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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
(Mark One) 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
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VIDIKRON TECHNOLOGIES GROUP, 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)
One Evertrust Plaza, 11th Floor
Jersey City, New Jersey 07302
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(Address of principal executive offices) Zip Code
(201) 938-0099
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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 $.004 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 [ ] NO [X]
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 April 9, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $1,248,987 based upon the average of the
closing bid and asked prices of $1.06 as of April 9, 1999.
As of April 9, 1999, 1,178,290 shares of the Registrant's Common Stock
were outstanding.
Documents Incorporated By Reference
Document Where Incorporated
- -------- ------------------
None. N/A
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SPECIAL CAUTINARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. Such
forward-looking statements are principally contained in the sections "Part 1 -
Item 1 - Business," and "Part 2 - Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations" and include, without
limitation, the Company's expectations and estimates as to: the Company's
integration of the Vidikron Acquisition; the Company's ability to successfully
address Year 2000 issues and the costs and timing of the steps it expects to
take; the Company's future financial performance, including its ability to
generate sufficient cash flow and meet working capital requirements; the
introduction of new products; the market for the Company's products; and the
Company's business operations in general. In addition, in those and other
portions of this Form 10-K, the words "anticipates," "believes" "estimates,"
"expects" "plans," "intends" and similar words or phrases, as they relate to the
Company and its subsidiaries, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks and uncertainties and
that could cause the actual results to differ materially from those expressed in
any forward-looking statements made by the Company. The Company does not intend
to update these forward-looking statements.
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PART I
Item 1. BUSINESS.
General
The Company - Effective on December 7, 1998, Vidikron Technologies Group, Inc.
(the "Company", formerly known as Projectavision, Inc.) acquired (the "Vidikron
Acquisition") substantially all of the video assets of Vidikron Industries
S.p.A. ("Vidikron") and all of the issued and outstanding shares of Vidikron's
U.S. subsidiary, Vidikron of America, Inc. Upon closing of the Vidikron
Acquisition, the Company believes that it became one of the leading marketing
and distribution companies in the high-end segment of the home theater industry;
obtaining a highly regarded brand name, an array of video products, an
established international sales and distribution infrastructure, and an
experienced management team. Approximately 60% of the Company's sales are
conducted through its wholly owned United States subsidiary, Vidikron of
America, Inc., and 40% through its recently formed Italian based subsidiary,
Vidikron S.r.L. The Vidikron brand name is one of the premiere brands in the
high-end of the home theater market and enjoys significant name recognition
worldwide. The Company believes that the Vidikron Acquisition will provide it
with greater access to capital for the expansion of it markets as well as for
growth and expansion of its current product offerings. The Company recently
consolidated its operations at the Jersey City, NJ offices of Vidikron of
America, Inc. and has significantly reduced the staff and overhead expenses of
its U.S. operations. The Company's European subsidiary Vidikron S.r.L. is
located in Misinto, near Milan, Italy.
Company Name Change - The Company changed its name to Vidikron Technologies
Group, Inc. upon receiving stockholder approval at the annual meeting held on
February 19, 1999. By changing its name, the Company believes that it can better
position its various product offerings and expand and improve its sales and
marketing activities. The Company intends to further leverage the Vidikron brand
name, which the Company believes is well respected throughout the world, by
extending Vidikron's product offerings to include other video products such as
plasma screens, accessories, rear screen television, and cinema projectors, as
well as possibly entering other markets, including the audio market. The Company
may also seek to make selective add-on acquisitions to further leverage its
recognized brand name presence in the high-end video market.
Products - The Company offers a wide array of high-end video products for the
home theater market utilizing Cathode Ray Tube (CRT), Liquid Crystal Display
(LCD) and Digital Light Processing (DLP(R)) technologies (DLP(R) is a registered
trademark of Texas Instruments). The Company intends to employ a multi-brand
strategy marketing its products under both the Vidikron and Projectavision brand
names. The Vidikron brand is focused exclusively on the premier high-end home
theater and the Company believes the Projectavision brand name is positioned to
exploit the commercial data projector and lower tiered home theater markets.
A number of the Company's Vidikron brand products are manufactured by
Novavision. Novavision is an Italian company controlled by the former owners of
Vidikron, who, in connection with the Vidikron Acquisition became executives of
the Company and members of its Board of Directors. Novavision is located on the
same premises as the Company's facilities in Misinto. The Company leases the
facilities from the same former owners of Vidikron. See Item 13 Certain
Relationships and Related Transactions. Novavision and the Company's Misinto
operations have the distinction of being qualified under ISO 9001.
The cabinets for the Company's Helios, Image Two and VPF 50 HD projectors, all
Vidikron brand products, are designed under exclusive contract by Pininfarina,
designer of the Ferrari automobile. The Company believes that its Vidikron's
top-of-the-line Vision series CRT is the pinnacle of high quality home theater
projectors. This series of products was created for aficionados seeking the
ultimate in home theater and high definition television (HDTV) resolution. The
Company offers a whole family of high-end CRT projector products under the
Vidikron brand name retailing at prices up to $50,000.
The Company also offer a series of LCD based projectors under the Vidikron brand
name for the mid-range home theater at prices from $9,500 to $15,000.
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The Company has a series of DLP products under the Projectavision and Vidikron
brand names retailing at prices from $8,000 to $14,000. These DLP products use a
two chip light engine developed by Texas Instruments ("TI"). TI informed the
Company that it plans to phase out the two chip light engine in favor of a
single chip during 1999. The Company's DHT product is configured to run on the
two-chip engine. The Company plans on meeting with TI to secure enough of the
two chip engines to meet product commitments and will transition to a single
chip engine for future products. The switch in engines will upgrade the DLP
product to the new high definition television (HDTV) standards and reduce the
products cost to manufacture. However, the transition will also necessitate
significant changes to the design, tooling and molds of the current DLP product
causing the Company to write down the value of its molds at December 31, 1998
(See Note II to the Notes to Consolidated Financial Statements). The Company
believes that these products will extend the market potential from high-end home
theater to commercial data presentation projectors, including a unique Digital
Home Theater (DHT) that doubles as a stand-alone 60" rear screen projector and a
front projector with SVGA computer monitor capabilities.
The Company completes its current product offering with a series of high-end
video processors, plasma screens, and a wide array of accessories from projector
screens to mechanical lifts for ceiling mounted products, all of which are
marketed under the Vidikron brand name.
Growth of Home Theater Industry - Over the last decade, consumer interest in
home theaters and large screen televisions has increased dramatically, fueled by
consumer demand for big picture and big sound plus an ever expanding universe of
movies, sporting events and other programming available via cable television,
direct broadcast satellite, laser disc, VCRs, and most recently, digital video
disc (DVD). All of the Company's products can display digital TV signals and six
of the Company's eight projectors are HDTV (High Definition Television)
compatible. As a result of this demand, the Company believes that its products
are well positioned to exploit the expected growth of home theaters. The home
theater industry encompasses numerous products, and the Company currently offers
two types of products: (i) front projection systems and (ii) rear projection
television (big screen TVs).
Proprietary Technology - The unique, dual-use design of the Company's
Projectavision brand DHT utilizes the Company's proprietary technology and
engineering innovations. The Company holds a number of patents for its
innovative technologies in the U.S. and in various foreign countries. The
Company is aware of the development by other companies of innovative flat panel
and television systems. These technologies do not use a CRT or video 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 receivers, and, if so, may be
competitive with the Company's technologies.
Partnerships and Alliances - The Company sources a number of its products and
components. The Company customizes its products internally via its proprietary
designs and externally through the unique high-end industrial design of
Pininfarina, one of the Company's significant alliance partners. This external
industrial design gives its Vidikron brand products the distinctive Vidikron
style that the Company believes sets it apart from its competitors. All of the
Company's strategic alliances, including Pininfarina, and its OEM agreements
with manufacturing, marketing and distribution partners are critical to the
Company's success and, the Company believes, provide it with a distinct
advantage over its competition. The Company currently has business alliances
with C-MAC Electronic Systems and the Hamilton Group. Tandy Corporation is a
field service supplier for the Company's Projectavision brand products and the
Company has an OEM relationship with Texas Instruments, Electrohome, Matsushita,
Sanyo, Fujitsu and Faroudja Laboratories. Because of the Company's various
relationships and alliances, the Company has access to virtually all major
projection television technologies.
Leading Edge Positioning - The Company believes that it has positioned itself at
the leading edge of the home theater industry by continually sourcing and
developing new products and technologies. In order to provide the quality for
which Vidikron is known, the higher end products are custom installed and
technically adjusted on the customer's premises. Therefore, all distributors
have to participate in on-site technical classes with respect to the Company's
Vidikron brand products. The Company continues to solidify its position as a
leading edge developer and marketer of high-end video display home theater
products through a program of updating products and maintaining a regimen of
technological instructions with its dealers.
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Focused Acquisition Strategy - The Company believes there are opportunities for
selective acquisitions in the highly fragmented video display and home theater
industry. As a result, the Company presently intends to undertake a focused
acquisition strategy and seeks to acquire products and technologies that provide
a good strategic fit with, or natural extension of, its core product offerings
such as compatible audio and accessories (screen companies) plus picture
enhancement companies (line-doublers).
Focus for 1999 - The primary objective for 1999 will be to profitably integrate
the businesses represented by the Vidikron and Projectavision brands and to
extend the Company's product offerings and markets. The focus of this
market-driven company will be on the quality of the sale, not just the quantity,
and streamlining operations with a prime focus on customer service and
unparalleled product quality.
Sales and Distribution
The Company distributes its products in over 46 countries worldwide. The
Company's products are distributed in the U.S. through specialty audio/video
retail stores and custom audio/video installers. The Company employs 26
independent sales/representative firms for its U.S. distribution. Additionally,
the Company has international distribution in South America, the Far East,
Australia and New Zealand. The Company's Italian based subsidiary, Vidikron
S.r.L., handles all distribution in Europe and the Near Eastern Countries.
Projection Systems
The Company has front and rear projection television products. The front
projection television products use either Cathode Ray Tube (CRT), Liquid Crystal
Display (LCD) screens or Digital Light Processing (DLP) technology developed by
Texas Instruments. The rear projection television offering is comprised of its
Projectavision brand DHT product which uses DLP technology.
Front Projection
The front projection market is dominated by CRT & LCD based products.
CRT Displays
The major suppliers of CRT based front video projectors include Sony, NEC,
Electrohome, Ltd., Zenith Electronics, Runco International ("Runco") and Barco
Inc. ("Barco"). Sony, NEC and Barco are the leaders in the data category and the
Company's Vidikron brand, Sony and Runco are strongly positioned in the
high-resolution CRT home theater. Although the Company believes it is a strong
competitor in its market niche with a recognized product, competition may have
greater resources, financial and otherwise, in a very competitive market, and
there is no guarantee that the Company will be able to effectively compete and
grow or retain its market share.
LCD Displays
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 firms with 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, 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. The Company is looking to expand its market share in this
area against strongly entrenched competitors that are better financed and with
greater resources and the Company may not be able to effectively compete with
these other entities.
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Rear Projection
CRT-based products dominate the rear projection television market. Chip-based
systems, like Projectavision's DHT, were introduced in 1997. The Company has yet
to establish its market niche in this category and will seek to do so during
1999. Existing competition, which includes a number of large, well-established
companies may prove too resourceful for the Company to effectively compete.
Personnel
As of March 15, 1999, the Company employed forty-eight (48) people, all of whom
provide management, sales, engineering, technical 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
believes that its employee relations are satisfactory.
Item 2. PROPERTIES
The Company presently leases approximately 14,000 square feet of office and
warehouse space for executive facilities and operations respectively at one
Evertrust Plaza and at 150 Bay Street, Jersey City, New Jersey and leases
approximately 8,000 square feet of office and warehouse space at Via Dei Guasti,
Misinto, Italy. The office and warehouse space in Misinto is leased from the
former owners of Vidikron who, in connection with the Vidikron acquisition,
became executive officers of the Company and members of its Board of Directors.
The combined annual lease expense for all of the Company's facilities is
approximately $ 222,000. The lease for the Company's former premises at Two Penn
Plaza, Suite 640, New York, NY terminated on December 31, 1998.
Item 3. LEGAL PROCEEDINGS
In December 1998, a stockholder of the Company initiated an action in Supreme
Court, State of New York, alleging common law fraud, negligence and breach of
fiduciary duty claims against the Company and its Directors. In February, 1999,
the Company and the Defendant Directors moved to dismiss this action based upon
undisputed documentary evidence and based upon an assertion that the Complaint
failed to state a cause of action. The Plaintiffs' responsive papers are due in
April, 1999 and reply papers are due to be submitted by the Company and the
Defendant Directors in May 1999. Based upon discussions with counsel, the
Company's management believes that the motion to dismiss is well-founded. In the
event, however, that the motion were not granted the Company's management
believes that it has meritorious defenses and will vigorously defend the claims
if they are not dismissed pursuant to the motion.
