except to the extent
required under any state insurance law providing for a conversion option, COBRA
or other COBRA type rights under a group insurance policy or under Section 601
of ERISA. There are no multi-employer plans covering any employee of the
Subsidiary nor has the Company or the Subsidiary ever maintained a
multi-employer plan.
(e) There has not been any (i) termination of any "defined benefit
plan" within the meaning of ERISA maintained by the Subsidiary which is under
"common control" (within the meaning of Paragraph 4001(b) of ERISA) with the
Subsidiary except to the extent that such "defined benefit plan" was fully
funded on the date of termination sufficient to pay all plan liabilities and no
liability in respect thereof exists (or shall exist) to the Pension Benefit
Guaranty Corporation, (ii) commencement of any proceeding to terminate any such
plan pursuant to ERISA, or otherwise or (iii) written notice given to the
Subsidiary of the intention to commence or seek the commencement of any such
proceeding.
(f) Except with respect to those employees set forth on Schedule
6(v).2, Purchaser shall have the right, but not the obligation, from and after
the date hereof, to offer employment on terms and conditions as their employment
with the Company immediately prior to the Closing; provided, however, that
Purchaser shall not offer employment to any employee of the Company that is not
on Schedule 6(v).2 while such person is employed by the Company.
(g) The Company has not failed in any respect to observe the
provisions of laws or regulations relating to labor relations and/or safety at
work or other laws, the violation of which, including any penalties or sanctions
which could be imposed, would have an adverse effect upon the financial
condition and/or operation of the Company's Video Business. The Company's
relations with its Employees has been established and conducted in compliance
with the provisions of the National Collective Contract for Industry ("Contratto
Collettivo Industria") integrated by the In-company agreement ("Accordo
Aziendale"), the ranking of Employees corresponds to the duties actually
performed, no judicial proceedings by Employees and/or agents of the Company or
by the competent Labor Inspectorate
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and/or Social Security Office are pending. The Company has taken in a timely
manner all steps required by law or applicable conventions with respect to
notifications to, consultations with, or other action concerning, trade unions,
works councils, or Employees in contemplation of this Agreement and of the
transactions contemplated thereby. Except as set forth on Schedule 8(g) annexed
hereto, there are no trade union affiliations or conventions, no industry
employment conventions, and no in-company employee conventions other than those
listed on Schedule 8(g).
(h) With respect to the Employees and the Subsidiary's employees,
the Company has duly paid all employee related insurance, social security
contributions, and other employee related charges, when due according to
applicable laws, rules or regulations, and no circumstances exist which could
give rise to additional payments thereunder. Adequate provisions have been made
in the Balance Sheet as at Closing, to reflect all such employee-related charges
accrued for periods prior to the Closing Date but not yet due and to reflect all
accrued employee vacation time or payment in lieu thereof. The reserve on the
Balance Sheet with respect to the T.F.R. (Severance Indemnity payments) due to
Employees and to the employees of the Subsidiary, is and will be adequate to
cover the accrued liabilities of the Company and the Subsidiary in respect of
such indemnity payments as at the respective date thereof. No circumstances
exist which could give rise to any additional indemnity payments.
(i) The Company is under no obligation (whether of a legal nature or
otherwise) to pay any pensions or other sums to, or in respect of, any of its
ex-Employees or ex-employees of the Subsidiary.
9. Indemnification. (a) The Company hereby agrees to defend and hold
Purchaser harmless from, against and in respect of (and shall, subject to the
other provisions of this Agreement, reimburse Purchaser for):
(i) any and all loss, liability or damage suffered or incurred by
Purchaser by reason of any untrue representation, breach of warranty
or nonfulfillment of any covenant by the Company contained herein or
in any certificate, document or instrument delivered by the Company;
(ii) any and all loss, liability or damage suffered or incurred by
Purchaser in respect of or in connection with any liabilities of the
Company and the Subsidiary, except for the Assumed Liabilities
(including, without limitation, and liabilities relating to the
Excluded Assets);
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(iii) except as otherwise provided herein and except for the Assumed
Liabilities, any and all debts, liabilities or obligations
(including, and environmental liability and costs and any other
liabilities relating to Excluded Assets) of the Company, direct or
indirect, fixed, contingent or otherwise, arising out of any act,
transaction, circumstance or state of facts which occurred or
existed on or before the Closing Date, whether or not then known,
due or payable;
(iv) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees, court costs and expenses,
incident to (i), (ii) or (iii) above or (iv) below or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity; and
(v) any and all loss, liability or damage suffered or incurred by
Purchaser by reason of or in connection with any claim for finder's
fee or brokerage or other commission arising by reason of any
services alleged to have been rendered to or at the instance of the
Company with respect to this Agreement or any of the transactions
contemplated hereby, subject to the provisions of Section 9(b)(iii)
below.
(b) Purchaser shall indemnify, defend and hold the Company harmless
from, against and in respect of (and shall, subject to the other provisions of
this Agreement, reimburse it for):
(i) any and all loss, liability or damage suffered or incurred by
the Company by reason of or resulting from any untrue
representation, breach of warranty or non-fulfillment of any
covenant or agreement by Purchaser contained herein or in any
certificate, document or instrument delivered by Purchaser to the
Company;
(ii) any and all loss, liability or damage suffered or incurred by
the Company in respect of or in connection with Purchaser's failure
to timely pay any of the Assumed Liabilities;
(iii) any and all payments of any nature whatsoever due and owing to
Hambro America Securities, Inc. with respect to this Agreement or
any of the transactions contemplated hereby.
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(iv) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees, court costs and expenses,
incident to (i), (ii) or (iii) above or (v) below or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity; and
(v) any and all actual loss, liability or damage suffered or
incurred by the Company by reason of or in connection with any claim
for finder's fee or brokerage or other commission arising by reason
of any services alleged to have been rendered to or at the instance
of Purchaser with respect to this Agreement or any of the
transactions contemplated hereby.
(c) [Intentionally Omitted.]
(d) Any indemnifiable liability or reimbursement under this Section
9 shall be limited to the amount of actual damages (of any nature) subject to
indemnification actually sustained by a party hereto, net of any applicable
insurance payments actually received, other reimbursement or tax benefit
actually realized by such party.
(e) If a claim by a third party is made against a party hereto (an
"Indemnified Party"), and if an Indemnified Party intends to seek indemnity with
respect thereto under this Section 9, the Indemnified Party shall promptly
notify the party required to indemnify the Indemnified Party pursuant to this
Section 9 (an "Indemnifying Party") of such claim (the "Indemnity Notice");
provided, however, that failure by an Indemnified Party to notify an
Indemnifying Party of such claim shall not effect the Indemnified Party's right
to seek indemnification so long as the Indemnifying Party is not materially
prejudiced by such failure to have been notified of such claim. The Indemnifying
Party shall have ten (10) days after receipt of the Indemnity Notice to
undertake, conduct and control, through counsel of its own choosing and at its
expense, but reasonably acceptable to the Indemnified Party, the settlement or
defense thereof, and the Indemnified Party shall cooperate with it in connection
therewith; provided, however, that with respect to settlements entered into by
the Indemnifying Party, the Indemnifying Party shall obtain the release of the
claiming party in favor of the Indemnified Party. If the Indemnifying Party
undertakes, conducts and controls the settlement or defense of such claim, the
Indemnifying Party shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by the Indemnified Party, providing
that the fees and expenses of such counsel shall be borne by the Indemnified
Party. With respect to indemnification provided for hereunder, the
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Indemnified Party shall not pay or settle any such claim so long as the
Indemnifying Party is reasonably contesting any such claim in good faith.
Notwithstanding the immediately preceding sentence, the Indemnified Party shall
have the right to pay or settle any such claims, provided that in such event it
shall waive any right to indemnity therefor by the Indemnifying Party.
(f) Subject to the limitations set forth in Sections 9(c)-(e), if
the Indemnifying Party does not notify the Indemnified Party within fifteen (15)
days after the receipt of the Indemnified Party's notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof, the Indemnified Party
shall have the right to contest, settle or compromise the claim in the exercise
of its good faith reasonable judgment at the expense of the Indemnifying Party
subject to the other terms and provisions of this Section 9.
10. Survival of Representations, Warranties and Agreements. All
statements, representations, warranties, agreements and indemnities made by each
of the parties hereto (and in any schedule or exhibit annexed hereto) are and
shall be true and correct as of the date hereof and as of the Closing Date, and
each of them shall survive until the first anniversary of the Closing subject to
Section 9 hereof.
11. Conduct of Business Prior to Closing. (a) Prior to the Closing, each
of the Company with respect to the Company's Video Business and the Subsidiary
shall conduct its business and affairs only in the ordinary course and
consistent with its prior practice and shall maintain, keep and preserve the
Assets, the Subsidiary's assets and properties in good condition and repair and
maintain insurance thereon in accordance and consistent with present practices,
and the Company will use its best efforts to preserve the business and
organization of the Company with respect to the Company's Video Business and the
Subsidiary intact, to keep available to Purchaser the services of the present
officers of the Company's Video Business and the Subsidiary to preserve for the
benefit of Purchaser the goodwill of the Company's Video Business and the
Subsidiary with its suppliers and customers and others having business relations
with it, including, without limitation, the following:
(i) Liabilities. Consistent with past practice, the Company with
respect to the Company's Video Business and the Subsidiary shall pay
or discharge its current liabilities when the same become due and
payable, except for such liabilities as may be subject to a good
faith dispute or counterclaim.
(ii) Litigation. The Company shall promptly notify Purchaser of any
lawsuits, claims, proceedings or investigations which after the date
hereof are
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commenced or, to the knowledge of the Company threatened against the
Company with respect to the Company's Video Business, the Subsidiary
or against any officer, employee, consultant or agent of the Company
with respect to the Company's Video Business, the Subsidiary or the
transactions contemplated by this Agreement.
(iii) Compliance with Laws. The Company will take such action as may
be necessary to duly comply with all laws, statutes, rules and
regulations applicable to it as they relate to the conduct of the
Company's Video Business and the Subsidiary's business.
(iv) Continued Effectiveness of Representations and Warranties. The
Company shall use its best efforts to conduct the Company's Video
Business and the business of the Subsidiary in such a manner so that
the representations and warranties contained in Section 6 hereof
shall continue to be true and correct on and as of the Closing Date
as if made on and as of the Closing Date. The Company shall promptly
give to Purchaser notice of any event, condition or circumstance
occurring from the date hereof through the Closing Date which would
constitute a violation or breach of their representations,
warranties, covenants or agreements contained in this Agreement.
(b) Without limiting the generality of Section 11(a) hereof, prior
to the Closing, the Company will not without Purchaser's prior written approval:
(i) change the Subsidiary's certificate of incorporation or by-laws
or merge or consolidate or obligate the Company or the Subsidiary to
do so with or into any other entity;
(ii) enter into any contract, agreement, commitment or other
understanding or arrangement which is not in the ordinary course of
the Company's Video Business or the business of the Subsidiary; or
(iii) perform, take any action or incur or permit to exist any of
the acts, transactions, events or occurrences of the type described
in subparagraphs (i), (ii), (iii), (iv), (v), (viii), (ix), (x),
(xi), (xii), (xiv), (xv) and (xvi) of Section 6(j) hereof which
would have been inconsistent with the representations and warranties
set forth therein had the same occurred after the Balance Sheet Date
and prior to the date hereof.
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(c) The Company shall give Purchaser prompt written notice of any
change in any of the information contained in the representations and warranties
made in Section 6 hereof or the Schedules referred to therein which occurs prior
to the Closing.
12. Access to Information and Documents.
(a) So long as this Agreement is in effect the Company, in order for
Purchaser to complete its due diligence in connection with effecting a Closing
hereunder, will give Purchaser and Purchaser's attorneys, accountants,
consultants, financial advisors, employees, agents and other representatives
full access to the Company's Video Business, including but not limited to, with
respect to the Company's Video Business and the Subsidiary, all properties,
documents, contracts, information, books, work papers and records and will
furnish Purchaser with copies of such documents (certified by the Company's and
the Subsidiary's officers as so appropriate and if so requested) and shall
provide all information with respect to all properties, assets, banking and
other financial relationships, books, contracts, commitments, reports and
records as Purchaser may from time to time request, including, without
limitation, such books, records, documents and any other information relating to
any predecessor to the Company's Video Business, all of which shall be subject
to the provisions of Section 12(b) below; provided, however, that
notwithstanding the foregoing, (i) the Company shall not be required to disclose
to Purchaser prior to the Closing the identifies of the entities, data for which
is set forth on Schedule 6(w), Schedule 6(x) Schedule 6(z) or Schedule 6(ff),
and (ii) the Company shall not be required, prior to Closing, to disclose to
Purchaser any proprietary data that is solely of a technical nature, that the
Company believes, in good faith, would be competitively damaging to the Company
in the event that the Closing does not occur. The furnishing of any information
to Purchaser hereunder or any investigation by Purchaser shall not affect
Purchaser's right to rely on any representations and warranties made in this
Agreement. In addition, the Company will permit Purchaser and its attorneys,
accountants, financial advisers, consultants, employees, agents and other
representatives reasonable access to personnel of the Company's Video Business
and of the Subsidiary, as well as to the customers, suppliers and distributors
of the Company's Video Business and the Subsidiary, and those institutions with
which the Company's Video Business and the Subsidiary maintain banking,
borrowing or credit relationships, all during normal business hours as may be
necessary or useful to the Purchaser in its review of the properties, assets and
business affairs of the Company's Video Business and the Subsidiary; provided,
however, that Purchaser agrees that it will not contact any of such foregoing
personnel, customers, suppliers or distributors, or banking, borrowing or credit
institutions, without coordinating such contact with the Company; and it is
further provided that
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with respect to those distributors and suppliers set forth on Schedule 12(a)
annexed hereto, Purchaser shall not engage in any business relations for two (2)
years after the date set forth above in the event that a Closing hereunder does
not occur.
(b) Each of the parties hereto recognizes that it will receive
confidential information concerning the other upon the execution of this
Agreement. Accordingly, each of the parties hereto agrees to use their
respective best efforts to prevent the "unauthorized disclosure" of any
confidential information concerning the other that is disclosed during the
course of the investigations contemplated by this Agreement and is clearly
designated as confidential at the time of disclosure. As used herein, the term
"unauthorized disclosure" shall mean disclosure by either the Company or the
Purchaser to any person or entity who is not an executive officer, director or
key employee of any party hereto or who is not an authorized representative of
any party hereto. An authorized representative shall include a party's
attorneys, accountants, financial advisors and bankers, and with respect to
Purchaser, its potential financing sources. The obligations of this paragraph
will not apply to information that (a) is or becomes part of the public domain,
(b) is disclosed by the disclosing party to third parties without restrictions
on disclosure or (c) is received by the receiving party from a third party
without breach of a nondisclosure obligation to the other party. The obligations
on nondisclosure set forth in this Section 12(b) will terminate two (2) years
after the date of this Agreement. It is expressly acknowledged and agreed that
all of the confidential information is special and unique and in the event of a
breach or threatened breach of the provisions of this Section 12(b), remedies
otherwise available at law may not be an adequate, sufficient or timely remedy.