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 is quoted on The Nasdaq Stock Market under the
following symbol:
Common Stock: VIDI
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The Company's Series B Preferred Stock was quoted on Nasdaq until March 1998
under the following symbol.
Series B Preferred Stock VDIP
At the Company's Annual Meeting of stockholders on February 19, 1999 the
stockholders passed a resolution authorizing the Company's Board of Directors to
effect a forty-for-one reverse stock split. In February 1999 the Company`s Board
of Directors unanimously approved a forty-for-one reverse stock split effective
March 2, 1999. Accordingly, all quoted prices for the Company's common stock and
per share amounts have been restated herein to reflect the March 1999
forty-for-one reverse stock split.
The Common Stock of the Company is quoted on The Nasdaq Small Cap Market. There
is currently no public trading market for any of the Company's Preferred
Securities. The high and low bid quotations for the Common Stock and Series B
Preferred Stock for each full quarterly period for the fiscal year ending
December 31, 1997 and the Common Stock for each full quarterly period for the
fiscal year ending December 31, 1998 and for the first quarter of 1999 through
March 29, 1999 are listed below:
COMMON STOCK SERIES B PREFERRED STOCK
1997 Calendar Quarter Quoted Bid Price (1) Quoted Bid Price
- --------------------- ---------------- ----------------
High Low High Low
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First Quarter $141.25 $77.50 $3.75 $2.25
Second Quarter $108.75 $65.00 $3.00 $2.00
Third Quarter $86.25 $57.50 $2.75 $2.00
Fourth Quarter $82.50 $30.00 $2.00 $1.06
COMMON STOCK
1998 Calendar Quarter Quoted Bid Price
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High Low
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First Quarter $62.25 $25.00
Second Quarter $46.25 $6.25
Third Quarter $23.75 $2.50
Fourth Quarter $15.00 $1.25
COMMON STOCK
1999 Calendar Quarter Quoted Bid Price
- --------------------- ----------------
High Low
---- ---
First Quarter (through
March 29, 1999) $2.50 $0.63
(1) All prices reflect a forty-for-one reverse split effective March 2,1999.
On April 9, 1999 the closing bid and asked prices of Common Stock as reported on
the NASDAQ system were $1.00 and $1.13 per share, respectively. 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 April 9, 1999 there were 417 holders of record of Common Stock and 1,178,290
shares of Common Stock issued and outstanding, and there were 9 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.
Item 6. SELECTED FINANCIAL DATA
The selected financial information set forth below is derived from the more
detailed financial statements and related notes thereto included elsewhere in
this Annual Report on Form 10-K. This information should be read in conjunction
with such financial statements and related notes.
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Statements of Operations Data
<TABLE>
<CAPTION>
For the Years Ended December 31,
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1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
Revenues $ -0- $ 200,000 $ 150,000 $ 1,017,645 $ 3,020,874
Research and Development 827,660 608,651 2,389,329 1,240,578 1,677,647
Net Loss (5,632,283) (6,471,638) (10,880,893) (8,289,920) (9,312,278)
Basic and Diluted Net Loss per Share
Attributable to Common Stockholders $ (18.80) $ (20.40) $ (39.79) $ (25.48) $ (17.04)
Average Number of Shares Outstanding 297,391 315,167 339,668 449,222 679,422
Balance Sheet Data
December 31,
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1994 1995 1996 1997 1998
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Working capital $ 6,659,132 $ 3,341,425 $ 3,421,387 $ 1,016,223 $ (4,992,121)(1)
Total assets 9,850,523 4,168,415 10,132,488 10,412,357 19,230,400
Total liabilities 236,473 485,710 3,690,443 4,475,394 15,127,044 (1)
Long Term Debt 1,600,000 900,000 9,710,776 (1)
Accumulated deficit (14,015,013) (20,641,044) (34,157,268) (45,604,454) (57,179,688)
Stockholders' equity 9,614,050 3,682,705 6,442,045 5,686,963 4,103,356 (1)
(1) On February 19,1999 $6.0 million in
Notes were converted into Preferred
Stock.
Computation of Per Share Loss
For the Years Ended December 31,
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1994 1995 1996 1997 1998
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Average number of shares outstanding 297,391 315,167 339,668 449,222 679,422
Net Loss $ (5,632,283) $(6,471,638) $(10,880,893) $ (8,289,920) $ (9,312,278)
Dividends on Preferred Stock - - (2,635,331) (3,157,266) (2,262,929)
Net Loss attributable to Common $ (5,632,283) $(6,471,638) $(13,516,224) $(11,447,176) $(11,575,207)
Stockholders
Basic and Diluted Net Loss per Share
Attributable to Common Stockholders
$(18.80) $(20.40) $(39.79) $(25.48) $(17.04)
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</TABLE>
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.
Year 2000
Substantially all of the Company's business computer systems were acquired after
the year 2000 issue became widely publicized. Consequently, the Company has
endeavored to ensure that computer systems acquired were Year 2000 compliant at
the time of their purchase. The Company believes that it has been substantially
successful in that goal. The Company does not anticipate that the costs of final
testing of its systems to assure Year 2000 compliance will exceed $ 25,000.
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The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity, and financial condition. Due to the general
uncertainty of the Year 2000 problem, resulting in part form the uncertainty of
the Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity,
or financial condition.
The Company is in the process of verifying that all key suppliers are year 2000
compliant and has ascertained that at least one major supplier is Year 2000
compliant. The Company at present has no individual customer which could have a
material adverse effect on the Company's operations should such customer not be
Year 2000 compliant. In addition, the Company intends to evaluate the Year 2000
readiness of any future significant customers or suppliers.
Recent Accounting Developments
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes rules for the reporting of comprehensive income
(loss) and its components. The Company's comprehensive income (loss) consists of
results from operations and foreign currency translation adjustments and is
presented in the consolidated statement of changes in stockholders' equity.
Since this statement applies only to the presentation of comprehensive income
(loss), it does not have any impact on the Company's financial position, results
of operations, or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This standard requires enterprises to
report certain information about their operating segments in a complete set of
financial statements to stockholders; to report certain enterprise-wide
information about products and services, activities in different geographic
areas, and reliance on major customers and to disclose certain segment
information in their interim financial statements. The basis for determining an
enterprise's operating segments is the manner in which financial information is
used internally by the enterprise's chief operating decision-maker. The Company
operates in one business segment: manufacturing, distribution and marketing of
home theater products.
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal periods
beginning after June 15, 1999. The Company is currently evaluating the impact,
if any, of this statement.
Liquidity and Capital Resources
As of December 31, 1998, the Company had cash and cash equivalents of $2,280,107
and negative working capital of $4,492,121. The negative working capital arose
from the $6,000,000 in Notes payable classified as a current liability. These
notes were automatically, by terms set forth in the Company's proxy statement
with respect to its Annual Meeting of Stockholders held on February 19, 1999
converted into preferred stock in the Company on February 19, 1999.
The Company had outstanding as of December 31, 1998 a loan of $1,247,400 bearing
interest of 10.45%, which was scheduled to mature on June 30, 1999. This loan
was assumed by the Company in connection with the Vidikron Acquisition. On
December 28, 1998 the lender sent notice of their intention to accelerate the
loan due to the breach of a change in control covenant. The Company is in
negotiations with the lender and is seeking to substitute a new facility to pay
down this obligation. Although discussions are currently taking place with
another lender, there can be no assurances that the Company will be successful
in attracting a substitute lender. Failure to find a substitute lender could
have a material adverse effect on the Company.
To date, the Company has funded its operations primarily from sales of capital
stock and convertible debt. In February 1998, the Company completed a private
placement of preferred stock of $2.85 million. In May 1998 the Company completed
a second private placement of preferred stock of $2.4 million and a private
placement of common stock of $500,000. In December 1998 the Company completed a
private placement of convertible Notes totaling $6 million in connection with
financing the Vidikron Acquisition.
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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, 1998, the Company had available for Federal income tax
purposes net operating and capital loss carry-forwards of approximately
$39.8 million. The Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), may impose certain restrictions on the amount of net operating
loss carry-forwards which may be used in any year by the Company.
Results of Operations
1998 Compared With 1997
The Company had revenues of $3,020,874 for the year ended December 31, 1998
compared to revenues of $1,017,645 for the year ended December 31, 1997, an
increase of $2,003,229 or 196.8%. Approximately $1,214,215, or 40%, of the
revenue in 1998 was attributable to sales of Vidikron brand products subsequent
to the Vidikron Acquisition. Cost of goods sold of $2,481,763 was $1,491,719 or
150.7% higher than the previous year and was adversely affected by a write-off
of $373,372 in inventory associated with the first generation DHT projector.
Gross profit for the year ended December 31, 1998 was $539,111 compared to
$27,601 for the previous year, an increase of $511,510, a nineteen-fold
improvement.
Operating expenses for the year ended December 31, 1998 were $12,196,175
compared to operating expenses for the previous year of $8,228,546, which
included $ 483,448 attributable to Vidikron, an increase of $3,967,629, or
48.2%. General and administrative expenses of $8,083,222, which included
$344,742 attributable to Vidikron, grew by $3,505,334, or 76.5%, from the
previous year principally due to the write down of tooling of $2.9 million for
the DHT tooling and molds and advances of $785,000 made to a supplier. Salaries
of $1,664,432, which included $132,306 attributable to Vidikron, were $145,737
or 9.6% higher than the year ended December 31, 1997. Depreciation for 1998 was
$682,040, an increase of $73,685, or 12.1%, over 1997. Research and development
for 1998 was $1,677,647, an increase of $437,069, or 35.2%, over 1997. Patent
and license expenses decreased $194,196 to $88,834 from 1997 to 1998 as the
Company was winding down its patent application program.
Other income for the year ended December 31, 1998 was $2,344,786, an increase of
$2,333,760 over year ended December 31, 1997 The primary reason for the increase
was the sale of approximately 43 million shares of Manhattan Scientific, Inc.
(formerly Tamarack Storage Devices, Inc.) stock for $2,500,000. This stock had
been written down to $150,000 in prior years. Interest income of $41,408 in 1998
was offset by interest expense of $46,622. A net loss of $9,312,278 for the year
ended December 31, 1998 was $1,022,358, or 12.3%, greater than the previous
year.
The Company also recorded $2,262,929 in dividends (i) on the Series B Preferred
Stock (ii) on the amortization of the discount on the conversion feature the
Series D, E, F and G Convertible Preferred Stock and (iii) for warrants issued
in connection with the Series F and G Convertible Preferred Stock.
1997 Compared With 1996
The Company had revenues of $1,017,645 for the year ended December 31, 1997
compared to revenue for the previous year of $150,000, an increase of 678%. All
of the revenue in 1997 was from the sale of the Digital Home Theater, whereas in
1996 all revenue was royalty income. Cost of goods sold in 1997 was $990,044.
Gross profit for the year ended December 31, 1997 was $ 27,601.
9
<PAGE>
Operating expenses for the year ended December 31, 1997 were $8,228,546 compared
to operating expenses for the previous year of $7,306,908, an increase of
$921,638, or 12.6%. General and administrative expenses at $4,577,888, exceeding
the previous year's general and administrative expenses by $1,380,847, or 43.2%,
due to increased participation in trade shows and to higher advertising and
travel expenses. Salaries of $1,518,695 in 1997 grew by $252,408, or 19.9%, over
calendar year 1996. Legal fees of $1,347,146 were $329,237, or 32.3%, higher
than the previous year due to on-going litigation with a former officer, founder
and Director of the Company. Depreciation of $608,355 was $517,071 greater than
the previous year because the Company began to depreciate in 1997 the tooling
developed to build the Company's Digital Home Theater. Research and development
expenses of $1,240,578 for calendar year 1997 was $1,148,751, or 48.1%, less
than calendar year 1996.[Why?] Patent and license expense for year-end December
31, 1997 at $283,030 was $79,937, or 22.0%, less than the previous year.
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.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements following Item 14 of this Annual Report on Form 10-K.
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.
<TABLE>
<CAPTION>
Term
Name Age Position Expires
- ---- --- -------- -------
<S> <C> <C>
Marvin Maslow 61 Chairman of the Board 1999
of Directors
Phillip Siegel 56 Vice Chairman of the Board 2001
of Directors
Martin Holleran 56 President, Chief Executive
Officer and Director 2000
Emilio Baj Macario 53 Director 2002
Tomaso Barbini 38 Director 2000
Martin D. Fife 71 Director 2000
E. Bruce Fredrikson, Ph.D. 61 Director 2001
Claudio Guazzoni 36 Director 2002
Flavio Peralda 47 Director 2002
</TABLE>
10
<PAGE>
Marvin Maslow. Mr. 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. Mr.
Maslow is also a Director [and an Officer] of Manhattan Scientific, Inc., which
was formerly the Company's majority owned subsidiary Tamarack Storage Devices,
Inc. and was spun off in July 1998.
Phillip Siegel. Mr. Siegel is an independent business consultant. He joined the
Company's Board of Directors on February 19, 1999 and was elected to Vice
Chairman of the Board on March 25, 1999. Mr. Siegel served as Vice President and
Chief Financial Officer of Health Management Systems, Inc., a health care
information systems company, from May 1996 until March 1998. He was an
independent business consultant from February 1993 until May 1996. He served as
a senior executive officer of Presidential Life Insurance Company from December
1989 until February 1993, most recently as its Senior Vice President. During
1988, Mr. Siegel served as Chief Operating Officer and Chief Financial Officer
of Sherwood Group and Sherwood Securities. Mr. Siegel is an Independent General
Partner of Fiduciary Capital Partners, L.P. and Fiduciary Capital Pension
Partners, L.P. and is a Director of WestPoint Stevens, Inc. (and Chairman of the
Audit Committee).
Martin J. Holleran. Mr. 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. From 1992 until 1993, Mr. Holleran was President
and Chief Operating Officer of Emerson Radio. Prior thereto, Mr. Holleran served
as President and Chief Executive Officer of Thomson Consumer Electronics
Marketing and Sales Company ("Thomson") from 1988 to 1992. Mr. Holleran was also
a Director of Manhattan Scientific, Inc. which was formerly the Company's
majority owned subsidiary Tamarack Storage Devices, Inc. and was spun off in
January 1998, until February 12, 1999.
Emilio Baj Macario. Mr. Baj Macario is the Managing Director of Vidikron S.r.L.
and had been Managing Director of Vidikron Industries S.p.A. for the 10 years
immediately prior to the Vidikron Acquisition. From 1985 to 1990 Dr. Baj Macario
was Managing Director of C.I.D. which was an exclusive distributor of JVC
consumer goods in Italy. Prior to 1985 he held various senior positions with
Panasonic Consumer Electronics.
Tomaso Barbini. Mr. Barbini is Vice Chairman of Rothschild Italia, where he has
been working since 1992. Prior to joining Rothschild he worked for four years at
UBS.
Martin D. Fife. Mr. 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.
11
<PAGE>
E. Bruce Fredrikson. Mr. Fredrikson is Professor of Finance at Syracuse
University School of Management. He was chairman of the finance department from
1978 to 1981 and has served in various teaching positions at the University
since 1966. Mr. Fredrikson is an Independent General Partner of Fiduciary
Capital Partners, L.P. and Fiduciary Capital Pension Partners, L.P. He is a
Director of Track Data Corporation and Innodata Corporation and Chairman of the
Audit Committee of these two companies.
Claudio M. Guazzoni. Mr. Guazzoni co-founded The Zanett Securities Corporation
in 1993 where he is currently employed. He previously worked for Salomon
Brothers from 1985 until 1991. Mr. Guazzoni is a Director of SmartServe OnLine,
Inc.
Flavio Peralda. Mr. Peralda the President of Vidikron S.r.L. was
Founder/Chairman and President of Vidikron Industries S.p.A. for the past 20
years immediately prior to the Vidikron Acquisition.
Board Classification and Committees
The Company adopted a classified Board of Directors in February 1990. The Board
of Directors presently consists of nine members divided into three classes. The
Company currently has one (1) Director whose term expires in 1999, three (3)
Directors whose term expires in 2000, two (2) Directors whose term expires in
2001 and three (3) Directors whose term expire in 2002. 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 and a Compensation Committee.
The Audit Committee
Among other things, the Audit Committee
(i) reviews the internal control procedures and accounting procedures of the
Company;
(ii) consults with the Company's independent auditors;
(iii) reviews the reports submitted by the Company's independent auditors;
(iv) reviews with the Company's management compliance reporting and accounting;
and
(v) makes reports and recommendations to the Board of Directors, as it deems
appropriate regarding, among other matters appointment of independent
auditors.
The Audit Committee is presently comprised of E. Bruce Fredrikson (the Chairman)
and Claudio M. Guazzoni.
The Audit Committee held one (1) meeting during 1998.
The Compensation Committee
The Compensation Committee establishes and administers salaries, bonuses and
other incentive plans in order to attract persons to serve as, and to retain,
motivate and reward qualified persons serving as, directors, executive officers
and key employees of the Company.
The Compensation Committee is presently comprised of Claudio M. Guazzoni (the
Chairman), E. Bruce Fredrikson and Martin D. Fife.
The Compensation Committee held one (1) meeting in 1998.
Each member of the Board of Directors who is not an officer or employee of the
Company receives an annual fee of $8,000 per year, plus $1,000 for each
scheduled Board meeting and $ 500 for each committee meeting attended for
serving as Director. As of March 25, 1999 each Director can elect in advance to
take equity in the Company in lieu of cash fees. The equity will be priced at
85% of the average closing bid price for the ten days preceding the applicable
meeting. 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. All Directors attended at least 75% of the meetings in 1998.
12
<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 1998 all
filing requirements applicable to its officers, directors and greater than ten
percent stockholders were complied with.
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, 1998 whose
total annual salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Other
Compen- Stock LTIP Compen-
Name and sation Awards Options/ Payouts sation
Principal Position Year Salary($) Bonus($) $ $ SARs(#) $ $
- ------------------ ---- --------- -------- ------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin Maslow, 1998 $150,000 $ -0- $63,676(6) $ -0- $ -0-
Chairman of the Board 1997 $150,000 $ -0- $41,676 $ -0- -0- $ -0- $ -0-
Of Directors 1996 $150,000 $ -0- $40,141 $ -0- 25,000(1) $ -0- $100,000(2)
Martin Holleran, 1998 $220,000 $ -0- $24,154 $ -0- 784,624(3) $ -0- $ -0-
President, Chief 1997 $220,000 $ -0- $24,115 $ -0- -0- $ -0- $ -0-
Executive Officer 1996 $180,000 $ -0- $ 9,403 $ -0- 25,000(4) $ -0- $100,000(5)
And Director
Sherman Langer (7) 1998 $165,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Senior Vice President 1997 $165,000 $ -0- $ -0- $ -0- -0- $ -0-
Of Marketing and 1996 $130,000 $30,000 $ -0- $ -0- $ 2,500 $ -0- $ -0-
Sales And Director
</TABLE>
(1) On March 12, 1996, the Company cancelled 4,688 unvested stock options
granted in 1994 having an exercise price of $215.00 per share and granted
Mr. Maslow 25,000 non-qualified stock options having an exercise price of
$175.00 per share, which exercise price was subsequently reduced to $120.00
on January 9, 1997.
(2) Represents a one-time cost-of-living adjustment made to Mr. Maslow's July
1990 employment agreement with the Company.
(3) On December 8, 1998 Mr. Holleran was granted options representing 7% of the
company's issued and outstanding common stock, on a fully diluted basis,
after giving effect to the transactions approved at the Company's Meeting
of Stockholder held on February 19, 1999.
(4) On March 12, 1996, the Company cancelled 3,125 unvested stock options
granted in 1994 having an exercise price of $215.00 per share and granted
Mr. Holleran 25,000 non-qualified stock options having an exercise price of
$175.00 per share, which exercise price was subsequently reduced to $120.00
on January 9,1997. On December 8, 1998, Mr. Holleran returned all of these
stock options to the company.
13
<PAGE>
(5) Represents a one-time cost-of-living adjustment made to Mr. Holleran's 1993
employment agreement with the Company.
(6) Includes $25,000 received from Manhattan Scientific, Inc. (See Item 13
Certain Relationships and Related Transactions)
(7) Mr. Langer resigned as of March 16, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Unexercised
Number of In-the-Money
Options/SARs Options/SARs
At Fiscal At Fiscal
Year End (#) Year End (#)
Shares
Name and Acquired on Value Exercisable Exercisable
Principal Position Exercise (#) Realized ($) Unexercisable Unexecisable
- ------------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Marvin Maslow -0- N/A 34,375 Exercisable 0/0
Chairman of the Board
Of Directors
Martin Holleran, -0- N/A 261,541 Exercisable 0/0
President and Chief
Executive Officer
Sherman Langer -0- N/A 3,800 Exercisable 0/0
Senior Vice President
Of Marketing and
Sales and Director
Jules Zimmerman -0- N/A 3,000 Exercisable 0/0
Chief Financial Officer
And Director
Martin Fife, -0- N/A 375 Exercisable 0/0
Vice Chairman of the
Board of Directors
</TABLE>
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 when Mr. Maslow resigned his position as Chief
Executive Officer and remained Chairman of the Board. The terms of Mr. Maslow's
employment agreement set forth a salary of $150,000 per annum, a $2,000 per
month non-accountable expense allowance, lease of an automobile and other
perquisites. 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. At that time Mr. Holleran resigned his position as
Chief Operating Officer and assumed the position of Chief Executive Officer. The
terms of Mr. Holleran's employment agreement set forth a salary of $220,000 per
annum plus lease of an automobile and other perquisites. 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.
14
<PAGE>
Effective December 8, 1998, the Company entered into a one (1) year employment
agreement with Mr. Flavio Peralda initially to act as Attorney for Vidikron
S.r.L. and a two (2) year employment agreement with Emilio Baj Macario also to
act as Attorney for Vidikron S.r.L. at salaries of $180,000 per year each. The
Company is in the process of converting Vidikron S.r.L. into Vidikron S.p.A. At
the time of conversion, Mr. Peralda will become President and Mr. Baj Macario
Managing Director of Vidikron S.p.A. in accordance with the terms of their
employment agreements. The Company has also entered into an employment agreement
with Giovanni Cozzi, President of Vidikron of America, for a period of (4)
months at an annual salary of $146,000 and with James Wellnitz, Executive Vice
President of Vidikron of America, for one year at a salary of $85,000 per year.
Messrs. Cozzi and Wellnitz also receive a percentage of revenue earned in the
U.S. At the expiration of Mr. Cozzi's employment agreement he became an employee
at will under the same terms and conditions as before.
Each of Messrs. Maslow, Holleran, Peralda and Baj Macario have agreed not to
compete with the Company during the term of his respective employment agreement
and for a period of two years after the termination thereof. Each of Messrs.
Cozzi and Wellnitz have agreed not to compete with company during the term of
their employment agreement. All of the executive employment agreements contain
termination for cause provisions.
Effective January 1, 1997, the Company entered into an employment agreement with
Mr. Sherman Langer. The term of Mr. Langer's employment agreement was three (3)
years and provided for a salary of $165,000 per year and also contains certain
change in control provisions. The employment agreement was terminated as of
March 16, 1999, by mutual consent. Under the terms of the agreement Mr. Langer
resigned as an Officer and Director of the Company with the Company agreeing to
pay his salary and benefits for up to six months or until thirty (30) days after
Mr. Langer becomes reemployed, which ever comes earlier.
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. Mr. Zimmerman resigned as Chief Financial Officer to the company on
February 19, 1999 and as a Director as of March 15, 1999.
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 the indemnified
party 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.
15
<PAGE>
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.
Each Indemnification Agreement requires 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 the
indemnitee 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 is therefore 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. The Company has obtained officers' and directors'
liability insurance, which provides a maximum of $6,000,000 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
$150,000. 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
At the Annual Meeting on February 19, 1999 the stockholders approved the
adoption of the Company's 1999 Incentive Stock Option Plan (the "1999 Option
Plan") inasmuch as the Company's currently existing 1990 Incentive Stock Option
and Allocation Plan (the "1990 Option Plan") will, by its terms in accordance
with applicable Federal Income Tax provisions, expire in February 2000.
The purpose of the 1999 Option Plan, like the 1990 Plan, is to encourage and
enable employees and consultants of the Company and its subsidiaries to acquire
a proprietary interest in the Company through the ownership of the Company's
Common Stock. The Option Plan is designed to provide employees and consultants
with a more direct stake in the Company's future welfare and an incentive to
remain with the Company.
The 1999 Option Plan is, in most material respects, substantially similar if not
identical to the 1990 Option Plan. Like the 1990 Option Plan, the 1990 Option
Plan will provide for grants of "Incentive Stock Options," meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and "Non-qualified Stock Options".
The 1999 Option Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee") which is comprised of not less than two
disinterested directors within the meaning of Rule 16b-3 of the Exchange Act.
The Option Plan permits the Committee to determine which employees or
consultants or other eligible personnel shall receive options and the times when
options are to be granted. The Committee also determines the purchase price of
Common Stock covered by each option, the term of each option, the number of
shares of Common Stock to be covered by each option and any performance
objectives or vesting standards applicable of each option. The Committee also
designates whether the options shall be Incentive Stock Options or Non-qualified
Stock Options. The Plan has a term of ten (10) years and expires in February
2009.