Accordingly, each of the parties hereto expressly agrees that in the event of
any breach or threatened breach of the provisions of this Section 12(b) that, in
addition to all other remedies that may be available to either party, each of
the parties shall be entitled to seek injunctive or other equitable relief as a
remedy for any such breach or threatened breach of this Section 12(b).
(c) The Company will retain all books and records relating to the
Company's Video Business (whether or not such books and records also relate to
other business of the Company that are not being acquired by the Purchaser
hereunder) for ten (10) years (the "Retention Period"), during which time the
Company shall provide Purchaser access to all such books and records during
normal business hours upon Purchaser's reasonable request therefor. Subsequent
to the Retention Period, the Company shall dispose of or permit the disposal of
any such books and records not required to be retained under such policies
without first giving sixty (60) days' prior written notice to Purchaser offering
to surrender the same to Purchaser at
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Purchaser's expense. The Company agrees to cooperate with Purchaser and shall
furnish or make available to Purchaser such books and records and any and all
other assistance as Purchaser may reasonably request relating to any matter
relating to Taxes or a governmental inquiry of investigation during the
Retention Period.
13. [Intentionally Deleted.]
14. Conditions Precedent.
(a) Conditions to Obligations of Each Party. The obligations of the
parties to consummate the transactions contemplated hereby shall be subject to
the fulfillment (or waiver by Purchaser or the Company, as the case may be) on
or prior to the Closing Date of the condition that: the transactions
contemplated hereby shall not have been restrained, enjoined or otherwise
prohibited by any Applicable Law, including any order, injunction, decree or
judgment of any court or other Governmental Authority; no court or other
Governmental Authority shall have determined any Applicable Law to make illegal
the consummation of the transactions contemplated by the Agreement, Purchaser's
Related Agreements or the Company's Related Agreements; and no proceeding with
respect to the application of any such Applicable Law to such effect shall be
pending.
(b) Conditions to Obligations of the Purchaser. All obligations of
the Purchaser hereunder are subject, at the option of Purchaser, to the
fulfillment of each of the following conditions at or prior to the Closing, and
the Company shall use its best efforts to cause such conditions to be fulfilled:
(i) All representations and warranties of the Company contained
herein or in any Schedule or document delivered pursuant hereto
shall be true and correct in all material respects when made and
shall be deemed to have been made again at and as of the date of the
Closing Date, and shall then be true and correct in all material
respects.
(ii) All covenants, agreements and obligations required by the terms
of this Agreement to be performed by the Company at or before the
Closing shall have been duly and properly performed in all material
respects.
(iii) Since the date of this Agreement, there shall not have
occurred any material adverse change in the condition (financial or
otherwise), business, properties or prospects of the Company or the
Subsidiary or the Assets or the Subsidiary's assets.
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(iv) On the Closing Date, the Agreed Upon Accounts Payables shall
not exceed Three Million Five Hundred Thousand ($3,500,000) U.S.
Dollars and there shall be no material adverse change with respect
to the Pro Forma Financial Statements, or the business or affairs of
the Company or the Subsidiary.
(v) All schedules required to be delivered to Purchaser at or prior
to the Closing and all documents required to be delivered (and, as
applicable, executed) at or prior to Closing, including but not
limited to these documents described in Section 4(a)(i) -
4(a)(xviii) above, shall have been so delivered (and, as applicable,
executed).
(vi) There shall be delivered to Purchaser a certificate executed by
the President and Secretary of each of the Company and the
Subsidiary, dated the date of the Closing, certifying that all of
the conditions set forth in this Section 14(b) have been fulfilled.
(vii) There shall be no additional material liability of any nature
whatsoever accruing to Purchaser with respect to this Agreement or
the transaction contemplated hereby.
(c) Conditions to Obligations of the Company. All obligations of the
Company at the Closing are subject, at the option of the Company, to the
fulfillment of each of the following conditions at or prior to the Closing, and
Purchaser shall use its best efforts to cause each such condition to be so
fulfilled:
(i) All representations and warranties of Purchaser contained herein
or in any schedule or document delivered pursuant hereto shall be
true and correct in all material respects when made and shall be
deemed to have been made again at and as of the Closing Date, and
shall then be true and correct in all material respects.
(ii) All covenants, agreements and obligations required by the terms
of this Agreement to be performed by Purchaser at or before the
Closing shall have been duly and properly performed in all material
respects.
(iii) There shall be delivered to the Company a certificate executed
by the President and Secretary of Purchaser, dated the date of the
Closing, certifying that all of the conditions set forth in this
Section 14(c) have been fulfilled.
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(iv) All Schedules, documents and other items required to be
delivered by Purchaser pursuant to Section 5(a) above at or prior to
the Closing shall be so delivered.
15. Holdback; Post-Closing Adjustments.
(a) Holdback. Purchaser shall holdback an aggregate sum of
$1,000,000 (the "Holdback") from the Purchase Price payable to the Company;
$500,000 of which shall expressly relate to the provisions of Section 6(g),
including but not limited to the 1997 Projected Financial Statements (inclusive
of the 1997 Projected EBITDA) annexed hereto as Schedule 6(g).2, (the "Financial
Holdback"), and the remaining $500,000 shall relate to all of the other
representations, warranties and covenants of the Company set forth herein (the
"Other Holdback"). Each of the Financial Holdback and the Other Holdback shall
be disbursed to the Company and/or Purchaser, as the case may be, in accordance
with the provisions of this Section 15. Each of the Financial Holdback and the
Other Holdback shall be deposited by Purchaser on the date of Closing into
segregated escrow accounts, the Financial Holdback Escrow Account and the Other
Holdback Escrow Account, respectively, each of which escrow account shall be
held by the "Escrow Agent," as that term is defined in Section 16(b)(i) below,
in accordance with the provisions of Section 16(b)(iv) below. The Financial
Holdback shall remain on deposit in the Financial Holdback Escrow Account until
such time as the Purchaser's annual audit for its fiscal year ended December 31,
1997 is completed, but in no event any later than ninety (90) days after the
Closing, subject to the provisions of Section 15(b) below. The Other Holdback
shall remain in the Other Holdback Escrow Account until the one (1) year
anniversary from the Closing of this Agreement (the "Other Holdback Term").
(b) Post-Closing Audit. Subsequent to the Closing Date, but in no
event later than ninety (90) days thereafter, Purchaser shall cause Deloitte &
Touche, LLP to effect and issue an audit, at Purchaser's sole cost and expense,
of the Company's 1997 Projected Financial Statements and the Projected Balance
Sheet (the "Audited 1997 Financials"). The audit shall be prepared in accordance
with generally accepted accounting principles consistently applied throughout
the period covered thereby, except as otherwise expressly noted therein, and
shall be a complete, accurate and a fair presentation of the financial condition
of the Company's Video Business (including the Subsidiary) as of the date
thereof and the results of operations for the period covered thereby. The
Company shall provide full access to Deloitte & Touche, LLP and otherwise fully
cooperate with such auditors in connection with the preparation of the audit,
and such cooperation shall include, without limitation, execution of the
required representation letters to Deloitte & Touche, LLP. After receipt of the
Audited 1997 Financials, each
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of the Company and Purchaser shall have twenty (20) days to object (the
"Objection Period") in writing to the other with respect to any or all of the
amounts presented therein. In the event that the Company and Purchaser do not
object within the Objection Period, each of the Company and the Purchaser
expressly agrees that the Audited 1997 Financials shall be final and binding on
the parties. In the event that either the Company or Purchaser object, in good
faith, to any portion of the Audited 1997 Financials within the Objection
Period, Purchaser and the Company shall promptly attempt to resolve their
differences. In the event the dispute is not resolved within ten (10) days of
either party's written objection, either party may thereafter cause the dispute
to be submitted to binding arbitration in accordance with Section 21(h) below.
(c) Application of Post-Closing Audit to Financial Holdback. After
the Audited 1997 Financials have become final and binding in accordance with the
provisions of Section 15(b) above, in the event that the Company's earnings
before interest, taxes, depreciation and amortization as set forth on the
Audited 1997 Financials (the "Audited EBITDA") is at least ninety-five percent
(95%) of the 1997 Projected EBITDA set forth on the 1997 Projected Financial
Statements there shall be no reduction whatsoever to the Financial Holdback and
the entire amount of the Financial Holdback, plus all accrued interest thereon,
shall immediately be disbursed from the Financial Holdback Escrow Account to the
Company. In the event that the Audited EBITDA is less than ninety-five percent
(95%) of the 1997 Projected EBITDA, Purchaser shall be entitled to receive a
disbursement from the Financial Holdback Escrow Account equal to $2.00 for every
$1.00 by which Audited EBITDA is less than ninety-five percent (95%) of 1997
Projected EBITDA, plus the pro-rata share of accrued interest earned thereon.
Any portion of the Financial Holdback remaining thereafter in the Financial
Holdback Escrow Account shall be returned to the Company, plus the pro-rata
share of interest earned thereon. Notwithstanding the foregoing, any reduction
in Audited EBITDA from 1997 Projected EBITDA because the 1997 Projected
Financial Statements have not been prepared, or the Company's books and records
have not been maintained, in accordance with generally accepted accounting
principles consistently applied, shall not be deemed to reduce the Audited
EBITDA when compared to the 1997 Projected EBITDA and thus, shall not be
considered for purposes of this Section 15(c) in determining whether Purchaser
is entitled to any portion of the Financial Holdback.
(d) Application of Other Holdback. The Other Holdback shall be
utilized for the purpose of reimbursing Purchaser for any other liability,
breach of a representation or warranty, or indemnity of the Company to Purchaser
pursuant to this Agreement. In the event Purchaser is entitled to any such
reimbursement, the appropriate amount, together with the pro-rata share of the
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interest earned on such amount, shall be disbursed to Purchaser from the Other
Holdback Escrow Account. Following the expiration of the Other Holdback Term,
the remainder of the Other Holdback not then subject to any reimbursement
claims, if any, together with all interest earned on such remainder, shall be
disbursed from the Other Holdback Escrow Account to the Company, together with
the pro-rata share of the interest earned thereon. If the amount to which
Purchaser is entitled to reimbursement exceeds the Other Holdback, and Purchaser
elects to utilize the Other Holdback to reimburse it up to the maximum extent
possible, the Other Holdback, together with all interest earned thereon shall be
disbursed to Purchaser from the Other Holdback Escrow Account and the Company
shall, within ten (10) business days thereafter, remit to Purchaser the amount
by which the Purchaser is entitled to receive reimbursement in excess of the
Other Holdback.
(e) Tax Allocation of Escrow Interest. All taxes in respect of the
interest earned with respect to the Holdback and the Earn Out Deposit shall be
paid by the party entitled to receive same.
16. (a) Termination. This Agreement may be terminated at any time prior to
the Closing Date as follows:
(i) by the written agreement of Purchaser and the Company;
(ii) by the Purchaser by written notice to the Company if (A) the
representations and warranties of the Company shall not have been
true and correct in all material respects (in the case of any
representation or warranty without any materiality qualification) as
of the date when made or (B) if any of the conditions precedent set
forth in Section 14(b) herein shall not have been, or if it becomes
apparent that any of such conditions will not be fulfilled, or (C)
any of the Pro Forma Financial Statements are not materially true
and correct unless such failure shall be due to the failure of
Purchaser to perform or comply with any of the covenants, agreements
or conditions hereof to be performed or complied with by it prior to
the Closing, then in any such event the provisions of Section
16(b)(ii) shall automatically apply;
(iii) by the Company by written notice to Purchaser if (A) the
representations and warranties of Purchaser shall not have been true
and correct in all material respects (in the case of any
representation or warranty containing any materiality qualification)
as of the date when made, (B) if any of the conditions precedent set
forth in Section 14(c) herein shall not have been, or if it becomes
apparent that any of such conditions
51
<PAGE>
will not be fulfilled, unless such failure shall be due to the
failure of the Company to perform or comply with any of the
covenants, agreements or conditions hereof to be performed or
complied with by it prior to the Closing, or (C) Purchaser shall
have failed to make the Second Prepayment hereunder when same is due
and owing, then in any such event the provisions of Section
16(b)(iii) shall apply; or
(iv) by the Company or Purchaser at any time for any reason
whatsoever, or for no reason at all, by giving written notice to the
other party, provided that in the event that the Purchaser is the
party giving such written notice pursuant to this Section 16(a)(iv),
the provisions of Section 16(b)(iii) shall apply, and similarly, in
the event that the Company is the party giving notice hereunder, the
provisions of Section 16(b)(ii) shall apply.
(b) Effect of Termination. In the event of the termination of this
Agreement pursuant to any of the provisions of Section 16(a) hereof, this
Agreement shall become null and void and have no further force and effect,
without any liability in respect hereof or of the transactions contemplated
hereby on the part of any party hereto, or any of the directors, officers,
employees, agents, consultants, representatives, advisers, stockholders or
Affiliates of any party hereto, except as follows:
(i) [Intentionally Deleted]
(ii) In the event that the Purchaser terminates this Agreement in
accordance with Section 16(a)(ii) above, the Company shall
immediately deliver to Purchaser $500,000 U.S. Dollars by wire
transfer no later than the third (3rd) business day after any such
termination; provided that in the event that Purchaser terminates
this Agreement in accordance with the provisions of Section
16(a)(ii) and the provisions of Section 15(c) are not applicable, in
addition to the provisions of this Section 16(b)(ii), the Company
shall also immediately return to Purchaser by wire transfer no later
than the third (3rd) business day after such termination, all
Prepayments theretofore made by Purchaser to the Company.
(iii) In the event that the Company terminates this Agreement in
accordance with Section 16(a)(iii) above, or the Company terminates
this Agreement in accordance with Section 16(a)(iv) above, the
Company shall, in addition to retaining all Prepayments theretofore
delivered to Company by Purchaser, receive immediately
52
<PAGE>
from Purchaser $500,000 U.S. Dollars by wire transfer no later than
the third (3rd) business day after such termination; provided,
however, that in the event Purchaser's failure under Section
16(a)(iii)(B) is solely related to its delivery obligations under
Section 5(a)(i) or the Company is terminating this Agreement in
accordance with Section 16(a)(iii)(C), then notwithstanding the
foregoing, Company's sole and exclusive remedy shall be to retain
all Prepayments theretofore received hereunder as liquidated damages
(including, if applicable, the Third Prepayment delivered into
escrow in accordance with the hold-back provision in Section 15
above which shall immediately be released).