The purchase price per share under each Incentive Stock Option or Non-qualified
Stock Option is the "Market Price" (i.e., the average of the high and low
reported consolidated bid price for such day) of the Common Stock on the date
the option is granted, except that the exercise price for an Incentive Stock
Option granted to a 10% stockholder may not be less than 100% of the Market
Price of the Common Stock on the date of the grant. The aggregate Market Price
of the Common Stock exercisable under Incentive Stock options held by any
optionee during any calendar year may not exceed $100,000. Incentive Stock
Options granted to employees under the Option Plan have a maximum term of ten
years. Options are not transferable except by will or pursuant to the applicable
laws of descent and distribution. Notwithstanding the general restriction on
transferability, in the sole discretion of the Committee, Non-qualified Stock
Options may be made transferable subject to the requirements of Rule 16b-3.
16
<PAGE>
In the event that an employee is terminated for any reason other than death,
Disability, Retirement for Cause (as such terms are defined in the Option Plan),
to the extent that the employee had the right to exercise an option, such option
will be exercisable until the earlier of the expiration date of the option, or
within 30 days of the date of such termination. Options held on the date of
Disability or Retirement, whether or not exercisable on such date, are
exercisable within one year of the date of Disability or Retirement. Options
held by an employee at the date of death, whether or not exercisable on the date
of death, are exercisable by the beneficiary of the employee within one year
from the date of death. The Committee may, in its sole discretion, cause any
option to be forfeited upon an employees termination for Cause (as defined in
the Option Plan). In the event of a Change of Control (as such term is defined
in the Plan) of the Company, all outstanding options will vest and appropriate
provisions shall be made for the protection of options by substitution on an
equitable basis of appropriate stock of the Company or appropriate stock of the
merged, consolidated or otherwise reorganized corporation, as the case may be.
The Board of Directors is permitted to suspend, terminate, modify or amend the
Option Plan, provided that any amendment that would (I) materially increase the
aggregate number of shares, (ii) materially increase benefits accruing to
employees, or (iii) materially modify the eligibility requirements for
participation shall be subject to stockholder approval, provided, however, that
stockholder approval is not required for adjustments to the Option Plan or to
the number of shares available thereunder which are deemed appropriate by the
Committee to prevent dilution or expansion of rights.
The Company's 1999 Option Plan would have available options exercisable for
shares of common Stock of the Company in an amount equal to twenty percent (20%)
of the company's issued and outstanding shares after giving effect to the
transactions approved at the February 19, 1999 stockholders meeting.
Performance Graph
Comparison of Five-Year Cumulative Total Returns
Performance Report for
Vidikron Technologies Group, Inc.
Prepared by the Center for Research in Security Prices
Produced on 04/14/1999 including data to 12/31/1998
Company Index: CUSIP Ticker Class Sic Exchange
74339110 PJTV 3660 NASDAQ
Fiscal Year-end is 12/31/1998
market Index; Nasdaq Stock Market (US Companies)
Peer Index: NASDAQ Stocks (SIC 3660-3669 US Companies)
Communications Equipment
Date Company Index Market Index Peer Index
12/31/1993 100.000 100.000 100.000
01/31/1994 80.682 103.035 100.788
02/28/1994 62.500 102.073 98.085
03/31/1994 61.364 95.798 91.886
04/29/1994 61.364 94.554 95.175
05/31/1994 45.455 94.785 85.228
06/30/1994 55.682 91.319 79.834
07/29/1994 47.727 93.192 84.114
08/31/1994 50.000 99.135 93.740
09/30/1994 46.591 98.881 93.278
10/31/1994 52.273 100.824 105.370
11/30/1994 45.455 97.479 104.840
12/30/1994 39.205 97.752 113.428
01/31/1995 31.818 98.309 109.964
02/28/1995 29.545 103.509 118.085
03/31/1995 30.682 106.579 123.902
04/28/1995 23.295 109.937 131.144
05/31/1995 21.591 112.775 132.896
06/30/1995 28.409 121.914 157.365
07/31/1995 27.273 130.876 175.814
08/31/1995 30.114 133.531 177.400
09/29/1995 42.614 136.601 187.897
10/31/1995 51.136 135.813 173.262
11/30/1995 34.091 139.004 186.370
12/29/1995 43.182 138.265 175.935
01/31/1996 40.909 138.944 171.886
02/29/1996 43.182 144.233 183.654
03/29/1996 36.932 144.708 181.159
04/30/1996 20.455 156.710 215.722
05/31/1996 26.136 163.906 243.372
06/28/1996 32.955 156.517 234.122
07/31/1996 26.705 142.559 188.855
08/30/1996 35.227 150.547 202.873
<PAGE>
Comparison of Five-Year Cumulative Total Returns
Performance Report for
Vidikron Technologies Group, Inc.
Prepared by the Center for Research in Security Prices
Produced an 04/14/1999 including data to 12/31/1998
Date Company Index Market Index Peer Index
09/30/1996 36.364 162.062 213.700
10/31/1996 34.091 160.271 201.541
11/29/1996 30.682 170.179 208.784
12/31/1996 23.295 170.025 195.178
01/31/1997 27.557 182.109 207.294
02/28/1997 25.000 172.037 181.620
03/31/1997 23.864 160.804 164.429
04/30/1997 18.182 165.831 157.669
05/30/1997 17.330 184.696 197.998
06/30/1997 17.898 190.353 203.921
07/31/1997 13.352 210.432 224.948
08/29/1997 17.330 210.179 227.641
09/30/1997 17.614 222.580 233.837
10/31/1997 14.773 211.020 221.992
11/28/1997 13.636 212.164 219.291
12/31/1997 8.807 208.532 208.891
01/30/1998 10.369 215.158 195.827
02/27/1998 6.818 235.389 206.211
03/31/1998 10.227 244.025 215.148
04/30/1998 6.818 248.054 227.390
05/29/1998 4.545 234.261 212.203
06/30/1998 2.273 250.681 225.827
07/31/1998 3.409 247.694 221.964
08/31/1998 1.136 198.800 142.261
09/30/1998 0.852 226.450 140.172
10/30/1998 0.852 236.226 159.730
11/30/1998 0.852 260.132 174.648
12/31/1998 0.568 293.832 191.299
The index level for all series was set to 100.0 on 12/31/1993
17
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 9, 1999, 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>
Marvin Maslow (5) 34,958 1.3% 25,000 7.1%
Manhattan Scientifics Inc.
641 5th Avenue
Suite 36-F
New York, NY 10022
Martin D. Fife (4) 8,750 -0- -0- -0-
405 Lexington Avenue
New York, NY 10174
Martin Holleran (6) 784,624 28.5% -0- -0-
Vidikron Technologies Group Inc.
One Evertrust Plaza
11th Floor
Jersey City, NJ 07302
Phillip Siegel (7) 100,000 3.6% -0- -0-
(Vidikron Technologies Group, Inc.)
Tomaso Barbini (8) 50,000 1.8% -0- -0-
(Vidikron Technologies Group, Inc.)
E. Bruce Fredrikson (8) 50,000 1.8% -0- -0-
(Vidikron Technologies Group, Inc.)
Claudio Guazzoni (8) 50,000 1.8% -0- -0-
(Vidikron Technologies Group, Inc.)
Emillio Baj Macario (9) 493,333 17.9% -0- -0-
Vidikron Industries S.p.A.
Via Dei Guasti, 29
20020 Misinto (Milano)
C.so Venezia, 16-20121
Milano, Italy
Flavio Peralda (9) 493,333 17.9% -0- -0-
Vidikron Industries S.p.A.
Via Dei Guasti, 29
20020 Misinto (Milano)
C.so Venezia, 16-20121
Milano, Italy
All Directors, Nominees and Officers Group
(consisting of 9 persons) (4)(5)(6)(7)(8)(9) 2,749,955 57.2% 25,000 7.1%
</TABLE>
<PAGE>
(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 forty (40) for one (1) in March
of 1999.
(3) Outstanding Common Stock does not include any shares of Common Stock
issuable upon the exercise of any outstanding options or warrants, or the
conversion of any convertible preferred securities. The convertible
preferred securities are convertible into common stock. Should they be
converted the common stock would increase to approximately 10.5 million
shares.
(4) Includes 8,750 non-qualified options granted to and beneficially owned by
Mr. Fife to acquire 8,750 shares of Common Stock. Does not include (i) 100
shares of non-voting Series A Preferred Stock issued to Mr. Fife in
connection with the early financing of the Company.
(5) Includes (i) 34,375 shares of Common Stock subject to 34,375 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.
(6) Includes non-qualified options granted to and beneficially owned by Mr.
Holleran to acquire shares of the Company's Common Stock.
18
<PAGE>
(7) Includes incentive stock options granted to and beneficially owned by Mr.
Siegel to acquire shares of the Company's Common Stock.
(8) Includes non-qualified stock options granted to and beneficially owned by
Messrs. Barbini, Fredrikson and Guazzoni to acquire shares of the Company's
Common Stock.
(9) Represents shares issued to Grangeover, an Isle of Mann Entity, as partial
consideration for the transfer to the Company of certain trademarks and
intellectual property rights in connection with the Vidikron Acquisition.
Messrs. Peralda and Baj Macario are empowered to vote the shares issued to
this entity, but disclaim any beneficial ownership.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases space from Mssrs. Baj Macario and Peralda, two of the
Company's officers and directors, and purchases certain components used in the
manufacture of certain projectors and certain manufactured projectors from
Novavision, S.p.A., a company owned by Mssrs. Baj Macario and Peralda. For the
year ended December 31, 1998, the lease expense was $6,181. The lease was
negotiated as an arms length transaction at the time of the Vidikron
Acquisition and the transfer price for manufactured goods is subject to
competitive bids. Mssrs. Baj Macario and Peralda also hold a power of attorney
from Grangeover, an Isle of Mann entity, to vote the Company's common stock
owned by Grangeover.
In January of 1998 the Company merged its majority owned subsidiary, Tamarack
Storage Devices Inc., into a bulletin board shell company, changed the name of
the merged entity to Manhattan Scientifics, Inc. ("MSI") and simultaneously
therewith effected an offering of $1,000,000 of common stock of MSI in a Rule
504 offering. Upon the consummation of this transaction, after giving effect to
the merger and the Rule 504 offering, the Company owned approximately 77% of the
issued and outstanding common shares of MSI. On or about the same time MSI
issued 7,500,000 options each to Messrs. Maslow and Holleran to acquire MSI
common stock at an exercise price of $0.20 per share.
Marvin Maslow is an officer and director of MSI and Mr. Holleran is a director
of MSI. In July 1998, as part of the Company's sale of approximately 43.1
million shares of MSI common stock to an institutional investor, the
institutional investor required that it receive 10,000,000 of the 15,000,000
options owned by these two officers and directors and that the exercise price be
reduced to $0.05 per share. Each of the two officers and directors surrendered
options for 5,000,000 shares of MSI common stock and each had the exercise price
of their remaining options for 2,500,000 shares of MSI common stock similarly
reduced to $0.05 per share. In 1998, Mr. Maslow received $25,000 in compensation
from MSI. On February 12, 1999 Mr. Holleran resigned as a director of MSI.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the Company are incorporated
herein by reference to Part II, Item 8:
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report F - 1
Consolidated Balance Sheets at December 31, 1997 and 1998 F - 2
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997, 1998 F - 3
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997, 1998 F - 4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997, 1998 F - 5
Notes to Consolidate Financial Statements F - 6
</TABLE>
19
<PAGE>
(a) (2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other 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, 1998.
Exhibit No.
- -----------
10.52 Acquisition Agreement and Related Agreements with Vidikron Industries,
S.p.A.
27 Financial Data Schedule
20
<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 15th day of April, 1999.
VIDIKRON TECHNOLOGIES GROUP, 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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
- ----------------------- Chairman of the Board April 15, 1999
Marvin Maslow of Directors
/s/ Phillip Siegel Vice Chairman of the Board April 15, 1999
- ----------------------- of Directors
Phillip Siegel
/s/ Martin Holleran President, Chief April 15, 1999
- ----------------------- Executive Officer and Director
Martin Holleran
/s/ Stuart D. Barlow Vice President of Finance April 15, 1999
- ----------------------- (principal financial officer)
Stuart D. Barlow
/s/ Emilio Baj Macario
- ----------------------- Director April 15, 1999
Emilio Baj Macario
/s/ Tomaso Barbini
- ----------------------- Director April 15, 1999
Tomaso Barbini
/s/ Martin D. Fife
- ----------------------- Director April 15, 1999
Martin D. Fife
/s/ E. Bruce Fredrikson
- ----------------------- Director April 15, 1999
E. Bruce Fredrikson
/s/ Claudio Guazzoni
- ----------------------- Director April 15, 1999
Claudio Guazzoni
/s/ Flavio Peralda
- ----------------------- Director April 15, 1999
Flavio Peralda
</TABLE>
<PAGE>
Item 14(c) Part IV
Exhibit Index
Exhibit Number Description
- -------------- -----------
3.1 Amendment to Certificate of Incorporation changing the
name of the Company to Vidikron Technologies Corp., Inc.
3.1.1 Amendment to Certificate of Incorporation amending
authorized capital
10.53 Amended Acquisition Agreement and Related Agreements
with Vidikron Industries, S.p.A.
10.54 Employment Agreement of Emilio Baj Macario
10.55 Employment Agreement of Flavio Peralda
21
<PAGE>
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of Vidikron Technologies Group, Inc.:
We have audited the accompanying consolidated balance sheets of Vidikron
Technologies Group, Inc., and its subsidiaries, formerly Projectavision, Inc. as
of December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. Our audits also included the financial
statement schedule listed in Item 14. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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 consolidated financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1998 and 1997 and the results of its operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Deloitte & Touche
- ---------------------------------
New York, New York
April 8, 1999
F-1
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
December 31, December 31,
ASSETS 1997 1998
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,331,925 $ 2,280,107
Accounts receivable 377,608 1,934,426
Inventory 1,857,604 4,617,680
Investments - 500,000
Other current assets 1,001,629 299,575
------------ ------------
Total Current Assets 4,568,766 9,631,788
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 127,128 643,009
Tooling 5,907,288 2,134,237
Computers and software 259,048 320,270
Assets under capital leases 47,989 47,989
Leasehold improvements 185,030 8,824
------------ ------------
6,526,483 3,154,329
Less: Accumulated depreciation and amortization 851,250 290,662
------------ ------------
Property and equipment, net 5,675,233 2,863,667
GOODWILL - Net of accumulated amortization of $25,043 - 5,985,094
TRADEMARKS - Net of accumulated amortization of $3,769 - 599,216
OTHER ASSETS 168,358 150,635
------------ ------------
TOTAL ASSETS $ 10,412,357 $ 19,230,400
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,466,676 $ 3,597,729
Accrued liabilities 1,070,638 1,297,500
Notes payable - 7,889,197
Bank debt - 1,681,579
Convertible debt - 140,000
Current portion of capital lease obligations 15,229 17,904
------------- -------------
Total Current Liabilities 3,552,543 14,623,909
------------- -------------
LONG-TERM LIABILITIES
Long-term portion of capital lease obligations 22,851 4,947
Other long-term liabilities 250,000 498,188
Convertible debt 900,000 -
------------- -------------
Total Long-term Liabilities 1,172,851 503,135
------------- -------------
TOTAL LIABILITIES 4,725,394 15,127,044
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
COMMITMENTS AND CONTINGENCIES - -
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, 351,258 shares outstanding
as of December 31, 1998 ($1,756,290 liquidation preference) 3,512 3,512
Series D Preferred Stock, $100 par value 60,000 shares authorized; 51,000
shares issued as of December 31, 1997 and 36,900 shares issued as of
December 31, 1998; ($3,690,000 liquidation preference) 5,100,000 3,690,000
Series E Preferred Stock, $1000 par value
1,650 shares authorized; 1,650 shares issued as of December 31, 1997 and
1,510 shares issued as of
December 31, 1998; ($1,510,000 liquidation preference) 1,650,000 1,510,000
Series F Preferred Stock, $1000 par value
2,850 shares authorized; 2,850 shares issued as of
December 31, 1998; ($2,850,000 liquidation preference) 2,850,000
Series G Preferred Stock, $1000 par value
2,400 shares authorized; 2,400 shares issued as of
December 31, 1998; ($2,400,000 liquidation preference) 2,400,000
Common stock $.004 par value - 1,250,000 shares
authorized; 499,725 and 1,146,327 issued and
outstanding in 1997 and 1998 respectively 1,999 4,585
Cumulative Translation Adjustment - (21,353)
Additional paid-in capital 44,535,906 50,846,300
Accumulated Deficit (45,604,454) (57,179,688)
------------- ------------
Total Stockholders' Equity 5,686,963 4,103,356
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,412,357 $19,230,400
============= ============
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
--------------------------------------------------------------------
1996 1997 1998
<S> <C> <C> <C>
REVENUE $ 150,000 $ 1,017,645 $ 3,020,874
COST OF SALES - 990,044 2,481,763
------------ ------------ ------------
GROSS PROFIT 150,000 27,601 539,111
OPERATING EXPENSES
General and administrative 3,197,041 4,577,888 8,083,222
Salaries 1,266,287 1,518,695 1,664,432
Depreciation and amortization 91,284 608,355 682,040
Research and development 2,389,329 1,240,578 1,677,647
Patent and license expense 362,967 283,030 88,834
------------ ------------ ------------
Total Operating Expenses 7,306,908 8,228,546 12,196,175
------------ ------------ ------------
LOSS FROM OPERATIONS (7,156,908) (8,200,945) (11,657,064)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Recovery of allowances on advances 109,166 - -
Gain on sale of investment - - 2,350,000
Interest income 458,979 167,855 41,408
Interest expense (352,049) (117,524) (46,622)
Interest expense - Amortization of debt expense (3,868,016) (39,306) -
------------ ------------ ------------
Other income/(expense) - Net (3,651,920) 11,025 2,344,786
------------ ------------ ------------
Loss before Equity in Loss of
Unconsolidated Affiliate (10,808,828) (8,189,920) (9,312,278)
Equity in Loss of Unconsolidated Affiliate (72,065) (100,000) -
------------ ------------ ------------
Net Loss (10,880,893) (8,289,920) (9,312,278)
Dividends on Preferred Stock (2,635,331) (3,157,266) (2,262,929)
------------ ------------ ------------
Net Loss Attributable to Common Stockholders $(13,516,224) $(11,447,186) $(11,575,207)
-=========== ============ ============
Net Loss per Share Attributable to Common Stockholders $ (39.79) $ (25.48) $ (17.04)
============ ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 339,668 449,222 679,422
============ ============ ============
</TABLE>
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements .
F-3
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE SERIES A SERIES B SERIES C
TRANSLATION PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
ADJUSTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 100 385,982 $3,859
NET LOSS
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
--------------------------- ------- -------------- ----------- ------------ -------
BALANCE, DECEMBER 31, 1996 $ - 100 $ - 385,982 $3,859 7,500 $ 8
NET LOSS
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
--------------------------- ------- -------------- ----------- ------------ -------
BALANCE, DECEMBER 31, 1997 0 100 0 351,258 3,512 0 0
<PAGE>
<CAPTION>
NET LOSS
CUMULATIVE TRANSLATION ADJUSTMENT (21,353)
TOTAL COMPREHENSIVE LOSS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS
CONVERSION OF SERIES D PREFERRED STOCK
FINANCING COST FOR SERIES D PREFERRED STOCK
CONVERSION OF SERIES E PREFERRED STOCK
ISSUE SHARES TO SERIES E PREFERRED
STOCKHOLDER
ISSUANCE OF SERIES F PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES F PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES F
PREFERRED STOCKHOLDERS
ISSUANCE OF SERIES G PREFERRED STOCK
FINANCING COST FOR SERIES G PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES G PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES G
PREFERRED STOCKHOLDERS
ISSUE SHARES TO SERIES G PREFERRED
STOCKHOLDER
ISSUANCE OF COMMON STOCK
ISSUANCE OF COMMON STOCK TO ACQUIRE
TRADEMARKS AND MINORITY INTEREST IN
VIDIKRON OF AMERICA, INC.
ISSUANCE OF COMMON STOCK FOR SERVICES
--------------------------- ------- -------------- ----------- ------------ -------
BALANCE, DECEMBER 31, 1998 ($21,353) 100 $ 0 351,258 $ 3,512 0 $ 0
=========================== ======= ============== =========== ============ =======
</TABLE>
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES D SERIES E SERIES F SERIES G
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 0 $ - 0 $ - 0 $ - 0 $ -
NET LOSS
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF SERIES C PREFERRED STOCK
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
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 0 - 0 - 0 - 0 -
NET LOSS
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK
SERIES C PREFERRED STOCK CONVERSION
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
ISSUANCE OF COMMON STOCK FOR SERVICES
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
--------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 51,000 5,100,000 1,650 1,650,000 0 0 0 0
<PAGE>
<CAPTION>
NET LOSS
CUMULATIVE TRANSLATION ADJUSTMENT
TOTAL COMPREHENSIVE LOSS
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS
CONVERSION OF SERIES D PREFERRED STOCK (14,100) (1,410,000)
FINANCING COST FOR SERIES D PREFERRED STOCK
CONVERSION OF SERIES E PREFERRED STOCK (140) (140,000)
ISSUE SHARES TO SERIES E PREFERRED
STOCKHOLDER
ISSUANCE OF SERIES F PREFERRED STOCK 2,850 2,850,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES F PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES F
PREFERRED STOCKHOLDERS
ISSUANCE OF SERIES G PREFERRED STOCK 2,400 2,400,000
FINANCING COST FOR SERIES G PREFERRED STOCK
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES G PREFERRED STOCK
ISSUANCE OF WARRANTS TO SERIES G
PREFERRED STOCKHOLDERS
ISSUE SHARES TO SERIES G PREFERRED
STOCKHOLDER
ISSUANCE OF COMMON STOCK
ISSUANCE OF COMMON STOCK TO ACQUIRE
TRADEMARKS AND MINORITY INTEREST IN
VIDIKRON OF AMERICA, INC.
ISSUANCE OF COMMON STOCK FOR SERVICES
--------- ------------ ------- ----------- ------- ----------- ------ ---------
BALANCE, DECEMBER 31, 1998 36,900 $3,690,000 1,510 $1,510,000 2,850 $2,850,000 2,400 $2,400,000
========= ============ ======= ==========- ======= =========== ====== =========
</TABLE>
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL ACCUMULATED
COMMON STOCK PAID IN DEFICIT
SHARES AMOUNT CAPITAL TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 309,720 $ 1,239 $ 24,318,651 $(20,641,044) $ 3,682,705
NET LOSS (10,880,893) (10,880,893)
ISSUANCE OF COMMON STOCK
FOR PREFERRED STOCK DIVIDENDS 941 4 154,389 (154,393) 0
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 44,324 177 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 750 3 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
--------- ------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1996 355,735 1,423 40,594,023 (34,157,268) 6,442,045
NET LOSS (8,289,920) (8,289,920)
CONVERSION OF SERIES B PREFERRED
STOCK INTO COMMON STOCK 868 3 344 0
SERIES C PREFERRED STOCK CONVERSION 122,042 489 (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 1,669 6 147,492 (147,498) 0
ISSUANCE OF COMMON STOCK FOR SERVICES 1,250 5 96,870 96,875
CONVERSION OF 8% DEBENTURES INTO
COMMON STOCK 18,161 73 762,890 762,963
--------- ------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1997 499,725 1,999 44,535,906 (45,604,454) 5,686,963
<PAGE>
<CAPTION>
NET LOSS (9,312,278) (9,312,278)
CUMULATIVE TRANSLATION ADJUSTMENT (21,353)
-------------
TOTAL COMPREHENSIVE LOSS (9,333,631)
CONVERSION OF 8% DEBENTURES INTO 43,851 175 866,915 867,090
COMMON STOCK
ISSUANCE OF COMMON STOCK
FOR SERIES B PREFERRED STOCK DIVIDENDS 8,739 34 140,451 (140,485) 0
CONVERSION OF SERIES D PREFERRED STOCK 98,897 396 1,409,604 0
FINANCING COST FOR SERIES D PREFERRED STOCK (317,490) (317,490)
CONVERSION OF SERIES E PREFERRED STOCK 20,741 83 139,917 0
ISSUE SHARES TO SERIES E PREFERRED
STOCKHOLDER 5,000 20 17,980 18,000
ISSUANCE OF SERIES F PREFERRED STOCK 2,860,000
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES F PREFERRED STOCK 950,000 (950,000) 0
ISSUANCE OF WARRANTS TO SERIES F
PREFERRED STOCKHOLDERS 67,500 (67,500) 0
ISSUANCE OF SERIES G PREFERRED STOCK 2,400,000
FINANCING COST FOR SERIES G PREFERRED STOCK (168,000) (168,000)
AMORTIZATION OF DISCOUNT (DIVIDEND) ON
SERIES G PREFERRED STOCK 1,028,571 (1,028,571) 0
ISSUANCE OF WARRANTS TO SERIES G
PREFERRED STOCKHOLDERS 76,400 (76,400) 0
ISSUE SHARES TO SERIES G PREFERRED
STOCKHOLDER 62,500 260 224,750 225,000
ISSUANCE OF COMMON STOCK 103,333 414 499,586 500,000
ISSUANCE OF COMMON STOCK TO ACQUIRE
TRADEMARKS AND MINORITY INTEREST IN
VIDIKRON OF AMERICA, INC. 300,000 1,208 1,148,000 1,150,000
ISSUANCE OF COMMON STOCK FOR SERVICES 3,541 14 225,410 225,424
--------- ------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1998 1,146,327 $ 4,585 $50,846,300 ($57,179,688) $4,103,356
--------- ------- ------------- ------------ -------------
</TABLE>
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Full Year Ended December 31,
--------------------------------------------------------
1996 1997 1998
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (10,880,893) $ (8,289,920) $ (9,312,278)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 3,959,300 647,661 682,040
Issuance of common stock for services - 96,875 225,424
Other noncash operating expenses - 115,690 243,000
Provision for allowances on advances (109,166) - -
Equity in loss of unconsolidated affiliate 72,065 - -
Gain recognized on the sale of investments - - (2,350,000)
Write off of fixed assets - - 2,781,934
Asset and liability management
Changes in accounts receivable (597,659) 15,255 (1,556,818)
Changes in inventory - (377,608) (2,760,076)
Changes in other operating assets - (1,857,604) 569,777
Changes in accounts payable - 1,897,914 1,131,053
Changes in other liabilities 1,441,770 - 459,821
----------------- ------------------ ------------------
Net cash used in operating activities (6,114,583) (7,751,737) (9,886,123)
----------------- ------------------ ------------------
INVESTING ACTIVITIES
Capital expenditures (4,322,105) (1,839,007) (727,330)
Payment for purchase of Vidikron, net of cash acquired - - (4,026,251)
Investment in and advances to unconsolidated affiliate - (150,000) -
Proceeds from sale of investments - - 2,500,000
Purchases and redemption of government securities (3,437,386) 3,437,386 -
----------------- ------------------ ------------------
Net cash (used in)/provided by investing activities (7,759,491) 1,448,379 (2,253,581)
----------------- ------------------ ------------------
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 debt - - 7,823,376
Issuance of preferred stock 7,500,000 6,750,000 5,250,000
Issuance fees for preferred stock (500,000) (75,000) (485,490)
Issuance of common stock - - 500,000
Series C Preferred Stock Dividend (123,750) - -
Proceeds from stock options excercised 24,375 - -
----------------- ------------------ ------------------
Net cash provided by financing activities 11,442,375 6,575,000 13,087,886
----------------- ------------------ ------------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (2,431,699) 271,642 948,182
CASH AND CASH EQUIVALENTS-BEGINING OF PERIOD 3,491,982 1,060,283 1,331,925
----------------- ------------------ ------------------
CASH AND CASH EQUIVALENTS-END OF PERIOD $ 1,060,283 $ 1,331,925 $ 2,280,107
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 352,049 $ 1,834 $ 6,400
================= ================== ==================
</TABLE>
The consolidated financial statements reflect a 40-to-1 reverse stock split.