(iv) The Escrow Agent shall also maintain the Financial Holdback
Escrow Account, the Other Holdback Escrow Account, and the Earn Out
Escrow Account pursuant to separate escrow agreements to be
established and entered into by the parties upon the Closing in
accordance with the provisions hereof. The "Trade Payables Escrow
Account" as that term is defined in Section 18 below shall be
maintained by an Italian bank to be mutually determined in good
faith by the Company and Purchaser (the "Italian Escrow Agent").
(v) Any escrow account established pursuant to Section 16(b)(iv)
above shall be an interest bearing account. The funds in any such
escrow account shall be invested solely in money market accounts in
U.S. treasury securities, money market accounts in banks having
combined capital, surplus and individual profits of at least
$50,000,000, or a government securities fund.
17. Right to Designate Director. Simultaneously upon the Closing, the
Company shall have the option to designate one (1) individual (which individual
shall be subject to the absolute approval of Purchaser) to be elected to
Purchaser's board of directors as a director in accordance with Purchaser's
by-laws.
18. Trade Payables Escrow Account. Upon the Closing of this Agreement,
pursuant to an agreement be entered into with the Italian Escrow Agent (the
"Trade Payables Escrow Agreement"), Purchaser shall deposit into a segregated
interest bearing escrow account (the "Trade Payables Escrow Account") an amount
representing those Trade Payables that the Purchaser is obligated to pay
hereunder but will not actually be paid by Purchaser within thirty (30) days
from the Closing Date (the "Trade Payables Deposit"). The Trade Payables Deposit
shall be held by the Italian Escrow Agent in accordance with the provisions of
Section 16(b)(iv) above and the provisions hereinbelow set forth. The Trade
Payables shall be paid on a timely basis by Purchaser
53
<PAGE>
and Purchaser hereby agrees to indemnify and hold harmless the Company with
respect to any interest and penalties arising out of Purchaser's failure to pay
the Trade Payables on a timely basis. From time to time, the Purchaser shall
cause the Italian Escrow Agent to disburse portions of the Trade Payables
Deposit to those vendors and suppliers who are entitled to same; provided,
however that the entire Trade Payables Deposit shall be disbursed no later than
eighteen (18) months subsequent to the Closing Date. To the extent there remains
any amount of the Trade Payables Deposit as a consequence of Purchaser settling
any Agreed Upon Accounts Payable with a vendor or supplier for less than the
amount set forth on Schedule 1(b).1, any such remaining amount of the Trade
Payables Deposit shall be the sole and exclusive property of the Purchaser. All
interest earned with respect to the Trade Payables Deposit shall be the property
of the Purchaser and Purchaser shall be responsible for all taxes in connection
therewith.
19. Earn Out. The Purchaser shall, pursuant to an agreement to be entered
into with the Escrow Agent (the "Earn Out Escrow Agreement") deposit the Earn
Out Deposit upon the Closing into a segregated interest bearing escrow account
(the "Earn Out Escrow Account") to be held by the Escrow Agent for twelve (12)
months subsequent to the Closing Date (the "Escrow Term") in accordance with the
provisions of Section 16(b)(iv) above and the provisions hereinbelow set forth.
Until such time as the Purchaser sells during the Escrow Term Five Hundred (500)
of the Company's "Helios" projectors (the "Base Amount") at prices and upon such
terms and conditions to be mutually agreed upon by the Purchaser and the Company
from time to time, the Company shall not be entitled to any of the Earn Out
Deposit. At such time as the Purchaser has effected the sale of the Base Amount
during the Escrow Term in the manner described in the immediately preceding
sentence, for each sale of a Helios projector or two (2) of the Company's "CRT"
projectors sold thereafter during the Escrow Term at a price and upon terms and
conditions to be mutually agreed upon by the Purchaser and the Company from time
to time (one (1) Helios projector or two (2) CRT projectors, after achieving the
Base Amount, is hereinafter referred to as a "Qualifying Unit"), the Company
shall be entitled to receive from the Earn Out Escrow Account an amount equal to
.1111% of the Earn Out Deposit until such time as nine hundred (900 ) Qualifying
Units have been sold, provided, however, that subsequent to achieving the Base
Amount, no more than five hundred (500) Qualifying Units shall be sales of CRT
projectors . Purchaser shall cause the Escrow Agent to pay to the Company the
requisite portion of the Earn Out Deposit from the Earn Out Escrow Account at
such time and from time to time as the Company is entitled to receive at least
$200,000 with respect to sales of Qualifying Units in accordance with the
provisions of this Section 19; provided, however, that in the event that
Purchaser and the Company enter into certain agreements mutually acceptable to
Purchaser and the Company with
54
<PAGE>
Mr. Giovanni Cozzi and James Wellnick pursuant to which the Company is obligated
to make certain payments Messrs. Cozzi and Wellnick, the first such $200,000
payment due and owing to the Company in accordance with the terms and conditions
of this Section 19 shall be reduced by up to $150,000 as consideration for any
payments made by Purchaser on the Company's behalf to Messrs. Cozzi and Wellnick
pursuant to the aforementioned agreements entered into by the Purchaser and the
Company with each of them on or prior to the Closing Date (i.e., by way of
example, in the event that this proviso is applicable, and in the event that the
first payment that the Company would be entitled to receive pursuant to this
Section 19 would be $210,000, the Company will receive instead $60,000, but will
be deemed to have received, for the purposes of this Section 19, $210,000). The
Purchaser shall cause any payment required to the made to the Company pursuant
to the terms and conditions of this Section 19 to be made promptly subsequent to
the Company achieving the requisite sales of Qualifying Units. It is agreed and
understood that the Earn Out provisions of this Section 19 are subject to
sufficient capital being available to effect the sale in a timely manner of
Units for which the Company has actually received orders; it being agreed and
understood that in the event that there is insufficient capital to effect sales
of Units for which the Company has actually received orders, the parties will,
in good faith, resolve to modify the provisions of this Section 19 as
appropriate. In the event that the parties are unable to agree upon a resolution
with respect to the foregoing, the matter shall be resolved in accordance with
the provisions of Section 21(h) below. The Earn Out Escrow Account shall
automatically terminate and be liquidated on the expiration of the Escrow Term.
All interest earned on the Earn Out Deposit and any amount of the Earn Out
Deposit remaining upon the termination and liquidation of the Earn Out Escrow
Account, including all interest with respect thereto, shall be the sole and
exclusive property of the Purchaser and the Company shall have no rights of any
nature whatsoever with respect thereto. Accordingly, the Purchaser shall be
responsible for all taxes payable in connection with the interest earned on the
Earn Out Deposit.
20. Notices. Any and all notices, demands or requests required or
permitted to be given under this Agreement shall be given in writing and sent,
by registered or certified U.S. mail, return receipt requested, by hand, or by
overnight courier, addressed to the parties hereto at their addresses set forth
above or such other addresses as they may from time-to-time designate by written
notice, given in accordance with the terms of this Section, together with copies
thereof as follows:
In the case of Purchaser, to:
Projectavision, Inc.
Two Penn Plaza
55
<PAGE>
Suite 640
New York, NY 10121
Telephone no.: (212) 971-3000
Facsimile no.: (212) 971-6016
Attn: Martin J. Holleran, Chief Executive Officer
and President
with a copy simultaneously by like means to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
Telephone no.: (212) 223-6700
Facsimile no.: (212) 223-6433
Attention: Clifford A. Brandeis, Esq.
and
Studio Legale fondato da F. Carnelutti
Largo della Fontanella di Borghese 19
Roma, Italy
Telephone no.: (39) 6 6889911
Facsimile no.: (39) 6 6878644
Attn: Frederico Vermicelli, Esq.
In the case of the Company, to:
Vidikron Industries S.p.A.
Via Dei Guasti, 29
20020 Misinto (Milano)
C.so Venezia, 16-20121 Milano, Italy
Telephone no.: (011) 39-2-96.72.02.75
Facsimile no.: (011) 39-2-96.32.88.34
Attn: Mr. Flavio Peralda
with a copy simultaneously by like means to:
Breveglieri & Associati
Studio Legale
20122 Milano
Largo Augusto 3
Attn: Avv. Luca Breveglieri
(In addition, without constituting notice hereunder, the parties shall use
reasonable efforts to send by facsimile to counsel for the party to whom notice
is to be sent copies of all notices sent by such party). Notice given as
provided in this Section shall be deemed effective: (i) on the date hand
delivered, (ii) on the first business day following the sending thereof by
overnight
56
<PAGE>
courier, (iii) on the seventh calendar day (or, if it is not a business day,
then the next succeeding business day thereafter) after the depositing thereof
into the exclusive custody of the U.S. Postal Service, and (iv) on the
fourteenth (14th) calendar (or if not a business day, then the next succeeding
business day thereafter) after the deposit into the exclusive custody of the
Italian Postal Service).
21. Miscellaneous. (a) This Agreement, including, without limitation, the
schedules, Purchaser's Related Documents, the Company's Related Documents, and
other documents referred to herein, among the parties hereto, constitutes the
entire agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, arrangements or understandings with
respect hereto, including but not limited to that certain letter of intent dated
July 31, 1997 among certain of the parties hereto, and may not be modified or
amended except by a written agreement specifically referring to this Agreement
signed by all of the parties hereto.
(b) No waiver of any breach or default hereunder shall be considered
valid unless in writing and signed by the party giving such waiver, and no such
waiver shall be deemed a waiver of any subsequent breach or default of the same
or similar nature.
(c) This Agreement shall be binding upon and inure to the benefit of
each corporate party hereto, its successors and assigns.
(d) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections nor affect the meaning or interpretation of this Agreement.
(e) Each party hereto shall cooperate, shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(f) Except as otherwise provided herein or in agreements delivered
in connection with this Agreement, all legal, accounting and other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party or parties incurring the same.
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which taken together shall
constitute one and the same instrument.
57
<PAGE>
(h) This Agreement and all amendments hereto shall be governed by,
construed and enforced in accordance with the internal laws of Italy without
reference to principles of conflict of laws. Each of the parties expressly agree
that any dispute of any nature arising out of or relative to any of the
transactions contemplated by this Agreement, including but not limited to any
dispute relative to Section 15 above, shall be submitted to, and shall be
exclusively determined by, binding arbitration applying the rules of the
American Arbitration Association situated in New York City. Any decision
rendered in such arbitration shall be final and conclusive and binding on the
parties, and may only be entered in a court located in the State of New York,
County of New York. Each party shall be responsible for their own legal fees in
connection with any arbitration unless application to the contrary is made to,
and a decision is rendered by, the arbitration panel in connection with any
arbitration.
(i) If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision, only to the extent it is invalid or unenforceable, and shall not in
any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
(j) All Schedules attached hereto shall be incorporated by reference
herein as if set forth herein in full.
(k) The Company, on the one hand, and Purchaser, on the other hand,
agree that, without the prior written consent of the other, unless otherwise
required by law, it shall not make or permit to be made any announcement of any
kind about this Agreement or the transactions contemplated hereby, either prior
to the Closing Date or any time hereafter in the event the transactions
contemplated hereby are not consummated as provided herein.
(l) The Company, on the one hand, and Purchaser, on the other hand,
represent and warrant to the other that there is no obligation to pay any
commission, finder's fee, broker's fee or similar charge in connection with the
transactions provided for in this Agreement, resulting from any agreements or
other action of such representing party.
(m) All documents to be delivered by the Company or the Subsidiary
for Purchaser's review hereunder shall be delivered if originally written in a
language other than English, in the original language in which it was written.
58
<PAGE>
(n) This Agreement is not intended to, and shall not confer any
rights upon, any parties other than the express parties hereto.
(o) Upon the execution of this Agreement, the Company expressly
agrees that it will not, directly or indirectly, solicit or discuss with any
potential third party any proposals with respect to the sale or other
disposition, however effected, to any third party of any capital stock or any
assets of the Company or the Subsidiary not in the ordinary course of business,
nor will the Company or the Subsidiary provide any information relating to any
such possible sale or other disposition of any of the Company's or the
Subsidiary's capital stock or assets (other than in the ordinary course of
business) to any potential third party buyer or disclose to any potential third
party buyer the fact that the Company or the Subsidiary is, or any of its
capital stock or assets (except in the ordinary course of business) are, for
sale or disposition, generally. In the event that the Company receives an
unsolicited inquiry relating to any of the forgoing, the Company shall
immediately advise Purchaser of same.
(p) The Company expressly acknowledges that the Purchaser is a
public company and subsequent to the execution of the Asset Purchase Agreement
the Company may (although not immediately), and upon the Closing of the
transaction contemplated by the Asset Purchase Agreement the Company will, have
a legal obligation to make public disclosures and filings in accordance with the
rules and regulations promulgated by the United States Securities and Exchange
Commission. Accordingly, the Company agrees to keep all negotiations relating
to, and the signing of, this Agreement, strictly confidential, and that
subsequent to the execution of this Agreement (although not immediately), the
Purchaser may, and upon the Closing the transaction contemplated by the Asset
Purchase Agreement will, prepare and issue a press release and effect other
public disclosures for dissemination and filing in accordance with the rules and
regulations of the United States Securities and Exchange Commission. The form,
substance and timing of all public disclosures and filings shall be determined
solely by the Purchaser upon consultation with the Company; provided, however,
that the Purchaser's determination with respect to all aspects of public
disclosure shall govern. The Purchaser acknowledges that subsequent to the
execution of this Agreement, the Company may, upon consultation with Purchaser,
make certain disclosures to private individuals or entities in connection with
the transactions contemplated hereby.
(q) In the event that subsequent to the Closing the Company receives
funds relative to the Government Loan, the Company agrees that any such funds
will be utilized solely in connection with the Company's Video Business as
directed by
59
<PAGE>
Purchaser and Purchaser agrees to be obligated to repay all such funds.
(r) Upon the Closing, the Company and Purchaser shall make whatever
appropriate adjustments that are required upon the mutual agreement of the
parties with respect to any projector engines that have been prepaid in whole or
in part by the Company and that will be sold subsequent to the Closing for the
benefit of the Purchaser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PROJECTAVISION, INC.
By: /s/ Martin J. Holleran
---------------------------------
Name: Martin J. Holleran
Title: President and Chief
Executive Officer
VIDIKRON INDUSTRIES S.p.A.
By: /s/ Flavio Peralda
---------------------------------
Name: Flavio Peralda
Title: President
60
<PAGE>
AGREEMENT
AGREEMENT (this "Agreement"), by and between Projectavision, Inc., a
Delaware corporation having its principal office at Two Penn Plaza, Suite 640,
New York, NY 10121 ("Projectavision"), and Vidikron Industries, S.p.A., an
Italian corporation having its principal office at Via Dei Guasti, 29 20020
Misuito (Milano), Italy (the "Company").