See notes to consolidated financial statements.
F-5
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
SUPPLEMENTTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
- --------------------------------------------------------------------------------
In 1996, the Company issued 941 shares of its common stock with a value of
$154,393 as payment for the dividend on its Series B convertible preferred
stock. In addition, the Company issued 44,324 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 750 shares of its common stock in connection with
the exercise of stock options.
In 1997, the Company issued 1,669 shares of its common stock with a value of
$147,492 as payment for the dividend on its Series B convertible preferred
stock. In addition, the Company issued 122,042 shares of its common stock to
retire the entire issue of 7,500 shares of Series C convertible preferred stock.
The Company also issued 1,250 shares of its common stock for services rendered
by an officer and director of the Company. Finally, the Company issued 18,161
shares of common stock in connection with retiring $0.6 million of convertible
debt, leaving a face value on the debt of $ 900,000.
In 1998, the Company issued 8,739 shares of its common stock with a value of
$140,451 as payment for the dividend on its Series B convertible preferred
stock. The Company issued 98,897 shares of its common stock to retire 14,100
shares of Series D convertible preferred stock. The Company issued 20,741 shares
of its common stock to retire 140 shares of Series E convertible preferred stock
The Company issued 43,851 shares of common stock in connection with retiring
$760,000 of convertible debt, leaving a face value on the debt of $140,000.
3,750 warrants with a value of $ 67,500 were issued in connection with the
Series F Convertible Preferred Stock, and 6,250 warrants with a value of $
76,400 were issued in connection with the Series G convertible preferred stock.
5,000 shares were issued under the terms and conditions pertaining to the Series
F convertible preferred stock, and 62,500 shares were issued under the terms and
conditions pertaining to the Series G convertible preferred stock. 103,333
shares of common stock were sold for gross proceeds of $500,000. 3,541 shares of
common stock were issued for services. 258,333 shares were issued to acquire the
Vidikron trademark, and 41,667 shares were issued to acquire the minority
interest in Vidikron of America, Inc.
F-6
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Vidikron Technologies Group, Inc. (the "Company,"
formerly Projectavision, Inc.), a Delaware corporation, was
incorporated on September 9, 1988. The Company was originally formed to
complete the development of a unique proprietary solid state projection
television and related video display technology. With the Company
completing the acquisition of certain assets and assumption of certain
liabilities of Vidikron Industries, S.p.A. in December 1998, the
Company added a recognized name and now sells high-end home theater
projection televisions and accessories worldwide.
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 either the first-in, first out
(FIFO) or the average cost 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. The estimated useful service lives of the
assets are as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment 7 years
Tooling 5 years
Computers and software 5 years
Leasehold improvements lesser of 3 years or remaining term of lease
</TABLE>
<PAGE>
Goodwill and Trademarks - Goodwill is amortized over 15 years and
trademarks over their 10-year life.
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. Revenue for the year ended
December 31, 1996 consisted of royalty income from licensing agreements
which is recognized when earned. Revenue for the years ended December
31, 1997 and 1998 consisted of product sales.
Net Loss Per Share - Net loss per share is computed based on the
weighted 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, 1996, 1997, and 1998 are
355,735, 499,726 and 1,146,327 respectively.
Income Taxes - Deferred income taxes are 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 that 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," ("FASB 123")which
requires a fair value method for recognizing compensation cost as
measured at the grant date based on the fair value of the award which
is recognized over the service period. Pursuant to FASB 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
will disclose in a note to the financial statements pro forma net
income and per share amounts as if the Company had applied FASB 123.
Recent Accounting Pronouncements - During 1998, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income." This statement
establishes rules for the reporting of comprehensive income (loss) and
its components. The Company's comprehensive income (loss) consists of
results from operations and foreign currency translation adjustments
and is presented in the consolidated statement of changes in
stockholders' equity. Since this statement applies only to the
presentation of comprehensive income (loss), it does not have any
impact on the Company's financial position, results of operations, or
cash flows.
F-7
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." This standard requires
enterprises to report certain information about their operating
segments in a complete set of financial statements to stockholders; to
report certain enterprise-wide information about products and services,
activities in different geographic areas, and reliance on major
customers and to disclose certain segment information in their interim
financial statements. The basis for determining an enterprise's
operating segments is the manner in which financial information is used
internally by the enterprise's chief operating decision-maker. Although
the Company sells a variety of products, it is one business segment.
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal
periods beginning after June 15, 1999. The Company is currently
evaluating the impact of this statement.
Operations - The Company has incurred operating losses since its
formation in 1988, and has incurred net losses of $10,880,893,
$8,189,920, and $ 9,312,278 in 1996, 1997, and 1998, respectively. In
addition, at December 31, 1998, the Company had a working capital
deficiency of approximately $ 5 million. Management believes the
Company will be able to raise additional financing and generate
sufficient cash flow from its operations in 1999 to satisfy obligations
as they come due. The Company's cash expenditures will, in management's
opinion, be substantially lower in 1999 than in 1998 due to reductions
in the Company's cost structure and removal of costs that would have
otherwise been duplicated by the former Projectavision and Vidikron.
The Company is in discussions with bankers to obtain a new line of
credit and anticipates obtaining additional equity contributions from
its preferred stockholders.
The Company had outstanding as of December 31, 1998 a loan of
$1,247,400 bearing interest of 10.45%, which was scheduled to mature on
June 30, 1999. This loan was assumed by the Company in connection with
the Vidikron Acquisition. On December 28, 1998 the lender sent notice
of their intention to accelerate the loan due to the breach of a change
in control covenant. The Company is in negotiations with the lender and
is seeking to substitute a new facility to pay down this obligation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998, the fair values of cash, cash equivalents,
accounts receivable, 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 $140,000 and a fair value of $175,000.
3. ACCOUNTS RECEIVABLE
At December 31, 1997 and 1998 the allowance for bad debt was $11,540
and $212,040, respectively.
<PAGE>
4. INVENTORY
At December 31, 1997, and 1998 inventories are summarized as follows:
Parts ............................. $ 797,297 $1,684,868
Work in Process ................... 678,882 991,235
Finished Goods .................... 381,425 1,941,577
---------- ----------
Total .................... $1,857,604 $4,617,680
5. UNCONSOLIDATED AFFILIATE/INVESTMENT
In 1993, the Company entered into an agreement with Tamarack Storage
Devices, Inc. ("Tamarack") under which 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. The Company issued
800 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%.
In 1995, Tamarack received a commitment from the Company to fund its
cash needs through December 31, 1995 to continue its operations as then
constituted. Pursuant to this commitment, $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 were not material to the
Company and were not consolidated prior to 1998.
In January 1998, Tamarack was acquired by Manhattan Scientific, Inc.
("MSI") (formerly 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 were sold to the public,
resulting in aggregate gross proceeds of $1 million. 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 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. The Company's chief executive
officer and the chairman of its board of directors serve on the board
of directors of MSI.
F-8
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. UNCONSOLIDATED AFFILIATE/INVESTMENT (continued)
In July 1998, the Company sold its common shares in MSI to an
institutional investor for $2 million in net proceeds. The Company used
the proceeds from the sale of its MSI shares as working capital for
general operations, with the gain recognized in the third quarter of
1998. The Company also converted its preferred stock into approximately
9 million MSI common shares. The result of these transactions was to
reduce the Company's ownership position in MSI to approximately 12%
and, accordingly, at September 30, 1998, MSI was accounted for under
the cost method. In October 1998, the Company sold its remaining
ownership position in MSI to one of the owners of the Company's
preferred stock for $500,000 and recognized a gain. On December 7, 1999
the Company reacquired its ownership position of approximately 9
million MSI common shares as part of the financing obtained from the
owners of the Company's preferred stock for the acquisition of the
video business from Vidikron Industries, S.p.A.
6. COMMON STOCK
In 1997 and 1998 the Company issued 1,250 shares and 3,541 shares of
common stock respectively 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 stockholders approved a resolution
increasing the number of shares authorized from 750,000 to 1,250,000.
In February 1999 the stockholders of the Company approved a
forty-for-one reverse split, the effect of which has been retroactively
stated.
7. 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 1997, 34,724 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.
<PAGE>
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 122,042 shares of
Common Stock, which resulted in retiring the issue.
<TABLE>
<CAPTION>
Original
Year Ended December 31, 1998 Total to Vest
------------------------------ -------------
<S> <C> <C>
Dividend accretion on Series C Preferred Stock $ -- $ 492,650
Amortization of Warrants on Series C Preferred Stock -- 290,000
Amortization of Discount on Series C Preferred Stock -- 2,500,000
</TABLE>
F-9
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. PREFERRED STOCK (Continued)
In January 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 after fees. 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. After giving effect to the conversion of an aggregate of
$1,410,000 of Series D Preferred Stock in 1998, there currently remains
$3,690,000 in Series D Preferred Stock outstanding.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
<S> <C> <C>
Amortization of Warrants on Series D Preferred Stock $ -- $ 232,620
Amortization of Discount on Series D Preferred Stock -- 1,700,000
</TABLE>
In July 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. After giving effect to the conversion of an aggregate of
$140,000 of Series E Preferred Stock in 1998, there currently remains
$1,510,000 in Series E Preferred Stock outstanding.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
<S> <C> <C>
Amortization of Warrants on Series E Preferred Stock $ -- $ 48,900
Amortization of Discount on Series E Preferred Stock -- 550,000
</TABLE>
In February 1998, the Company issued 2,850 shares of 8% Series F
convertible preferred stock to one institutional investor for a
purchase price of $ 2,850,000, [Doesn't tie to cap. Table] resulting in
net proceeds to the Company of $ 2,532,510 after fees. The preferred
stock is convertible into the Company's Common Stock at $40.00 per
share in five equal installments every thirty days starting in August
1998. The Series F 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. The Company had the right to
repurchase the preferred shares 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.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
<S> <C> <C>
Amortization of Warrants on Series F Preferred Stock $ 67,500 $ 67,500
Amortization of Discount on Series F Preferred Stock 950,000 950,000
</TABLE>
In May of 1998, the Company issued 2,000 shares of 8% Series G
convertible preferred stock to one foreign institutional investor for a
purchase price of $2,000,000, resulting in net proceeds to the Company
of $1,860,000 after fees. In June 1998 the Company completed another
private placement of preferred stock to a second foreign institutional
investor for gross proceeds of $400,000, [Doesn't tie to cap. Table]
resulting in net proceeds of $376,000. The Series G Preferred Stock is
convertible into Common Stock at a 30% discount to the then current
market price of the Company's Common Stock at the time of conversion.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Total to Vest
---------------------------- -------------
<S> <C> <C>
Amortization of Warrants on Series G Preferred Stock $ 76,400 $ 76,400
Amortization of Discount on Series G Preferred Stock 1,028,571 1,028,571
</TABLE>
8. 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 44,324 shares of its common stock and paid $4,958,250 in
cash in exchange for retiring $8,400,000 in convertible debt. In
January 1997, the Company retired $100,000 of convertible debt for
cash. During 1997, the Company issued an additional 11,901 shares of
its common stock in exchange for retiring $600,000 of convertible debt.
In January 1998, the Company issued 43,851 shares of its common stock
in exchange for retiring $760,000 of convertible debt.
F-10
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. ACQUISITION OF VIDIKRON ASSETS
On December 7, 1998 the Company acquired substantially all of the
assets of Vidikron Industries, S.p.A. ("Vidikron") relating to its
video business, including all of its stock in its U.S. distribution
subsidiary, Vidikron of America, Inc. for $ 9.4 million. The
transaction was completed through a combination of $4.7 million in
cash, $1.0 million in notes from the seller, the issuance of $1 .2
million of common stock of the Company, and the assumption of $2.5
million in liabilities from the seller. The acquisition was accounted
for as a purchase, with goodwill equal to $6 million. Approximately
$600,000 of the purchase price was allocated to trademarks acquired.
Had the acquisition been completed on January 1, 1997, the following
proforma unaudited information would have resulted, as follows:
<TABLE>
<CAPTION>
1997 1998
----------------- --------------------
<S> <C> <C>
Sales $ 17,520,756 $ 18,308,337
Net loss attributable to common stockholders (11,335,870) (12,386,273)
Loss per share (25.23) (18.52)
</TABLE>
10. WRITE-OFF OF TOOLING
In 1998 certain tooling for the Digital Home Theater product consisting
of steel injection molds and the associated design costs with a net
book value of $2.9 million was written off, due to the lack of
availability of key components required for the future manufacture of
the Digital Home Theater projector. In addition, $785,000 in advances
made to a third-party manufacturer for deposits against inventory
procured for the production of the Digital Home Theater projector were
also written off.
11. STOCK OPTION PLANS
Non-qualified Option Plan - The Company has reserved 125,000 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.
<PAGE>
The following is a summary of non-qualified option plan activity for
the three years ended December 31, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Outstanding at January 1 55,271 105,222 107,572
-------- -------- --------
Granted 67,063 55,800 21,875
Expired -- -- --
Canceled (16,503) (53,450) (25,000)
Exercised (609) -- --
-------- -------- --------
Outstanding at December 31 105,222 107,572 104,447
======== ======== ========
Available for grant at December 31 19,778 17,428 20,553
======== ======== --------
</TABLE>
Weighted average option exercise price information for the years 1996,
1997, and 1998 follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Outstanding at January 1 $ 142.40 $162.40 $ 130.00
Granted 173.60 117.60 2.40
Expired -- -- --
Canceled 142.40 180.80 120.00
Exercised 32.40 -- --
Outstanding at December 31 162.40 130.00 105.65
Exercisable at December 31 158.00 131.60 123.90
</TABLE>
F-11
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. STOCK OPTION PLANS (Continued)
Significant option groups outstanding at December 31, 1998 and related
weighted average price and life information follows:
<TABLE>
<CAPTION>
Exercise Price Number of Weighted Average Weighted Average Number of
Range Options Price Remaining Life (Years) Exercised
-------------- --------- ---------------- -------------------------- ----------
<S> <C> <C> <C> <C>
$ 1.99-$2.99 21,875 $ 2.40 5 none
$ 40.00-$119.99 2,100 $ 47.52 3 none
$ 120.00-$159.99 59,400 $ 123.72 5 none
$ 160.00-$199.99 2,625 $ 167.84 3 none
$ 200.00-$319.99 18,447 $ 215.00 1 none
</TABLE>
The weighted fair value at date of grant for options granted in 1997
and 1998 was $ 71.20 and $ 2.40 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:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Expected life (Years) 5 5 5
Interest Rate 6.25% 6.10% 6.25%
Volatility 89% 72% 89%
Dividend Yield 0% 0% 0%
</TABLE>
Stock-based compensation costs did not impact pretax income or earnings
per share in 1997 and 1998. These costs would have been increased by $
0.1 million, or ($0.22) per share, in 1997 and $ 52,500 or ($0.08) per
share in 1998 had the fair values of the options been recognized as
compensation expense on a straight line basis over the vesting period
of the grant.
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 25,000 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 to 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, 1998, no options have been granted under the Plan. On
February 19, 1999, the stockholders of the Company approved an ISOS, in
most material respects, substantially similar if not identical to the
1990 ISOS to replace the 1990 ISOS which was due to expire in February
2000.
<PAGE>
12. INCOME TAXES
As of December 31, 1997 and 1998, the composition of the Company's net
deferred taxes was as follows:
1997 1998
------------ ------------
Deferred tax assets $ 13,100,000 $ 16,000,000
Less valuation allowance (13,100,000) (16,000,000)
----------- ------------
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 not likely be
realized.
At December 31, 1998, the Company had tax net operating and capital
loss carry-forwards of approximately $39,800,000, which expire in the
years 2003 through 2010. The utilization of tax net operating and
capital losses may be subject to certain limitations.
13. COMMITMENTS AND CONTINGENCIES
Aggregated minimum compensation under employment agreements with
certain officers and directors will be $895,000 in 1999. Compensation
expense relating to these agreements was approximately $577,450,
$710,200, and $535,000 respectively in 1996, 1997, and 1998.
F-12
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES (Continued)
The future minimum rental commitments as of December 31, 1998 are as
follows:
Year Amount
---- ------
1999 $222,166
2000 160,530
2001 98,894
2002 98,894
2003 98,894
2004 98,894
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$209,695, $257,554 and $293,833, respectively.
In June 1995 and August 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 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. In July 1998, the case was settled with the
individual plaintiffs at no cost to the Company.
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 alleged, among other actions, breach of employment and patent
assignment agreements. Mr. Dolgoff sought damages, punitive damages,
and equitable relief totaling in excess of $ 100 million. In April
1998, the lawsuit was settled for $ 500,000, of which $250,000 was paid
and $250,000 was accrued, and all of Mr. Dolgoff's claims and those of
the Company against him were dismissed.
In December, 1998, a stockholder of the Company initiated an action in
Supreme Court, State of New York, alleging common law fraud, negligence
and breach of fiduciary duty claims against the Company and its
Directors. In February, 1999 the Company and the Defendant Directors
moved to dismiss this action based upon undisputed documentary evidence
and based upon an assertion that the Complaint failed to state a cause
of action. The Plaintiffs' responsive papers are due in April, 1999 and
reply papers are due to be submitted by the Company and the Defendant
Directors in May, 1999. Based upon discussions with counsel, the
Company's management believes that the motion to dismiss is
well-founded. In the event, however, that the motion were not granted,
the Company's management believes that it has meritorious defenses and
intends to vigorously defend against these claims. The Company's
management believes that the outcome of this litigation will not have a
material adverse effect on its financial position or results of
operations.
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. For 1996, 1997, and 1998 salary expense
relating to these agreements was approximately $577,450, $710,200, and
$535,000 respectively. One of the employment agreements with an officer
and director was terminated on March 16, 1999 and the consultant
resigned as an officer on February 19,1999, and as a director effective
March 20, 1999.
<PAGE>
14. RELATED PARTIES
The Company leases space from Mssrs. Baj Macario and Peralda, two of
the Company's officers and directors, and purchases certain components
used in the manufacture of certain projectors and certain manufactured
projectors from Novavision, S.p.A., a company owned by Mssrs. Baj
Macario and Peralda. For the year ended December 31, 1998, the lease
expense was $ 6,181. The lease was negotiated at the time, and as part,
of the Vidikron Acquisition and the transfer price for manufactured
goods is subject to competitive bids. Mssrs. Baj Macario and Peralda
also hold a power of attorney from Grangeover, an Isle of Mann entity,
to vote the Company's common stock owned by Grangeover.
In January of 1998 the Company merged its majority owned subsidiary,
Tamarack Storage Devices Inc., into a bulletin board shell company,
changed the name of the merged entity to Manhattan Scientifics, Inc.
("MSI") and simultaneously therewith effected an offering of $1,000,000
of common stock of MSI in a Rule 504 offering. On the consummation of
this transaction, after giving effect to the merger and the Rule 504
offering, the Company owned approximately 77% of the issued and
outstanding common shares of MSI. On or about the same time MSI issued
7,500,000 options each to Messrs. Maslow and Holleran to acquire MSI
common stock at an exercise price of $0.20 per share.
F-13
<PAGE>
VIDIKRON TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. RELATED PARTIES (Continued)
Marvin Maslow is an officer and director of MSI and Mr. Holleran is a
director of MSI. In July 1998, as part of the Company's sale of
approximately 43.1 million shares of MSI common stock to an
institutional investor, the institutional investor required that it
receive 10,000,000 of the 15,000,000 options owned by these two
officers and directors and that the exercise price be reduced to $0.05
per share. Each of the two officers and directors surrendered options
for 5,000,000 shares of MSI common stock and each had the exercise
price of their remaining warrants for 2,500,000 shares of MSI common
stock similarly reduced to $0.05 per share. In 1998, Mr. Maslow
received $ 25,000 in compensation from MSI. On February 12, 1999 Mr.
Holleran resigned as a director of MSI.
15. BUSINESS CONCENTRATION
In 1998, no single customer accounted for more than 5% of revenues.
The Company is dependent upon certain vendors for the manufacture of
significant components. If these vendors become unwilling or unable 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.
16. NOTES PAYABLE AND BANK DEBT
The Company obtained the cash used for the Vidikron acquisition through
the issuance of $6.0 million in Notes for cash to the existing owners
of the Company's Preferred Stock and Convertible Debt. These Notes were
converted into Series I Convertible Preferred Stock in March 1999.
Additionally, $1.0 million in Notes were issued to the sellers of the
Vidikron assets acquired. These Notes are due in December 1999, carry
no interest for the first six months, and carry an interest rate of 15%
annually thereafter until the due date. Finally, the Company has a Note
with Texas Instruments with an outstanding balance of approximately
$625,000 as of December 31, 1998 payable in five equal installments
through May 1999 at an interest rate of 8% annually.
The Company had outstanding as of December 31, 1998 a loan of
$1,247,400 bearing interest of 10.45%, which was scheduled to mature on
June 30, 1999. This loan was assumed by the Company in connection with
the Vidikron Acquisition. On December 28, 1998 the lender sent notice
of their intention to accelerate the loan due to the breach of a change
in control covenant. The Company is in negotiations with the lender and
is seeking to substitute a new facility to pay down this obligation.
17. SUBSEQUENT EVENT
On February 19,1999 $6.0 million in Notes were converted into a new
series of Preferred Stock in the Company and the stockholders of the
Company approved a forty-for-one reverse split, which has been
retroactively stated.
F-14
<PAGE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
DESCRIPTION BALANCE AT CHARGED TO CHARGED BALANCE AT
DEGINNING COSTS AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C> <C>
Allowances deducted in the balance
sheet from the assets to which
they apply:
Allowance for bad debt
1998 $ 11,540 113,952 $ 86,548(A) $ 212,040
1997 -- 11,540 11,540
1996 -- --
</TABLE>
(A) Opening balance of acquired account receivable.
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PROJECTAVISION, INC.
(a Delaware corporation)
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Projectavision, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
by striking out Article One hereof and by substituting in lieu of said
Article One the following new Article One:
"First: The name of the Corporation is Vidikron Technologies Group,
Inc."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted and stockholder consent has been obtained in
accordance with the provisions of Sections 216 and 242 of the General
Corporation Law of the State of Delaware.
4. The effective time of the amendment herein certified shall be March 1,
1999
Signed on March 1, 1999
----------------------------------------
Martin J. Holleran
President and Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF VIDIKRON TECHNOLOGIES GROUP, INC.
It is hereby certified that;
1. The name of the corporation is Vidikron Technologies Group, Inc. (the
'Corporation').
2. The Certificate of Incorporation of the Corporation is hereby amended by
striking out the first sentence of Article Fourth thereof and by substituting in
lieu of such first sentence the following new sentence:
'The aggregate number of shares which the corporation shall have
authority to issue is five hundred and one million (501,000,000)
shares, consisting of (i) five hundred million (500,000,000) shares of
common stock, par value $.0001 per share ('Common Stock'), and (ii) one
million (1,000,000) shares of preferred stock, par value $.01 per share
('Preferred Stock').'