W I T N E S S E T H:
WHEREAS, Projectavision and the Company have entered into that certain
Agreement of Purchase and Sale of Assets dated January 20, 1998 (the "Asset
Purchase Agreement") pursuant to which Projectavision is purchasing certain
assets of Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in the Asset Purchase Agreement and in this Agreement, and for other
good and valuable consideration, receipt of which is hereby mutually
acknowledged, the parties hereto agrees as follows:
1. Notwithstanding anything to the contrary in the Asset Purchase
Agreement, upon the "Closing" (as that term is defined in the Asset Purchase
Agreement) of the Asset Purchase Agreement, Projectavision agrees to assume the
existing, unsecured bank indebtedness of the Company's eighty-five percent (85%)
owned subsidiary, Vidikron of America, Inc. (the "Subsidiary") in the principal
amount of approximately One Million Two Hundred Thousand ($1,200,000) Dollars
with P&C Bank as set forth on Schedule 1 annexed hereto (the "Subsidiary's Bank
Debt").
2. Notwithstanding anything set forth in the Asset Purchase Agreement,
upon the Closing of the Asset Purchase Agreement, in the event that the
principal amount of the Subsidiary's Bank Debt on the Closing is less than or
exceeds One Million Two Hundred Thousand ($1,200,000) Dollars the "Purchase
Price" (as that term is defined in the Asset Purchase Agreement) shall either be
increased or reduced accordingly, on a dollar-for-dollar basis. By way of
example, in the event that the principal amount of the Subsidiary's Bank Debt on
the Closing Date is One Million Three Hundred Thousand ($1,300,000) Dollars, the
Purchase Price shall be reduced by One Hundred Thousand ($100,000) Dollars to
One Million Nine Hundred Thousand ($1,900,000) Dollars. Similarly, in the event
that the principal amount of the Subsidiary's Bank Debt on the Closing Date is
One Million One Hundred Thousand ($1,100,000) Dollars, the Purchase Price shall
be increased by One Hundred Thousand ($100,000) Dollars to Two Million One
Hundred Thousand ($2,100,000) Dollars.
3. Notwithstanding anything to the contrary in the Asset Purchase
Agreement, the consummation of the transactions contemplated by this Agreement
shall occur only in the event of
<PAGE>
the Closing of the transactions contemplated by the Asset Purchase Agreement,
whereupon the consummation of the transactions contemplated by this Agreement
shall occur simultaneously therewith.
4. Except as expressly set forth herein, all of the terms and conditions
of the Asset Purchase Agreement shall remain in full force and effect.
5. Assumption by Affiliates. Notwithstanding anything to the contrary in
this Agreement, Projectavision may cause some or all of the Subsidiary's Bank
Debt to be acquired hereunder by one (1) or more affiliates of Projectavision;
provided, however, that Projectavision shall remain liable, jointly and
severally, with any such affiliate(s) for any and all obligations under this
Agreement. The term "affiliates" as used in this Section 5 shall have the same
meaning as set forth under the definition of "affiliates" in Rule 405 of the
Securities Act of 1933, as amended.
6. This Agreement may be executed in counterparts, all of which together
shall be considered a single instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PROJECTAVISION, INC.
By: /s/ Martin J. Holleran
-----------------------------
Martin J. Holleran
Chief Executive Officer and
President
VIDIKRON INDUSTRIES, S.p.A.
By: /s/ [ILLEGIBLE]
-----------------------------
Name:
Title:
2
<PAGE>
AGREEMENT
AGREEMENT (this "Agreement"), by and between Projectavision, Inc., a
Delaware corporation having its principal office at Two Penn Plaza, Suite 640,
New York, NY 10121 ("Projectavision"), and Vidikron Industries, S.p.A., an
Italian corporation having its principal office at Via Dei Guasti, 29 20020
Misuito (Milano), Italy (the "Company").
W I T N E S S E T H:
WHEREAS, Projectavision and the Company have entered into that certain
Agreement of Purchase and Sale of Assets dated January 20, 1998 (the "Asset
Purchase Agreement") pursuant to which Projectavision is purchasing certain
assets of Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in the Asset Purchase Agreement and in this Agreement, and for other
good and valuable consideration, receipt of which is hereby mutually
acknowledged, the parties hereto agrees as follows:
1. Notwithstanding anything to the contrary in the Asset Purchase
Agreement, upon the "Closing" (as that term is defined in the Asset Purchase
Agreement) of the Asset Purchase Agreement, Projectavision agrees to assume the
existing, unsecured bank indebtedness of the Company's eighty-five percent (85%)
owned subsidiary, Vidikron of America, Inc. (the "Subsidiary") in the principal
amount of approximately One Million Two Hundred Thousand ($1,200,000) Dollars
with P&C Bank as set forth on Schedule 1 annexed hereto (the "Subsidiary's Bank
Debt").
2. Notwithstanding anything set forth in the Asset Purchase Agreement,
upon the Closing of the Asset Purchase Agreement, in the event that the
principal amount of the Subsidiary's Bank Debt on the Closing is less than or
exceeds One Million Two Hundred Thousand ($1,200,000) Dollars the "Purchase
Price" (as that term is defined in the Asset Purchase Agreement) shall either be
increased or reduced accordingly, on a dollar-for-dollar basis. By way of
example, in the event that the principal amount of the Subsidiary's Bank Debt on
the Closing Date is One Million Three Hundred Thousand ($1,300,000) Dollars, the
Purchase Price shall be reduced by One Hundred Thousand ($100,000) Dollars to
One Million Nine Hundred Thousand ($1,900,000) Dollars. Similarly, in the event
that the principal amount of the Subsidiary's Bank Debt on the Closing Date is
One Million One Hundred Thousand ($1,100,000) Dollars, the Purchase Price shall
be increased by One Hundred Thousand ($100,000) Dollars to Two Million One
Hundred Thousand ($2,100,000) Dollars.
3. Notwithstanding anything to the contrary in the Asset Purchase
Agreement, the consummation of the transactions contemplated by this Agreement
shall occur only in the event of
<PAGE>
the Closing of the transactions contemplated by the Asset Purchase Agreement,
whereupon the consummation of the transactions contemplated by this Agreement
shall occur simultaneously therewith.
4. Except as expressly set forth herein, all of the terms and conditions
of the Asset Purchase Agreement shall remain in full force and effect.
5. Assumption by Affiliates. Notwithstanding anything to the contrary in
this Agreement, Projectavision may cause some or all of the Subsidiary's Bank
Debt to be acquired hereunder by one (1) or more affiliates of Projectavision;
provided, however, that Projectavision shall remain liable, jointly and
severally, with any such affiliate(s) for any and all obligations under this
Agreement. The term "affiliates" as used in this Section 5 shall have the same
meaning as set forth under the definition of "affiliates" in Rule 405 of the
Securities Act of 1933, as amended.
6. This Agreement may be executed in counterparts, all of which together
shall be considered a single instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PROJECTAVISION, INC.
By: /s/ Martin J. Holleran
-----------------------------
Martin J. Holleran
Chief Executive Officer and
President
VIDIKRON INDUSTRIES, S.p.A.
By: /s/ [ILLEGIBLE]
-----------------------------
Name:
Title:
2
<PAGE>
================================================================================
AGREEMENT OF PURCHASE
AND SALE OF ASSETS
By and Among
PROJECTAVISION, INC.
and
GRANGEOVER LIMITED
================================================================================
January 20, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. (a) Purchase and Sale of Assets......................................1
(b) No Assumed Liabilities...........................................2
2. (a) Purchase Price...................................................2
(b) Acquisition by Affiliates........................................3
3. Closing.................................................................3
4. Seller's Obligations at Closing; Further Assurances.....................3
(b) Liability for Transfer Taxes.....................................4
(c) Further Assurances...............................................4
5. Purchaser's Obligations at Closing......................................5
6. Representations and Warranties of Seller................................5
(a) Organization, Standing and Qualification.........................5
(b) Execution, Delivery and Performance of Agreement;
Authority........................................................5
(c) Taxes............................................................6
(d) Litigation.......................................................7
(e) Compliance with Laws and Other Instruments.......................7
(f) Title to Properties..............................................7
(g) Intellectual Property............................................7
(i) Title...................................................7
(ii) Transfer................................................7
(iii) No Infringement.........................................8
(iv) Licensing Arrangements..................................8
(v) No Intellectual Property Litigation.....................8
(vi) Due Registration, Etc...................................8
(h) Disclosure.......................................................9
7. Representations and Warranties by Purchaser.............................9
(a) Organization.....................................................9
(b) Execution, Delivery and Performance of Agreement.................9
8. Indemnification........................................................10
9. Nature and Survival of Representations and Warranties; Rules
Regarding Indemnification and Other Actions............................12
10. Access to Information and Documents....................................12
11. Notices................................................................12
12. Miscellaneous..........................................................13
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
SCHEDULES
Schedule 1(a)(i) - Countries of Intellectual Property
Schedule 1(a)(ii) - Bill of Sale
Schedule 1(b) - Assumed Liabilities
Schedule 2(e) - Allocation of Purchase Price
Schedule 4(a)(vi) - Opinion of Seller's Counsel
Schedule 4(a)(xii) - Intellectual Property Assignment
Schedule 6(b) - Conflicts
Schedule 6(c) - Unpaid Taxes
Schedule 6(d) - Litigation
Schedule 6(e) - Compliance with Laws
Schedule 6(f) - Encumbered Assets
Schedule 6(g)(iv) - Licensing Arrangements
Schedule 6(g)(v) - Intellectual Property Litigation
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AGREEMENT OF PURCHASE AND SALE OF ASSETS
AGREEMENT (this "Agreement"), dated January 20, 1998, by and among
PROJECTAVISION, INC., a Delaware corporation having its principal office at Two
Penn Plaza, Suite 640, New York, NY 10121 ("Purchaser") and GRANGEOVER LIMITED,
an Isle of Mann corporation having and address at Clinch's House, Lord Street,
IM 99 IRZ Douglas, Isle of Mann (Grangeover Limited, and any permitted designee,
successor or assignee is hereinafter referred to as "Seller").
W I T N E S S E T H:
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain assets constituting Seller's business on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and in order to set forth the terms and conditions of the
purchase and sale of assets and the manner of carrying the same into effect, the
parties hereto hereby agree as follows:
1. (a) Purchase and Sale of Assets. Subject to and upon the terms and
conditions set forth in this Agreement, Seller agrees to sell, transfer, convey,
assign and deliver to Purchaser (or a designated affiliate of Purchaser as
contemplated by Section 2(c) hereof), and Purchaser agrees to purchase at the
Closing (as defined in Section 3 hereof), the following assets, properties,
goodwill and rights of Seller, whether or not carried or reflected on the books
and records of Seller (hereinafter sometimes collectively called "Seller's
Assets"):
(i) all of Seller's right, title and interest in and to any and all
Intellectual Property for the following countries: Austria, Belgium,
Luxembourg, France, Germany, Netherlands, Principality of Monte
Carlo, Portugal, Czech Republic, Slovakia, Slovenia, Spain and
Switzerland (such countries, collectively, the "Territory") . For
purposes of this Agreement, the term "Intellectual Property" shall
mean, in respect of the Territory, if applicable, , (A) industrial
designs and improvements thereto; (B) trademarks, service marks,
trade names, trade dress, logos, business and product names,
slogans, and registrations and applications for registration, if any
thereof; (C) copyrights (including, without limitation, software)
and registrations thereof, if any; (D) intellectual property rights
similar to any of the foregoing; and (E) copies and tangible
embodiments thereof (in
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whatever form or medium, including, without limitation, electronic
media);
(ii) all Intellectual Property rights in and to the products and
services sold, rented or leased and in and to any products or other
Intellectual Property rights under research or development prior to
or on the Closing Date;
(iii) to the extent their transfer is permitted by law, all consents,
approvals, authorizations, waivers, permits, grants, franchises,
concessions, agreements, licenses, exemptions or orders of regulation,
certificate, declaration or filing with, or report or notice to any
entity issued, executed, delivered or otherwise made to or for the
benefit of Seller's Assets, including all applications thereof
(collectively, the "Consents") including, but not limited to, the
Consent (the "Governmental Approval") of any nation, or government,
any state or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including,
without limitation, any government authority, agency, department,
board, commission or instrumentality of the United States, any state
of the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction, and any
self-regulatory organization (collectively, the "Governmental
Authority" or "Governmental Authorities");
(iv) all rights to choses in action, causes of action, claims and
rights of recovery or setoff, lawsuits, judgments, claims and
demands of any nature available to or being pursued by the Seller
with respect to Seller's Assets whether arising by way of
counterclaim or otherwise;
(b) No Assumed Liabilities.
(i) Seller's Assets shall be conveyed free and clear of all
liabilities, obligations, liens, claims and encumbrances, of any
nature whatsoever
2. (a) Purchase Price. In consideration of the sale, transfer, conveyance,
assignment and delivery of Seller's Assets by Seller to Purchaser, and in
reliance upon the representations and warranties made herein by Seller,
Purchaser agrees, in full payment therefor, to deliver to Seller the following
purchase price (the "Purchase Price") payable to Seller by delivery at the
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Closing or at such other time as provided herein, the sum of three million
dollars ($3,000,000.00) by wire transfer or certified or official bank checks.
(b) Acquisition by Affiliates. Notwithstanding anything to the
contrary in this Agreement, Purchaser may cause Seller's Assets to be acquired
by one (1) or more affiliates of Purchaser; provided, however, that Purchaser
shall remain liable for all obligations of Purchaser hereunder. The term
"affiliates" as used in this Section 2(c) shall have the same meaning as set
forth under the definition of "affiliates" in Rule 405 of the Securities Act.
3. Closing. The closing of the transactions contemplated under this
Agreement (the "Closing") shall take place at the offices of Zukerman Gore &
Brandeis, LLP, 900 Third Avenue, New York, New York 10022, or at such other
place and in such other manner as the parties hereto may agree. . The day on
which the Closing actually takes place is herein sometimes referred to as the
"Closing Date."
4. Seller's Obligations at Closing; Further Assurances. (a) At the
Closing, Seller agrees to deliver to Purchaser (and, as applicable, execute):
(i) a Bill of Sale duly executed by Seller in substantially the form
of Schedule 1(a)(ii) hereto;
(ii) such other good and sufficient deeds, bills of sale,
endorsements, assignments, documents of title and other instruments
of conveyance, assignment and transfer, in form and substance
reasonably satisfactory to Purchaser's counsel, as shall be
effective to vest in Purchaser good title to Seller's Assets;
(iii) all contracts, files and other data (including, without
limitation, lists of orders and computer disks and tapes) and
documents pertaining to Seller's Assets;
(iv) a certified copy of resolutions adopted by Seller's Board of
Directors authorizing the execution, delivery and performance of
this Agreement;
(v) the opinion of Seller's counsel, substantially in the form of
Schedule 4(a)(vi) annexed hereto;
(vi) an assignment agreement for the Intellectual Property in
substantially the form of Schedule 4(a)(xii) annexed hereto (the
"Intellectual Property Assignment");
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(vii) all Consents, including, without limitation, those necessary
in connection with the Intellectual Property Assignment;
(viii) Governmental Approvals, if required; and
(ix) all other documents and instruments required to be delivered to
Purchaser pursuant to the provisions of this Agreement.
(b) Liability for Transfer Taxes. Except with respect to the Bill of
Sale Registration Tax under Italian law (but no penalties or interest with
respect thereto) Seller shall be responsible for the timely payment of, and
shall indemnify and hold harmless Purchaser against, all income, sales
(including, without limitation, bulk sales), use, value added, documentary,
stamp, gross receipts, registration, transfer, conveyance, excise, recording,
license and other similar Taxes (as defined in Section 6(i) hereof) and fees
(collectively, "Transfer Taxes"), arising out of or in connection with or
attributable to the transactions effected pursuant to this Agreement and the
Related Agreements. Seller shall prepare and timely file all tax returns
required to be filed in respect of Transfer Taxes, provided that Purchaser shall
be permitted to prepare any such tax returns that are the primary responsibility
of Purchaser under Applicable Law. Purchaser's preparation of any such tax
returns shall be subject to Seller's approval, which approval shall not be
unreasonably withheld or delayed. Purchaser agrees that it shall be responsible
for the payment of the Bill of Sale Registration Tax, if any, under Italian law,
but it is expressly agreed that in the event that any interest or penalties are
due and payable with respect to such tax, Seller shall have the sole
responsibility for, and hereby indemnifies Purchaser, with respect thereto.
(c) Further Assurances. At any time and from time to time after the
Closing, at Purchaser's request and expense, without further consideration,
Seller shall execute and deliver such other additional instruments of sale,
transfer, conveyance, assignment and confirmation and take such other action as
Purchaser may reasonably deem necessary or desirable in order to transfer,
convey and assign to Purchaser Seller's Assets and to put Purchaser in actual
possession and operating control thereof and to assist Purchaser in exercising
all of Seller's rights with respect thereto and to take such action and execute
such documents or instruments as may be reasonably requested by Purchaser in
connection with any governmental or regulatory matters or filings required to be
made by Purchaser, including, without limitation, any filings, documents or
instruments to be delivered to the United States Securities and Exchange
Commission (the "SEC") or any other Governmental Authority, Purchaser's lenders,
auditors or any other appropriate party, all of which filings, if any, shall be
at the expense of the Purchaser.
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5. Purchaser's Obligations at Closing. (a) At the Closing, Purchaser
agrees to deliver, or cause to be delivered, as the case may be, to Seller (and,
as applicable, execute):
(i) the Purchase Price as provided in Section 2(a) hereof;
(ii) a certified copy of resolutions adopted by the Board of
Directors of Purchaser authorizing the execution, delivery and
performance of this Agreement and Purchaser's Related Agreements (as
defined in Section 7(a) hereof); and
(iii) all other documents and instruments required to be delivered
to Seller pursuant to the provision of this Agreement.
(b) At any time and from time to time after the Closing, at Seller's
request and expense, Purchaser shall execute and deliver such other additional
instruments as Seller may reasonably deem necessary to evidence Purchaser's
obligations under this Agreement, and Purchaser agrees to take such actions as
may be reasonably necessary to carry out the purposes and intentions of this
Agreement. For a reasonable period of time following the Closing, Purchaser
shall provide Seller with reasonable access to all books and records of Seller
that are delivered to Purchaser hereunder relating to Seller's Assets and the
period through the Closing Date.
6. Representations and Warranties of Seller. Seller represents and
warrants to Purchaser, as follows:
(a) Organization, Standing and Qualification. Seller (i) is a
corporation duly organized, validly existing and in good standing under the laws
of The Isle of Mann; and (ii) has all requisite corporate power and authority
and is entitled to carry on its business as now being conducted and to own,
lease or operate its properties in the places where such business is now
conducted and such properties are now owned, leased or operated.
(b) Execution, Delivery and Performance of Agreement; Authority.
Except as set forth on Schedule 6(b) annexed hereto, neither the execution,
delivery nor performance of this Agreement and all other agreements to which
Seller is a party required to be delivered by Seller, pursuant to Section 4(a)
hereof (which documents are hereinafter sometimes collectively referred to as
"Seller's Related Agreements") by Seller will, with or without the giving of
notice or the passage of time, or both, conflict with, result in a default,
right to accelerate or loss of rights under, or result in the creation of any
lien, charge or encumbrance pursuant to any provision of Seller's certificate of
incorporation or by-laws or any
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franchise, mortgage, deed of trust, lease, license, agreement, Applicable Law,
rule or regulation or any order, judgment or decree to which Seller is a party
or by which it may be bound or materially or adversely affected or require any
consent, authorization, approval or any other action by, or any notice to, or
filing or registration with, any Governmental Authority or other third party. No
Consent is required to be obtained or made by Seller in connection with the
execution and delivery of this Agreement or the Seller's Related Agreements and
to consummate the transactions contemplated hereby. Seller has the full power
and authority to enter into this Agreement and, as applicable, Seller's Related
Agreements and to carry out the transactions contemplated hereby, as applicable,
all proceedings required to be taken by them to authorize and approve the
execution, delivery and performance of this Agreement and Seller's Related
Agreements have been properly taken, and this Agreement and Seller's Related
Agreements constitute valid and binding obligations of Seller, enforceable in
accordance with their terms, except that such enforcement may be subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium and
similar law affecting creditors' rights generally. The execution, delivery and
performance of this Agreement and Seller's Related Agreements have been duly
authorized, to the extent required by Applicable Law and by all requisite
corporate and shareholder action of Seller, if necessary.
(c) Taxes. Except as set forth on Schedule 6(c) annexed hereto, all
Taxes with respect to Seller's Assets imposed by Great Britain, or by any other
country or by any state, municipality, subdivision or instrumentality of Great
Britain or of any other country, or by any other taxing authority, which are due
or payable by Seller or any Affiliate of Seller, and all interest and penalties
thereon, whether disputed or not, have been paid in full; all tax returns
required to be filed in connection therewith have been accurately prepared and
duly and timely filed prior to the expiration of any available extension
periods. As used in this Agreement, "Taxes" shall include, without limitation,
all federal, state, provincial, local, foreign or other income, alternative
minimum, accumulated earnings, add-on, personal holding company, franchise,
capital stock, net worth, capital, profits, gross receipt, value added, sales,
use, goods and services, transaction, excise, customs, duties, transfer,
conveyance, mortgage, registration, stamp, documentary, recording, premium,
charges, fees, severance, environmental, real property, gains, personal
property, ad valorem, intangibles, rent, occupancy, license, occupational,
employment, unemployment insurance, social security, disability, workers'
compensation, payroll, withholding, estimated or other similar tax, duty or
other governmental charge or assessment or deficiency thereof, including all
interest and penalties thereon and additions thereto whether disputed or not.
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(d) Litigation. Except as set forth on Schedule 6(d) annexed hereto,
there is no claim, charge, legal action, suit, arbitration or other legal or
administrative proceeding (or governmental investigation) with respect to
Seller's Assets for which Seller has received service of process or written
notice of any nature in respect thereof, or any order, decree or judgment in
progress, pending or in effect, or, to the best knowledge of Seller, threatened
against or relating to Seller's Assets, knows or has reason to be aware of any
basis for the same.
(e) Compliance with Laws and Other Instruments. Except as set forth
in Schedule 6(e) annexed hereto, Seller, to the best of its knowledge, has
complied in all material respects with all existing laws, rules, regulations,
ordinances, orders, judgments and decrees now or hereafter applicable to
Seller's Assets. Neither the ownership nor use of Seller's Assets conflicts with
the rights of any other person, firm or corporation, or violates, or with or
without the giving of notice or the passage of time, or both, will violate,
conflict with or result in a default, right to accelerate or loss of rights
under, any terms or provisions of its certificate of incorporation or by-laws as
presently in effect, or any lien, encumbrance, mortgage, deed of trust, lease,
license, agreement, understanding, law, ordinance, rule or regulation, or any
order, judgment or decree to which it is a party or by which it may be bound or
affected.
(f) Title to Properties. Seller has good and marketable title to
Seller's Assets. Except as set forth on Schedule 6(f) annexed hereto, none of
Seller's Assets are subject to any loan agreement, conditional sale or title
retention agreement, equipment obligation, lease purchase agreement, mortgage,
indenture, pledge, security agreement, guaranty, lien, charge, security
interest, encumbrance, restriction, lease, license, easement, liability or
adverse claim of any nature whatsoever (excluding trade and account payables),
direct or indirect, whether accrued, absolute, contingent or otherwise
(collectively, "Encumbrances").
(g) Intellectual Property.
(i) Title. Seller owns, free and clear, all Intellectual Property,
free from any Encumbrances and free from any requirement of any
past, present or future royalty payments, license fees, charges or
other payments, or conditions or restrictions whatsoever.
(ii) Transfer. Immediately after the Closing, Purchaser will own all
of the Intellectual Property and will have the right to use all
Intellectual Property, free from any liens and on the same terms of
any person in effect prior to the Closing.
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(iii) No Infringement. To the best knowledge of Seller, the conduct
of the Seller's business does not infringe or otherwise conflict
with any rights of any person in respect of any Intellectual
Property.
(iv) Licensing Arrangements. Schedule 6(g)(iv) annexed hereto sets
forth all material agreements, arrangements or laws (A) pursuant to
which Seller has licensed Intellectual Property to, or the use of
Intellectual Property is otherwise permitted (through non-assertion,
settlement or similar agreements or otherwise) by, any other party
and (B) pursuant to which Seller has had Intellectual Property
licensed to it, or has otherwise been permitted to use Intellectual
Property. All of the agreements or arrangements set forth on
Schedule 6(g)(iv) annexed hereto (x) are in full force and effect in
accordance with their terms and no default exists thereunder by
Seller, or to the knowledge of Seller, by any other party thereto,
(y) are free and clear of all liens, and (z) do not contain any
change in control or other terms or conditions that will become
applicable or inapplicable as a result of the consummation of the
transactions contemplated by this Agreement. Seller has delivered to
the Purchaser true and complete copies of all licenses and
arrangements (including amendments) set forth on Schedule 6(g)(iv)
annexed hereto. Set forth on Schedule 6(g)(iv) annexed hereto is a
list of all royalties, license fees, charges and other amounts
currently payable by, on behalf of, to, or for the account of,
Seller in respect of any Intellectual Property.
(v) No Intellectual Property Litigation. No claim or demand has been
received nor is there any proceeding that is pending, or to the
knowledge of Seller, threatened, which (A) challenges the rights of
Seller in respect of any Intellectual Property, (B) asserts that
Seller is infringing or otherwise in conflict with, or is, except as
set forth on Schedule 6(g)(v) annexed hereto, required to pay any
royalty, license fee, charge or other amount with regard to, any
Intellectual Property, or (C) claims that any default exists under
any agreement or arrangement listed on Schedule 6(g)(v) annexed
hereto. None of the Intellectual Property is subject to any
outstanding order, ruling, decree, judgment or stipulation by or
with any court, arbitrator, or administrative agency.
(vi) Due Registration, Etc. The Owned Intellectual Property has been
duly registered with, filed in or issued by, as the case may be, in
the appropriate
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filing offices of those countries listed on Schedule 1(a)(i) hereto,
and Seller has taken such other actions, to ensure full protection
under any applicable laws or regulations, and such registrations,
filings, issuances and other actions remain in full force and
effect.
(h) Disclosure. No representation or warranty by Seller contained in
this Agreement or in any other document furnished or to be furnished by Seller
in connection herewith or pursuant hereto contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
required to make the statements herein or therein contained not misleading or
necessary in order to provide a prospective purchaser of Seller's Assets with
adequate information as to Seller's Assets, and Seller has disclosed to
Purchaser in writing all material adverse facts known to them related to the
same. The representations and warranties contained in this Section 6 shall not
be affected or deemed waived by reason of the fact that Purchaser and/or its
representatives should have known that any such representation or warranty is or
might be inaccurate in any respect.
7. Representations and Warranties by Purchaser. Purchaser represents and
warrants to Seller as follows:
(a) Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to enter into this Agreement and all other
agreements to which Purchaser is a party required to be delivered by Purchaser
pursuant to Section 5(a) hereof (which documents are hereinafter sometimes
collectively referred to as "Purchaser's Related Agreements") and to carry out
the transactions contemplated by this Agreement. Purchaser has delivered to
Seller copies of Purchaser's certificate of incorporation, and all amendments
thereto, and the by-laws of Purchaser as presently in effect, each certified as
true and correct by Purchaser's secretary.
(b) Execution, Delivery and Performance of Agreement. Neither the
execution, delivery nor performance of this Agreement and Purchaser's Related
Agreements by Purchaser will, with or without the giving of notice or the
passage of time, or both, conflict with, result in a default, right to
accelerate or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to any provision of Purchaser's certificate of
incorporation or by-laws or any franchise, mortgage, deed of trust, lease,
license, agreement, understanding, law, ordinance, rule or regulation or any
order, judgment or decree to which Purchaser is a party or by which it may be
bound or affected. Purchaser has the full power and
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authority to enter into this Agreement and to carry out the transactions
contemplated hereby, all proceedings required to be taken by Purchaser to
authorize the execution, delivery and performance of this Agreement and
Purchaser's Related Agreements have been properly taken, and this Agreement and
Purchaser's Related Agreements constitute the valid and binding obligations of
Purchaser, enforceable in accordance with their respective terms, except that
such enforcement may be subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium and similar law affecting creditors'
rights generally.
8. Indemnification. (a) Seller hereby indemnifies, defends and holds
Purchaser harmless from, against and in respect of (and shall, subject to the
other provisions of this Agreement, on demand reimburse Purchaser for):
(i) any and all loss, liability or damage suffered or incurred by
Purchaser by reason of any untrue representation, breach of warranty
or nonfulfillment of any covenant by Seller contained herein or in
any certificate, document or instrument delivered by Seller to
Purchaser hereunder;
(ii) any and all loss, liability or damage suffered or incurred by
Purchaser in respect of or in connection with any liabilities with
respect to Seller's Assets;
(iii) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees, court costs and expenses,
incident to (i) or (ii) above or (iv) below; and
(iv) any and all loss, liability or damage suffered or incurred by
Purchaser by reason of or in connection with any claim for finder's
fee or brokerage or other commission arising by reason of any
services alleged to have been rendered to or at the instance of
Seller with respect to this Agreement or any of the transactions
contemplated hereby.
(b) Purchaser shall indemnify, defend and hold Seller harmless from,
against and in respect of (and shall, subject to the other provisions of this
Agreement, on demand reimburse them for):
(i) any and all loss, liability or damage suffered or incurred by
Seller by reason of or resulting from any untrue representation,
breach of warranty or non- fulfillment of any covenant or agreement
by Purchaser
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contained herein or in any certificate, document or instrument
delivered to Seller hereunder;
(ii) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without
limitation, reasonable legal fees, court costs and expenses,
incident to (i) or (ii) above or (iv) below or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity; and
(iii) any and all actual loss, liability or damage suffered or
incurred by Seller by reason of or in connection with any claim for
finder's fee or brokerage or other commission arising by reason of
any services alleged to have been rendered to or at the instance of
Purchaser with respect to this Agreement or any of the transactions
contemplated hereby.
(c) If a claim by a third party is made against a party hereto (an
"Indemnified Party"), and if an Indemnified Party intends to seek indemnity with
respect thereto under this Section 8, the Indemnified Party shall promptly
notify in writing the party required to indemnify the Indemnified Party pursuant
to this Section 8 (an "Indemnifying Party") of such claim (the "Indemnity
Notice"); provided, however, that failure by an Indemnified Party to notify an
Indemnifying Party of such claim shall not effect the Indemnified Party's right
to seek indemnification so long as the Indemnifying Party is not materially
prejudiced by such failure to have been notified of such claim. The Indemnifying
Party shall have ten (10) days after receipt of the Indemnity Notice to
undertake, conduct and control, through counsel of its own choosing and at its
expense, but reasonably acceptable to the Indemnified Party, the settlement or
defense thereof, and the Indemnified Party shall cooperate with it in connection
therewith; provided, however, that with respect to settlements entered into by
the Indemnifying Party, the Indemnifying Party shall obtain the release of the
claiming party in favor of the Indemnified Party. If the Indemnifying Party
undertakes, conducts and controls the settlement or defense of such claim, the
Indemnifying Party shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by the Indemnified Party, providing
that the fees and expenses of such counsel shall be borne by the Indemnified
Party. With respect to indemnification provided for hereunder, the Indemnified
Party shall not pay or settle any such claim so long as the Indemnifying Party
is reasonably contesting any such claim in good faith. Notwithstanding the
immediately preceding sentence, the Indemnified Party shall have the right to
pay or settle any such
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claims, provided that in such event it shall waive any right to indemnity
therefor by the Indemnifying Party.
(d) Subject to the limitations set forth in Section 9(c), if the
Indemnifying Party does not notify the Indemnified Party within fifteen (15)
days after the receipt of the Indemnified Party's notice of a claim of indemnity
hereunder that it elects to undertake the defense thereof, the Indemnified Party
shall have the right to contest, settle or compromise the claim in the exercise
of its good faith reasonable judgment at the expense of the Indemnifying Party
subject to the other terms and provisions of this Section 8.
9. Nature and Survival of Representations and Warranties; Rules Regarding
Indemnification and Other Actions.
(a) All statements, representations, warranties and indemnities made
by each of the parties hereto (and in any schedule or exhibit annexed hereto)
are and shall be true and correct as of the date hereof, and each of them shall
survive until the one (1) year anniversary of the Closing.
10. Access to Information and Documents. Seller will retain all books and
records relating to Seller's Assets for ten (10) years (the "Retention Period")
during which time Seller shall provide Purchaser access to all such books and
records during normal business upon Purchaser's reasonable request therefor.
Subsequent to the Retention Period, Seller shall not dispose of or permit the
disposal of any such books and records without first giving sixty (60) days'
prior written notice to Purchaser offering to surrender the same to Purchaser at
Purchaser's expense. Seller agrees to cooperate with Purchaser and shall furnish
or make available to Purchaser such books and records and any and all other
assistance as Purchaser may reasonably request relating to any matter relating
to Taxes or any governmental inquiry or investigation during the Retention
Period.
11. Notices. Any and all notices, demands or requests required or
permitted to be given under this Agreement shall be given in writing and sent,
by registered or certified U.S. mail, return receipt requested, by hand, or by
private overnight courier, addressed to the parties hereto at their addresses
set forth above or such other addresses as they may from time-to-time designate
by written notice, given in accordance with the terms of this Section, together
with copies thereof as follows:
In the case of Purchaser, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
Facsimile no.: (212) 223-6433
Attention: Clifford A. Brandeis, Esq.
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In the case of Seller, with a copy to:
Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP
405 Park Avenue
New York, NY 10022
Telephone no.: (212) 935-0900
Facsimile no.: (212) 826-9307
Attention: Joseph Rubin, Esq.
(In addition, without constituting notice hereunder, the parties shall use
reasonable efforts to send by facsimile to counsel for the party to whom notice
is to be sent copies of all notices sent by such party). Notice given as
provided in this Section shall be deemed effective: (i) on the date hand
delivered, (ii) on the first business day following the sending thereof by
overnight courier, and (iii) on the seventh calendar day (or, if it is not a
business day, then the next succeeding business day thereafter) after the
depositing thereof into the exclusive custody of the U.S. Postal Service.
12. Miscellaneous. (a) This Agreement, including, without limitation, the
schedules and other documents referred to herein between the parties hereto,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes any and all prior agreements, arrangements or
understandings with respect hereto, and may not be modified or amended except by
a written agreement specifically referring to this Agreement signed by all of
the parties hereto.
(b) No waiver of any breach or default hereunder shall be considered
valid unless in writing and signed by the party giving such waiver, and no such
waiver shall be deemed a waiver of any subsequent breach or default of the same
or similar nature.
(c) This Agreement shall be binding upon and inure to the benefit of
each corporate party hereto, its permitted successors, designees, and assigns,
and each individual party hereto and his heirs, personal representatives,
successors and assigns.
(d) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections.
(e) Each party hereto shall cooperate, shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
-13-
<PAGE>
(f) Except as otherwise provided herein or in agreements delivered
in connection with this Agreement, all legal, accounting and other costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party or parties incurring the same.
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which taken together shall
constitute one and the same instrument.
(h) This Agreement and all amendments hereto shall be governed by,
construed and enforced in accordance with the internal laws of the State of New
York without reference to principles of conflict of laws. Each of the parties
hereto irrevocably consents to the jurisdiction and venue of the Federal and
State Courts located in the State of New York, County of New York.
(i) If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision, only to the extent it is invalid or unenforceable, and shall not in
any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
(j) Seller agrees that, without the prior written consent of
Purchaser, unless otherwise required by law, none of such parties shall make or
permit to be made any announcement of any kind about this Agreement or the
transactions contemplated hereby, either prior to the Closing Date or for one
(1) year thereafter in the event the transactions contemplated hereby are not
consummated as provided herein.
(k) Seller, on the one hand, and Purchaser, on the other hand,
represent and warrant to the other that there is no obligation to pay any
commission, finder's fee, broker's fee or similar charge in connection with the
transactions provided for in this Agreement, resulting from any agreements or
other action of such representing party.
(l) This Agreement is not intended to, and shall not confer any
rights upon, any parties other than the express parties hereto.
(m) Acquisition by Affiliates. Notwithstanding anything to the
contrary in this Agreement, Purchaser may cause some or all of the Seller's
Assets to be acquired hereunder by one (1) or more affiliates of Purchaser;
provided, however, that
-14-
<PAGE>
Purchaser shall remain liable, jointly and severally, with any such affiliate(s)
for any and all obligations under this Agreement. The term "affiliates" as used
in this Section 2(d) shall have the same meaning as set forth under the
definition of "affiliates" in Rule 405 of the Securities Act of 1933, as
amended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PROJECTAVISION, INC.
By: /s/ Martin J. Holleran
-----------------------------
Martin J. Holleran
Chief Executive Officer and
President
GRANGEOVER LIMITED
By: /s/ Serafina Funaball
-----------------------------
Name: Serafina Funaball
Title: Attorney
-15-
<PAGE>
CERTIFICATE OF DESIGNATION
OF
CONVERTIBLE SERIES E PREFERRED STOCK
OF
PROJECTAVISION, INC.
Projectavision, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that the Board of Directors of the Corporation duly adopted a
resolution at a meeting duly convened on June 11, 1997, at which a quorum was
present and acting throughout, and that such resolution has not been amended,
modified, or rescinded, and is now in full force and effect providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of the
Corporation's Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to the authority conferred upon the Board of
Directors by Article Fourth of the Certificate of Incorporation of the
Corporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the rights, preferences and
designations of the authorized and unissued shares of Preferred Stock shall
hereafter be as follows:
Section 1. Designation. One Thousand (1,000) shares of Preferred Stock are
hereby designated as Series E Convertible Preferred Stock (the "Preferred
Stock"). The rights, preferences, privileges and qualifications, limitations and
restrictions of the Preferred Stock are set forth in Sections 2 through 7 of
this Resolution. The rights, preferences, privileges and qualifications,
limitations and restrictions of the remaining shares of Preferred Stock shall be
determined by the board of Directors, from time to time after the date of the
adoption of this Resolution, pursuant to the provisions of Article Fourth of the
Certificate of Incorporation.
Section 2. Dividends. The holders of the Preferred Stock are entitled to
receive if, when and as declared by the Board of Directors out of funds legally
available therefor, cumulative dividends, payable in cash or common stock of the
Corporation, par value $.0001 per share (the "Common Stock") at the
Corporation's election, at the rate of 8% per annum of the Liquidation Value of
the Preferred Stock until and through July 1, 2000. The dividend is payable
annually within seven (7)
<PAGE>
business days after each December 31st of each year, commencing December 31,
1997 (each, a "Dividend Declaration Date"). Dividends shall be paid only with
respect to shares of Preferred Stock actually issued and outstanding on a
Dividend Declaration Date and to the holders of record as of the Dividend
Declaration Date. Dividends shall accrue from the first day of the annual period
in which such dividend may be payable, except with respect to the first annual
dividend which shall accrue from the date of issuance of the Preferred Stock,
July 1, 1997. In the event that the Corporation elects to pay dividends in
Common Stock (which shares of Common Stock must be freely traded), each holder
of Preferred Stock shall receive shares of Common Stock equal to the quotient of
(i) the product of 8% multiplied by the Liquidation Value of the Preferred Stock
outstanding on the applicable Dividend Declaration Date divided by (ii) the
average of the closing bid quotation of the Common Stock as reported on the
over-the-counter market, or the closing sale price if listed on a national
exchange, for the five (5) trading days immediately prior to the Dividend
Declaration Date (the "Stock Dividend Price").
Section 3. Conversion. Subject to the provisions of Section 3(b) below,
the holders of the Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) Right to Convert. Subject to the provisions of Section
3(b) below, the Preferred Stock shall be convertible as follows:
(i) Up to Two Hundred Fifty (250) shares of Preferred
Stock (plus any accrued but unpaid dividends) may be converted at
the Conversion Price (as that term is defined in Section 3(b) below)
at any time on or after August 15, 1997:
(ii) Up to an additional Two Hundred Fifty (250) shares
of Preferred Stock (plus any accrued but unpaid dividends) may be
converted at the Conversion Price at any time on or after October
15, 1997;
(iii) Up to an additional Two Hundred Fifty (250) shares
of Preferred Stock (plus any accrued but unpaid dividends) may be
converted at the Conversion Price on or after December 15, 1997; and
(iv) The remaining Two Hundred Fifty (250) shares of
Preferred Stock (plus any accrued but unpaid dividends) may be
converted at the Conversion Price at any time on or after February
15, 1998.
2
<PAGE>
(b) Limitation on Conversion Rights. Notwithstanding the
provisions of Section 3(a) above, in the event that the conversion of any shares
of outstanding Preferred Stock would result in a holder of Preferred Stock
owning, in the aggregate (along with any other securities that may now or
hereafter be owned or acquired by the holder), more than 4.99% of all of the
then issued and outstanding Common Stock of the Company, such shares of
Preferred Stock shall not be convertible into shares of Common Stock until such
time as the conversion of such shares of Preferred Stock would result in the
holder owning, in the aggregate (along with any other securities that may now or
hereafter be owned or acquired by the holder), no more than 4.99% of the then
issued and outstanding Common Stock of the Company.
(c) Automatic Conversion. All unconverted shares of Preferred
Stock on the three (3) year anniversary date of the date of the "Closing" (as
that term is defined in that certain Subscription and Purchase Agreement by and
between the Company and the Subscriber), along with all accrued and unpaid
dividends, shall automatically be converted into shares of Common Stock at the
Conversion Price.
(d) Conversion Price. As used herein, the term Conversion
Price shall be the product of (i) the average closing bid quotation of the
Common Stock as reported on the over-the-counter market, or the closing sale
price if listed on a national securities exchange, for the five (5) trading days
immediately preceding the date of the Conversion Notice referred to in Section
3(e) below multiplied by (ii).75. Notwithstanding the foregoing, the Conversion
Price shall, in no event, be less than $1.50 (the "Minimum Conversion Price");
provided, however, that the Minimum Conversion Price shall be subject to
reduction as follows: (i) in the event that during the period commencing June 1,
1997 through December 31, 1997 (the "Adjustment Period") the Corporation fails
to ship 2,500 projectors (i.e., 417 projectors per month, the "Monthly
Shipment") or fails to receive $12,500,000 in projector revenues (i.e.,
$2,085,000 per month, the "Monthly Revenues") then, the Minimum Conversion Price
shall be reduced by $.50; provided, however, that in the event that the Company
fails to either ship during any month of the Adjustment Period, the Monthly
Shipment, or fails to generate during any month of the Adjustment Period the
Monthly Revenues, the Minimum Conversion Price shall be reduced by $.083 (the
"Monthly Reduction"); provided, further, that in any month after there has been
one or more Monthly Reductions during the Adjustment Period (a "Subsequent
Month"), the aggregate Monthly Shipments during the Adjustment Period or the
aggregate Monthly Revenues during the Adjustment Period equal or exceed the
shipments or revenues, as the case may be, that the Company was required to have
achieved, on a cumulative basis, as of any such Subsequent Month, then
notwithstanding any reduction in the Minimum Conversion Price due to the fact
that the Company previously failed to
3
<PAGE>
achieve either the Monthly Shipments or Monthly Revenues for a particular month
or months, the Minimum Conversion Price shall be restored to $1.50 until such
time that the Company fails to achieve Monthly Shipments and Monthly Revenues
during a month during the Adjustment Period, in which event, the Minimum
Conversion Price shall be appropriately reduced by the Monthly Reduction,
subject to the foregoing provisions.
(e) Mechanics of Conversion. Failure to Convert Any holder of
Preferred Stock who wishes to exercise its Conversion Rights pursuant to
paragraph (a) of this Section 3, must surrender the certificate therefor at the
principal executive office of the Corporation, and give written notice, which
may be via facsimile transmission, to the Corporation at its principal executive
office that it elects to convert the same (the "Conversion Notice"). No
Conversion Notice with respect to any shares of Preferred Stock can be given
prior to the time such shares of Preferred Stock are eligible for conversion in
accordance with the provisions of Section 3(a) above. Any such premature
Conversion Notice shall automatically be null and void. The Corporation shall,
within five (5) business day after receipt of an appropriate and timely
Conversion Notice (the "Conversion Deadline"), issue to such holder of Preferred
Stock a certificate for the number of shares of Common Stock to which the holder
shall be entitled. Such conversion shall be deemed to have been made only after
both the certificate for the shares of Preferred Stock to be converted have been
surrendered and the Conversion Notice is received by the Corporation (the
"Conversion Documents"), and the person entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock at and after such time. In the
event that the Conversion Notice is sent via facsimile transmission, the
Corporation shall be deemed to have received such Conversion Notice on the first
business day on which such facsimile Conversion Notice is actually received,
provided that the necessary certificates are actually received by the
Corporation within two (2) business days thereafter.
In the event that the Corporation fails to deliver to holder any of the
shares of Common Stock entitled to be delivered pursuant to a conversion of
Preferred Stock on or prior to the Conversion Deadline, then in such event, in
addition to the Corporation's obligation to deliver said shares of Common Stock,
the Corporation shall also be obligated to pay to holder, for each business day
after the Conversion Deadline that it fails to deliver the shares of Common
Stock underlying the Preferred Stock requested to be converted (the "Unconverted
Preferred Stock"), a penalty, as liquidated damages, equal to one percent (1%)
of the outstanding face amount of the Unconverted Preferred Stock payable in
cash or shares of Common Stock at the option of the holder.
4
<PAGE>
(f) Adjustments to Conversion Price for Stock Dividends and
for Combinations or Subdivisions of Common Stock. If the Corporation at any time
or from time to time while shares of Preferred Stock are issued and outstanding
shall declare or pay, without consideration, any dividend on the Common Stock
payable in Common Stock, or shall effect a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or if the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, then the Conversion Price in effect
immediately before such event shall, concurrently with the effectiveness of such
event, be proportionately decreased or increased, as appropriate. If the
Corporation shall declare or pay, without consideration, any dividend on the
Common Stock payable in any right to acquire Common Stock for no consideration,
then the Corporation shall be deemed to have made a dividend payable in Common
Stock in an amount of shares equal to the maximum number of shares issuable upon
exercise of such rights to acquire Common Stock.
(g) Adjustments for Reclassification and Reorganization. If
the Common Stock issuable upon conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
paragraph (f) of this Section 3), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the
Preferred Stock immediately before that change.
(h) No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all of the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Preferred Stock against impairment. The provisions of this
paragraph (h) may be waived by the
5
<PAGE>
affirmative vote of the holders of at least a majority of the then outstanding
shares of Preferred Stock voting together as a single class and taken in advance
of any action that would conflict with this paragraph (h).
(i) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a notice setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based.
(j) Notices of Record Date. If the Corporation shall propose
at any time: (i) to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, other than a regular cash
dividend out of earnings or earned surplus or a dividend as to which adjustment
of the Conversion Price will be made under paragraph (f) of this Section 3; (ii)
to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock other than one as to which
adjustments of the Conversion Price will be made under paragraph (f) of this
Section 3; or (iv) to merge or consolidate with or into any other corporation,
or sell all or substantially all of its assets, or to liquidate, dissolve or
wind up; then, in connection with such event, the Corporation shall send to the
holders of the Preferred Stock;
(1) at least ten (10) days' prior written notice of
the date on which a record shall be taken for such
dividend, distribution or subscription rights (and
specifying the date on which the holders of Common
Stock shall be entitled thereto) or for
determining rights;
to vote, if any, in respect of the matters
referred to in clauses (iii) and (iv) above; and
(2) in the case of the matters referred to in clauses
(iii) and (iv) above, at least ten (10) days'
prior written notice of the date when the same
shall take place (and specifying the date on which
the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or
other property deliverable upon the occurrence of
such event).
6
<PAGE>
(k) Issue Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(l) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to its Certificate of Incorporation.
(m) Fractional Shares. No fractional share shall be issued
upon the conversion of any share or shares of Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fractional share of Common Stock, such
fractional share shall be rounded up to the nearest whole share.
(n) Notices. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
(o) Termination of Conversion Rights and Dividends.
Notwithstanding anything set forth herein to the contrary, all Conversion Rights
(including, but not limited to the right to Automatic Conversion) and rights to
receive dividends on the Preferred Stock shall automatically and irrevocably
cease, whether or not the holder has submitted a written notice of conversion
with respect to any shares of Preferred Stock, in the event that a holder is in
material breach of the provisions set forth in Section 3(h) of that certain
Subscription and Purchase Agreement dated as of July 1, 1997 by and between the
Corporation
7
<PAGE>
and the Willora Company (the "Subscription Agreement").
(p) Business Day. As used herein, the term "business day"
shall mean any day other than a Saturday, Sunday or a day when the federal and
state banks located in the State of New York are required or permitted to close.
Section 4. Voting Rights. The holders of the Preferred Stock shall have no
voting rights whatsoever, except as otherwise provided by the Delaware General
Corporation Law (the "Delaware Law"), and as expressly set forth in this Section
4 and in Section 7(b) below. To the extent that under Delaware Law the vote of
the holders of the Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the shares of Preferred Stock
(except as otherwise may be required under Delaware Law) shall constitute the
approval of such action by the class. To the extent that under Delaware Law the
holders of the Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Preferred Stock shall
be entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of such
vote of stockholders as the date as of which the Conversion Price is calculated
and conversion is effected. Holders of the Preferred Stock shall be entitled to
notice of (and copies of proxy materials and other information sent to
shareholders) all shareholder meetings or written consents with respect to which
they would be entitled to vote, which notice would be provided pursuant to the
Corporation's by-laws and applicable statutes.
Section 5. Redemption; Discretionary and Mandatory. At any time and from
time to time, the Corporation shall have the right, upon no more than thirty
(30) days prior written notice to the holder, to redeem any or all of the shares
of Preferred Stock for which the holder thereof has not requested conversion at
a per share price equal to one hundred and thirty percent (130%) of the
Liquidation Value, plus any accrued and unpaid dividends up until the date
redemption is actually effected. Upon the giving of the written notice, the
holder of the Preferred Stock shall thereafter no longer have any Conversion
Rights.
Section 6. Liquidation Preference. The holders of shares of Preferred
Stock will be entitled to receive, in the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, out of or to
the extent of the net assets of the Corporation legally available for such
distribution, before any distributions are made with respect to any Common Stock
or any stock ranking junior to the Preferred
8
<PAGE>
Stock, $1,000.00 per share, plus any declared but unpaid dividends (the
"Liquidation Preference"). After payment of the full amount of the Liquidation
Preference, the holders of shares of Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Corporation.
Section 7. Restrictions and Limitations.
(a) Shares of Preferred Stock acquired by the Corporation by
reason of purchase, conversion, redemption or otherwise shall be retired and
shall become authorized but unissued shares of Preferred Stock, which may be
reissued as part of a new series of Preferred Stock hereafter created under
Article Fourth of the Certificate of Incorporation.
(b) So long as shares of Preferred Stock remain outstanding,
the Corporation shall not, without the affirmative vote of the holders of at
least a majority of the then outstanding shares of Preferred Stock voting
together as a separate class, amend the terms of this Resolution. The holders of
the outstanding shares of the Preferred Stock shall be entitled to vote as a
separate class upon a proposed amendment of the Certificate of Incorporation if
the amendment would alter or change the powers, preferences or special rights of
the shares of Preferred Stock so as to affect them adversely.
9
<PAGE>
IN WITNESS WHEREOF, Projectavision, Inc. has caused this Certificate to be
signed by its President and attested by its Secretary this 1st day of July,
1997.
PROJECTAVISION, INC.
By: /s/ Marvin Maslow
------------------------------
Marvin Maslow, Chairman of
the Board
Attest:
/s/ Jules Zimmerman
- ---------------------------------
Jules Zimmerman, Secretary
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<PAGE>
AMENDED CERTIFICATE OF DESIGNATION
OF 1997 SERIES D CONVERTIBLE PREFERRED STOCK
OF
PROJECTAVISION, INC.
--------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
--------------------------------------------
We, the undersigned, Martin J. Holleran, being the President and C.E.O. of
Projectavision, Inc. ("Company") and Marvin Maslow, being the Assistant
Secretary of the Company, hereby certify pursuant to Section 242 of the General
Corporation Law of the State of Delaware that:
1. The name of the Company is Projectavision, Inc. and the Company is
validly existing and incorporated.
2. On January 6, 1997, pursuant to authority vested in the Board of
Directors by Article of the Corporation's Certificate of Incorporation, the
Board of Directors established a series of 60,000 shares of Preferred Stock of
the Corporation, par value $100 per share;
3. On December 16, 1997 the Board of Directors of the Corporation and the
holders of the Series D Convertible Preferred Stock each adopted the following
resolutions by written consent to further amend the Certificate of Designation
of the Series D Convertible Preferred Stock.
RESOLVED, that pursuant to Section 242 of the General Corporation Law of
the State of Delaware, the Designations of the Company's Series D Convertible
Preferred Stock are amended and restated to be the following:
1. The Company's Certificate of Incorporation, as amended, authorizes the
issuance of 60,000 shares of Preferred Stock, par value $100 per share, and
expressly vests in the Board of Directors the authority provided therein to
issue any or all of such shares in one or more series, and by resolution or
resolutions the designation, number, full or limited voting powers, preferences
and relative, participating, optional and other special rights, and the
qualifications, limitations, restrictions, and other distinguishing
characteristics of each series to be issued.
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<PAGE>
2. Designation Of The Series. The Board of Directors of the Company,
pursuant to authority expressly vested in it as aforesaid, has adopted the
following, creating a Series D issue of Preferred Stock;
There shall be a series of convertible Preferred Stock designated as
"Series D Preferred Stock." The shares of such series shall be referred to
herein as the "Series D Shares." Upon initial issuance by the Company, the price
per share of the Series D Shares shall be $100 (the "Purchase Price"). The par
value per share is $100. The authorized number of such Series D Shares is
60,000. The Series D Shares shall be senior in rank to all other series of
Preferred Stock, now existing or hereafter issued by the Company.
A. Voting Rights. Except as otherwise required by law, the Holders
of the Series D Shares shall not be entitled to vote separately, as a series or
otherwise, on any matter submitted to a vote of the shareholders of the Company.
Notwithstanding the foregoing, without the prior written consent of the Holders
of the Series D Shares;
(i) the Company shall not amend, alter, or repeal (whether by
amendment, merger, or otherwise) any of the provisions related to the Series D
Shares of its Certificate of Incorporation, as amended, any resolutions of the
board of directors or any instrument establishing and designating the Series D
Shares in determining the relative rights and preferences thereof so as to
affect any materially adverse change in the rights, privileges, powers, or
preferences of the Holders of Series D Shares; or
(ii) the Company shall not create or designate any additional
preferred stock senior in right as to dividends, voting rights, redemptions or
liquidation to the Series D Shares.
B. Dividends. A holder of the Series D Shares ("Holder") shall be
entitled to receive a 6% cumulative dividend payable annually in cash or in
freely trading Common Stock of the Company, at the Corporation's option. Such
dividends shall be payable annually (the "Dividend Payment Date"), in preference
to dividends on any Common Stock or stock of any class ranking, as to dividend
rights, junior to the Series D Shares. If paid in Common Stock, the number of
shares of the Company's Common Stock to be received shall be determined by
dividing the dollar amount of the dividend by the then applicable Market Price,
as of the dividend payment date. "Market Price" shall mean the 5 day average
daily closing bid price, as reported by Nasdaq, or whatever primary exchange the
Company's Common Stock may be traded on, for the five trading days immediately
preceding the dividend payment data. Dividends shall be fully cumulative and
shall accrue (whether or not declared and whether or not there shall be funds
legally available for the payment of dividends), without interest, and shall be
payable on the Dividend Payment Date.
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<PAGE>
C. Conversion Rights.
(i) Series D Shares. Upon the Company's receipt of a facsimile or
original of Holder's signed Notice of Conversion, the Company shall instruct its
transfer agent to issue one or more Certificates representing that number of
shares of Common Stock into which the Series D Shares are convertible in
accordance with the provisions regarding conversion set forth in the
subscription agreement entered into between the Holder and the Company. The
Company's transfer agent or attorney shall act as Registrar and shall maintain
an appropriate ledger containing the necessary information with respect to each
Series D Share.
(ii) Conversion Date. Such conversion shall be effectuated by
surrendering to the Company, or its attorney, the Series D Shares to be
converted together with a facsimile or original of the signed Notice of
Conversion which evidences Holder's intention to convert those Series D Shares
indicated. The date on which the Notice of Conversion is effective ("Conversion
Date") shall be deemed to be the date on which the Holder has delivered to the
Company a facsimile or original of the signed Notice of Conversion, as long as
the original Series D Shares to be converted are received by the Company or its
designated attorney within 5 business days thereafter. As long as the Series D
Shares to be converted are received by the Company within 5 business days after
it receives a facsimile or original of the signed Notice of Conversion, the
Company shall deliver to the Holder, or per the Holder's instructions, the
shares of Common Stock, without restrictive legend or stop transfer
instructions, within 3 business days of receipt of the Series D Shares to be
converted.
(iii) Common Stock to be Issued Without Restrictive Legend. Upon the
conversion of any Series D Shares and upon receipt by the Company or its
attorney of a facsimile or original of Holder's signed Notice of Conversion
Company shall instruct Company's transfer agent to issue Stock Certificates
without restrictive legend or stop transfer instructions in the name of Holder
(or its nominee) and in such denominations to be specified at conversion
representing the number of shares of Common Stock issuable upon such conversion,
as applicable. Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely transferable on the books and records
of Company.
(iv) Conversion Terms/Right of First Refusal. On and after February
10, 1998, Holder is entitled, at its option to convert the Series D Shares into
Common Stock of the Company at 75% of the 5 day average daily closing bid price,
as reported by Bloomberg, L.P., for the 5 trading days immediately preceding the
applicable Conversion Date, (the "Conversion Price"). The Holder is hereby given
a right of first refusal on any Regulation D offering proposed to be effected by
the Company during the 6 month period immediately subsequent to the date of the
Subscription Agreement. Holder shall have 2 business days from the date the
Company sends a facsimile notice (the "Notice") of the material terms and
3
<PAGE>
conditions of the proposed offering ("Proposed Offering") to the Holder in which
to advise the Company by writing that it shall provide the financing
contemplated by the Proposed Offering in accordance with the terms set forth in
the Notice. Holder's failure to agree to effect the financing (or any part
thereof) in accordance with the terms of the Notice within the aforementioned
two (2) day period shall be deemed a waiver by Holder of its right of first
refusal with respect to that portion (or all) of the Proposed Offering, as the
case may be, in accordance with the terms set forth in the Notice. It is agreed
that Holder's right of first refusal hereunder may be exercised in whole or in
part. In the event issuer later attempts to effect a Proposed Offering on
material terms and conditions other than those set forth in the Notice (the
"Revised Proposed Offering"), Holder shall have a new right of first refusal
with respect to the Revised Proposed Offering.
The Series D Shares are subject to a mandatory, 36 month conversion
feature at the end of which all Series D Shares outstanding will be
automatically converted, upon the terms set forth in this section ("Mandatory
Conversion Data").
(v) Nothing contained in the Subscription Agreement for the purchase
of the Series D Shares shall be deemed to establish or require the payment of
interest to the Holder at a rate in excess of the maximum rate permitted by
governing law. In the event that the rate of interest required to be paid
exceeds the maximum rate permitted by governing law, the rate of interest
required to be paid thereunder shall be automatically reduced to the maximum
rate permitted under the governing law and such excess shall be returned with
reasonable promptness by the Holder to the Company.
(vi) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Certificate of Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Series D Shares that are to be converted in part, the Company shall issue to the
Holder a new Series D Shares equal to the unconverted amount, if so requested by
Holder.
(vii) In the event the Common Stock is not delivered per the written
instructions of the Holder, within 10 (ten) business days after the Conversion
Date, then in such event the Company shall pay to Holder one percent (1%) in
cash, of the dollar value of the Series D Shares being converted per each day
after the tenth business day following the Conversion Date that the Common Stock
is not delivered.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3C is due to the unavailability of authorized but
unissued
4
<PAGE>
shares of Common Stock, the provisions or this Section 3C(vii) shall not apply
but instead the provisions of Section 3C(viii) shall apply.
The Company shall make any payments incurred under the Section 3C(vii) in
immediately available funds within three (3) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a Holder's
right to pursue actual damages or cancel the Notice of Conversion for the
Company's failure to issue and deliver Common Stock to the Holder within ten
(10) business days after the Conversion Date.
(viii) The Company shall at all times reserve and have available all
Common Stock necessary to meet conversion of the Series D Shares by all Holders
of the entire amount of Series D Shares and Warrants then outstanding. If, at
any time Holder submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock available to effect,
in full, a conversion of the Series D Shares (a "Conversion Default", the date
of such default being referred to herein as the "Conversion Default Date"), the
Company shall issue to the Holder all of the shares of Common Stock which are
available, and the Notice of Conversion as to any Series D Shares requested to
be converted but not converted (the "Unconverted Series D Shares"), upon
Holder's sole option, may be deemed null and void. The Company shall provide
notice of such Conversion Default ("Notice of Conversion Default") to all
existing Holders of outstanding Series D Shares, by facsimile, within one (1)
business day of such default (with the original delivered by overnight or two
day courier), and the Holder shall give notice to the Company by facsimile
within five business days of receipt of the original Notice of Conversion
Default (with the original delivered by overnight or two day courier) of its
election to either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Series D Shares
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Series D Shares held by each Holder where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of shares of Common Stock
to effect conversion of all remaining Series D Shares. The Company shall send
notice ("Authorization Notice") to each Holder of outstanding Series D Shares
that additional shares of Common Stock have been authorized, the Authorization
Date and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Series D Shares by the fifth day of the
following calendar month, or (ii) in the event Holder elects to take such
payment in stock, the Holder may convert such payment amount into Common Stock
at the conversion rate set forth in section 4(d) at anytime after the 5th day of
the calendar month following the month in which the
5
<PAGE>
Authorization Notice was received, until the expiration of the mandatory 36
month conversion period.
Nothing herein shall limit the Holder's right to pursue actual damages for
the Company's failure to maintain a sufficient number of authorized shares of
Common Stock.
(ix) The Company shall furnish to Holder such number of prospectuses
and other documents incidental to the registration of the Series D Shares of
Common Stock underlying the Series D Shares, including any amendment of or
supplements thereto.
(x) Certain Adjustments. In the event of any change in one or more
classes of capital stock of the Company by reason of any stock dividend, stock
split-up, recapitalization, reclassification, or combination, subdivision or
exchange of shares or the like, or in the event of the merger or consolidation
of the Company or the sale or transfer by the Company of all or substantially
all of its assets, then all liquidation preference, conversion and other rights
and privileges appurtenant to the Series D Shares shall be promptly and
appropriately adjusted by the Board of Directors of the Company so as to fully
protect and preserve the same (such preservation and protection to be to the
same extent and effect as if the subject event had not occurred, or the
applicable right or privilege had been exercised immediately prior to the
occurrence of the subject event, or otherwise as the case may be), it being the
intention that, following any such adjustment, the Holders of the Series D
Shares shall be in the same relative position with respect to their rights and
privileges as they possessed immediately prior to the event that precipitated
the adjustment.
(xi) Costs. The Company shall pay all documentary, stamp, transfer
or other transactional taxes attributable to the issuance or delivery of shares
of Common Stock upon conversion of any Series D Shares; provided that the
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
shares in a name other than that of the Holder of the Series D Shares in respect
of which such shares are being issued.
(xii) Concerning the Securities. The issuance, sale and delivery of
the Series D Shares have been duly authorized by all required corporate action
on the part of Company, and when issued, sold and delivered in accordance with
the terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued and enforceable in accordance with their terms,
subject to the laws of bankruptcy and creditors' rights generally. 5,500,000
shares of Common Stock issuable upon conversion of the Series D Shares have been
duly and validly reserved for issuance and, upon issuance shall be duly and
validly issued, fully paid, and non-assessable (the "Reserved Series D Shares").
6
<PAGE>
Prior to conversion of all the Series D Shares, if at anytime the
conversion of all the Series D Shares outstanding results in an insufficient
number of Reserved Series D Shares being available to cover all the conversions,
then in such event, the Company will move to call and hold a shareholder's
meeting within 45 days of such event for the sole purpose of authorizing
additional Series D Shares to facilitate the conversions. In such an event the
Company shall: (1) recommend its current or future officers, directors and other
control people to vote their shares in favor of increasing the authorized number
of shares of Common Stock and (2) recommend to all shareholders to vote their
shares in favor of increasing the authorized number of shares of Common Stock.
Company represents and warrants that under no circumstances will it deny or
prevent Holder's right to convert the Series D Shares as permitted under the
terms of the Subscription Agreement, or the Registration Rights Agreement
entered into between the Company and the Holders of the Series D Shares.
(xiii) No Short Sales. Subject to the provisions of Section 3 C (xiv)
below, the Holders shall expressly agree that until such time as they have sold
all of the securities and/or all of the Shares that they shall not, directly or
indirectly, through an affiliate (as that term a defined under Rule 405
promulgated under the Act) or by, with or through an unrelated third party or
entity, whether or not pursuant to a written or oral understanding, agreement,
arrangement, scheme, or artifice of any nature whatsoever, engage in the short
selling of the Company's Common Stock or any other equity securities of the
Company whether now existing or hereafter issued, or engage in any other
activity of any nature whatsoever that has the same effect as a short sale, or
is a de facto or de jure short sale, of the Company's Common Stock or any other
equity security of the Company whether now existing or hereafter issued,
including but not limited to the sale of any rights pursuant to any
understanding, agreement, arrangement, scheme or artifice of any nature
whatsoever, whether oral or in writing, relative to the Company's Common Stock
or any other equity securities of the Company whether now existing or hereafter
created.
(xiv) The provisions of Section 3 C (xiii) shall not apply with respect to
any activities of a Holder which are effected by such Holder in the course of
such Holders regular trading activities, which may from time to time include
so-called "short selling," provided, however, that any short selling activities,
whether or not routine, that are designed to prevent or have the effect of
preventing the price of the Company's securities which are the subject of the
short selling activities from maintaining the level of its then current market
price shall be subject to the provisions of Section 3 C (xiii) above. In the
event of any breach of the provisions of Section 3 C (xiii) or (xiv) by such
Holder, the Company shall be required to honor such Holder's conversions, but
without application of the discount or the dividends that have been issued, but
not exercised, shall no longer be enforceable.
7
<PAGE>
D. Redemption.
The Company will have the right to redeem the Series D Shares in whole or
in part, at any time as follows: Up to and including February 10, 1998, the
Company may redeem any or all of the Series D Shares for the face amount of the
Series D Shares being redeemed, plus accrued dividends thereon; up to and
including March 12, 1998, the Company may redeem any or all of the Series D
Shares for 110% of the face amount of the Series D Shares being redeemed, plus
accrued dividends thereon; up to and including April 11, 1998, the Company may
redeem any or all of the Series D Shares for 120% of the face amount of the
Series D Shares being redeemed, plus accrued dividends thereon; after April 12,
1998, the Company may redeem any or all of the Series D Shares for 130% of the
face amount of the Series D Shares being redeemed, plus accrued dividends
thereon. Prior to sending a Notice of Conversion, the Holder has the right to
request a written notice from the Company as to whether or not the Company
intends to redeem or convert properly tendered Series D Shares. The Company must
give written notice to the Holder, via facsimile, of its redemption intention,
within forty- eight (48) hours of the Company's receipt of such request from the
Holder. The Company's notice of redemption intent, either to redeem or not to
redeem, shall be binding for 10 business days from the date of receipt by the
Holder. If the Company fails to give written notice to Holder within forty-eight
(48) hours of Company's receipt of a written request from Holder, as to the
Company's redemption intention, such failure shall conclusively determine the
Company's intent not to redeem, and the Company may not give the Holder a notice
of redemption for 10 business days thereafter. Additionally, once Holder faxes
the Company a Notice of Conversion, the Company shall be restricted from
redeeming as to that conversion.
Redemption by the Company shall be effected by the Company notifying the
Holder by facsimile at the number listed in the subscription agreement as to the
Company's intention to exercise its right of redemption. The Company shall state
in such notice the amount of Series D Shares it intends to redeem, the amount
that it will pay to effectuate such redemption and the date by which the Holder
must deliver the original Series D Shares to be redeemed to the Escrow Agent.
The Company shall give the Holder at least 10 business day's advance notice of
the above information. On or before the date by which the Holder is to deliver
the original Series D Shares to the Escrow Agent, the Company shall wire to the
Escrow Agent that amount necessary to effect the redemption. Once the Escrow
Agent is in receipt of the original Series D Shares being redeemed and those
funds necessary to effect the redemption the Escrow Agent shall wire those funds
to the Holder and deliver the original Series D Shares via overnight courier to
the Company. With respect to that portion of the Series D Shares being redeemed,
provided sufficient funds are on deposit with the Escrow Agent on the redemption
date as herein described, then in such event, after the date of redemption,
interest shall cease to accrue on those Series D Shares being redeemed and the
Holder
8
<PAGE>
shall have no further rights as to those Series D Shares being redeemed other
than the right to receive payments on the redemption date.
E. Liquidation.
(i) Series D Preference. Upon any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the Holders of
Series D Shares shall be entitled, before any distribution or payment is made
upon any shares of Common Stock or any Preferred Stock junior in rank to the
Series D Shares, to be paid an amount per share equal to the liquidation value
described in this Section 3.E(i) (the "Liquidation Value"). The per share
Liquidation Value of the Series D Shares on any date is equal to the sum of the
following:
(A) $100, plus
(B) an amount equal to any accrued and unpaid dividends
from the date of issuance of the Series D Shares.
Neither the consolidation nor merger of the Company with or into any other
corporation or other entities, nor the sale, transfer or lease of all or
substantially all of the assets of the Company shall itself be deemed to be a
liquidation, dissolution or winding-up of the Company within the meaning of this
Section 3.E. Notice of liquidation, dissolution, or winding-up of the Company
shall be mailed, by overnight courier, postage prepaid, not less than 20 days
prior to the data on which such liquidation, dissolution, or winding-up is
expected to take place or become effective, to the Holders of record of the
Series D Shares at their respective addresses as the same appear on the books of
the Company or supplied by them in writing to the Company for the purpose of
such notice, but no defect in such notice or in the mailing thereof shall affect
the validity of the liquidation, dissolution or winding-up.
(ii) General.
(A) All of the preferential amounts to be paid to the
Holders of the Series D Shares pursuant to Section 3D(i) shall be paid or set
apart for payment before the payment or setting apart for payment of any amount
for, or the distribution of any assets of the Company to, the Holders of the
Common Stock or any preferred stock junior in rank to the Series D Shares in
connection with such liquidation, dissolution or winding-up.
(B) After setting apart or paying in full the
preferential amounts aforesaid to the Holders of record of the issued and
outstanding Series D Shares as set forth in Section 3D(i), the Holders of record
9
<PAGE>
of Common Stock and any preferred stock junior in rank to the Series D Shares
shall be entitled to participate in any distribution of any remaining assets of
the Company, and the Holders of record of the Series D Shares shall not be
entitled to participate in such distribution.
F. Reacquired Shares. Any Series D Shares redeemed, purchased,
converted, or otherwise acquired by the Company in any manner whatsoever shall
not be reissued as part of such Series D and shall be retired promptly after the
acquisition thereof. All such Shares upon their retirement and the filing of any
certificate required in connection therewith pursuant to the Delaware General
Company Law shall become authorized but unissued shares of Preferred Stock.
G. Equality. All Series D Holders shall be subject to the same terms
and conditions as set forth herein. No Series D Holders shall be entitled to or
receive terms that are more favorable than those given to any other Series D
Holder. In the event a Series D Holder is given or receives terms more favorable
than those given to or received by any other Series D Holder, then in such event
all Series D Holders shall be given and entitled to those more favorable terms.
H. Copies of Agreements, Instruments, Documents. Copies of any of
the agreements, instruments or other documents referred to in this Certificate
shall be furnished to any stockholder upon written request to the Company at its
principal place of business.
4. The statements contained in the foregoing, creating and designating the
said Series D issue of Preferred Stock and fixing the number, powers,
preferences, and relative, optional, participating, and other special rights and
the qualifications, limitations, restrictions, and other distinguishing
characteristics thereof shall, upon the effective date of said series, be deemed
to be included in and be a part of the Restated Certificate of Incorporation, as
amended, of the Company pursuant to the provisions of Sections 104 and 151 of
the General Corporation Law of the State of Delaware.
10
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation has been executed on
behalf of the Company by its Chief Executive Officer and President and attested
by its Assistant Secretary this 17th day of December, 1997, and they do hereby
affirm, under penalty of perjury, that the foregoing Certificate of Designation
is the act and deed of the Company and that the facts stated therein are true
and accurate.
Signed and attested to on December 17th, 1997.
PROJECTAVISION, INC.
By /s/ Martin J. Holleran
----------------------------------
Martin J. Holleran
CEO and President
Attest:
By /s/ Marvin Maslow
------------------------------
Marvin Maslow
Assistant Secretary
11
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