3. In accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware, the amendment of the Certificate of Incorporation
herein certified has been duly adopted by the holders of a majority of the
outstanding shares of Common Stock as of January 21, 1999, the record date for
the determination of the stockholders entitled to vote at the Corporation's
annual meeting of stockholders held on February 19, 1999.
Signed as of this 2nd day of March, 1999.
-------------------------------------------
Martin J. Holleran, Chief Executive Officer
<PAGE>
================================================================================
AMENDED
AGREEMENT OF PURCHASE
AND SALE OF ASSETS
By and Among
PROJECTAVISION, INC.,
PROJECTAVISION INTERNATIONAL
and
VIDIKRON INDUSTRIES, S.p.A.
================================================================================
December 7, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. (a) Purchase and Sale of Assets.....................................2
(b) Assumed Liabilities.............................................6
(c) Excluded Assets. ..............................................8
(d) Consent of Third Parties........................................9
2. (a) Purchase Price.................................................10
(b) Purchase Price Prepayments.....................................10
(c) Purchase Price Adjustment......................................10
Prepayment.....................................................10
(d) Allocation of Purchase Price...................................10
(e) Acquisition by Affiliates......................................11
3. (a) Closing........................................................11
(b) Further Action.................................................11
4. (a) The Company's Delivery Obligations at the Closing;
Covenants; Further Assurances..................................13
(b) Billings.......................................................16
(c) Liability for Transfer Taxes...................................16
(d) Certificates of Tax Affidavits.................................17
(e) Use of Business Name...........................................17
(f) Further Assurances.............................................17
5. Purchaser's Delivery Obligations at the Closing.........................18
6. Representations and Warranties of the Company...........................19
(a) Organization, Standing and Qualification.......................19
(b) Subsidiaries...................................................20
(c) Transactions with Certain Persons..............................20
(d) Execution, Delivery and Performance of Agreement;
Authority......................................................21
(e) Capitalization; Ownership of Capital Stock.....................22
(f) [Intentionally Omitted]........................................22
(g) Financial Statements...........................................22
(h) Absence of Undisclosed Liabilities.............................23
(i) Taxes..........................................................23
(j) Absence of Changes or Events...................................24
(k) Litigation.....................................................27
(l) Compliance with Laws and Other Instruments.....................28
(m) Title to Properties............................................28
(n) Insurance......................................................28
(o) Territorial Restrictions.......................................29
(p) Intellectual Property..........................................29
i
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
(i) Title..............................................29
(ii) Transfer...........................................29
(iii) No Infringement....................................30
(iv) Licensing Arrangements.............................30
(v) No Intellectual Property Litigation................30
(vi) Due Registration, Etc..............................31
(vii) Use of Name and Mark...............................31
(q) Environmental Matters..........................................31
(r) No Guaranties..................................................31
(s) [Intentionally Deleted]........................................31
(t) Absence of Certain Business Practices..........................32
(u) Disclosure.....................................................32
(v) Labor Disputes.................................................32
(w) Customers and Accounts.........................................34
(x) Suppliers; Raw Materials.......................................34
(y) Unbilled Costs and Advance Billings............................35
(z) Contracts and Proposals........................................35
(aa) [Intentionally Deleted]........................................36
(bb) Directors and Officers.........................................36
(cc) Inventories....................................................36
(dd) Real Property..................................................37
(i) Leases.............................................37
(ii) No Proceedings.....................................38
(iii) Current Use........................................38
(ee) Warranties.....................................................38
(ff) Dealer and Distributor Arrangements............................38
(gg) Excluded Assets................................................39
(hh) Government Loan................................................39
7. Representations and Warranties by Purchaser.............................39
(a) Organization...................................................39
(b) Execution, Delivery and Performance of Agreement...............40
(c) Litigation.....................................................40
8. Employment Matters; Employment Contracts................................40
9. Indemnification.........................................................44
10. Survival of Representations, Warranties and Agreements..................46
11. Conduct of Business Prior to Closing....................................47
(i) Liabilities........................................47
(ii) Litigation.........................................47
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
(iii) Compliance with Laws..............................47
(iv) Continued Effectiveness of Representations
and Warranties....................................47
12. Access to Information and Documents....................................48
13. [Intentionally Deleted.]...............................................49
14. Conditions Precedent...................................................50
(a) Conditions to Obligations of Each Party.......................50
(b) Conditions to Obligations of the Purchaser....................50
(c) Conditions to Obligations of the Company......................51
15. Intentionally Deleted..................................................52
(a) ..............................................................52
(b) ..............................................................52
16. (a) Termination...................................................52
17. Right to Designate Director............................................52
18. Assumed Liabilities Escrow Account.....................................52
19. [Intentionally Deleted]................................................53
20. Notices................................................................53
21. Miscellaneous..........................................................55
EXHIBITS
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
iii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
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
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 4(a) (xx) - Cozzi Employment Agreement
Schedule 4(a) (xxi) - Wellnitz Employment Agreement
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
iv
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
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
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
v
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
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
Schedule 12(a) - Certain Distributors and Suppliers
Schedule 15(c) - Escrow Agreement
Schedule 16(b)(i) - Escrow Agreement
vi
<PAGE>
AMENDED AGREEMENT OF PURCHASE AND SALE OF ASSETS
----------------------------------------
AMENDED AGREEMENT (this "Agreement"), dated December 7, 1998, by and
among PROJECTAVISION, INC., a Delaware corporation having its principal office
at Two Penn Plaza, Suite 640, New York, New York 10121 (" Projectavision"),
PROJECTAVISION INTERNATIONAL s.r.l., an Italian corporation that is wholly owned
by Projectavision and its officers having an address at Via Dei Guasti 29,
Misinto("International") VIDIKRON INDUSTRIES, S.p.A., an Italian corporation
having its principal office at Via Dei Guasti, 29, 20020 Misinto (Milano), Italy
(the "Company"). Projectavision and International are hereinafter collectively
referred to as "Purchaser."
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");
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; and
WHEREAS, the Company and Purchaser previously entered into an Agreement
of Purchase and Sale of Assets dated January 20, 1998 (the "Purchase
Agreement"), which was subsequently amended by the parties pursuant to letter
agreements dated April 30, 1998, October 2, 1998, and October 23, 1998, November
19, 1998 and December 3, 1998(collectively, the "Letter Amendments"), and
pursuant to which the Company agreed to sell to Purchaser, and Purchaser agreed
to acquire from Seller, substantially all of the assets of the Company's Video
Business; and
WHEREAS, the Company and Purchaser wish to further amend the Purchase
Agreement, as amended by the Letter Amendments, in its entirety, by the
execution and delivery of this Agreement.
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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 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
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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 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
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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;
(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,
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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; and
,
(xv) 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).
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(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 solely 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 ten (10)
business days after 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 plus interest amount of the
Company's existing bank indebtedness (the precise
amount of which shall be determined by the parties at
Closing) with the banks listed on Schedule 1(b).2
attached hereto, which schedule may be delivered by
the Seller no later than ten (10) days after the
Closing (the "Company's Bank Debt"), plus (y) the
accrued employee severance benefits through the
Closing Date, 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 (w), (x),
(y) and (z) shall in no event exceed $2,500,000 U.S.
Dollars (such sum being hereinafter referred to as
the "Agreed Upon Accounts Payables"); it being
expressly agreed that $1,500,000 of such Agreed Upon
Accounts Payables shall be deposited into the
"Assumed Liabilities Escrow Account", as defined in,
and in
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<PAGE>
accordance with, the provisions of Section 18 below,
and the remaining $1,000,000 balance of such Agreed
Upon Accounts Payables shall be paid by Purchaser to
the appropriate creditors of the Company one hundred
and twenty (120) days subsequent to the Closing
hereof;
(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 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;
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<PAGE>
(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, that
certain low interest loan(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 (iii) a detailed listing on an
account by account basis of the Company's accounts receivables as of the Closing
Date (other than receivables due to Seller from the Subsidiary which shall be
the property of Projectavision) with respect to those goods and services that
the Company has fully delivered or performed solely in connection with the
Company's Video Business, as the case may be, all of which shall be retained by
the Company, which accounts receivables shall not be in excess of $1,167,000(the
"Accounts
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<PAGE>
Receivables"). It is agreed by Purchaser that Seller shall have the right,
during the ten(10) day period subsequent to the Closing, to update and amend
Schedule 1(c) to include receivables incurred prior to the Closing, subject to
the terms of this Section 1(c), by delivering to Purchaser within such ten (10)
day period a revised, updated Schedule 1(c) in writing.
(d) Consent of Third Parties. Notwithstanding anything to the
contrary in this Agreement, but subject, nevertheless, to Section 14 hereof,
this Agreement shall not 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.
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<PAGE>
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 herein provided
for, (i) Purchaser shall pay, or cause to be paid on behalf of,
Seller,$3,500,000 upon the Closing, less any "Prepayments" (as that term is
defined in Section 2(b) below, payable 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 and (ii) Purchaser shall assume
the Agreed Upon Accounts Payables, $1,500,000 of which shall be deposited into
the "Assumed Liabilities Escrow Account" as that term is defined in Section 18
below. The aggregate consideration set forth in clause (i) and clause (ii) of
the immediately preceding sentence is hereinafter referred to as the "Purchase
Price."
(b) Purchase Price Prepayments. Upon the execution hereof,
the Company acknowledges that Purchaser has heretofore paid to the Company
$2,900,000 (the "Prepayments"), the entire sum of which shall be credited
towards the Purchase Price.
(c) Purchase Price Adjustment. The Purchase Price set forth in
Section 2(a) above (which is subject to the provisions of Section 15 below)
shall be subject to adjustment as hereinbelow set forth in this Section 2 (c).
Specifically, in the event that the Agreed Upon Accounts Payable are less than
Two Million Five Hundred Thousand Dollars ( 2,500,000), the Purchase Price shall
be increased on a dollar-for-dollar basis. By way of example, in the event that
the Agreed Upon Accounts Payable is Two Million Four Hundred Thousand Dollars ($
2,400,000)_, the Purchase Price shall be increased by $100,000 to Three Million
Six Hundred Thousand Dollars ($3,600,000). There shall also be a Purchase Price
adjustment in accordance with the provisions of that certain letter agreement
dated January 20,1998 by and between Projectavision and the Company relative to
the Subsidiary's "Bank Debt" (as such term is defined in such January 20, 1998
letter agreement).
(d) Allocation of Purchase Price. The Purchase Price payable
pursuant to Section 2(a) hereof, and the assets purchased and liabilities
assumed, as between Projectavision and International, 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").
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(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 December
7, 1998, provided that all conditions precedent set forth in Section 14 hereof,
or at such other time and place as the parties may agree. 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.
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(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 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.
(vii) The Company and Purchaser shall, collectively, use their
best efforts to secure a line of credit with one or more
Italian banking institutions on or before March 1, 1999 which
shall provide Purchaser with credit availability of not less
than $2,000,000.
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):
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(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;
(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;
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(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) 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");
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<PAGE>
(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 Assumed Liabilities Escrow Agreement" as that term
is defined in Section 18 below;
(xix) Governmental Approvals;
(xx) the Employment and Stock Purchase Agreement ("Cozzi
Employment Agreement") between Purchaser and Mr. Giovanni
Cozzi in the form of Schedule 4(a)(xx) annexed hereto;
(xxi) the Employment and Stock Purchase Agreement (the
"Wellnitz Employment Agreement") between Purchaser and Mr.
James Wellnitz in the form of Schedule 4(a) (xxi) annexed
hereto;
(xxii) the original stock certificate(s) or an affidavit of
lost certificate, reasonably satisfactory in form and
substance to Purchaser's counsel 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;
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(xxiii) the original stock certificate(s), representing the
beneficial equity ownership in the Subsidiary of each of Mr.
Giovanni Cozzi and Mr. James Wellnitz which, in the aggregate,
which equal fifteen percent (15%) of the beneficial equity
ownership in the Subsidiary, accompanied by undated stock
powers executed in blank with signatures guaranteed;
(xxiv) 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;
(xxv) 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
(xxvi) 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
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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 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
17
<PAGE>
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.
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 balance of 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) the Cozzi Employment Agreement;
(ix) the Wellnitz Employment Agreement;
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(x) (the Personal Property Assignment;
(xi) the Lease Assignment;
(xii) all other documents and instruments required to be
delivered to the Company pursuant to the provisions of this
Agreement;
(xiii) , the Trade Payables Escrow Agreement;
(xiv) the Lease;
(xv) 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
(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, of the Company
or the Subsidiary. The Company has delivered to
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<PAGE>
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
20
<PAGE>
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 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
21
<PAGE>
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 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, 1996 and 1997 (collectively, the "Historical Financial Statements") and
which shall all be annexed hereto as Schedule 6(g).1; The Historical Financial
Statements,
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<PAGE>
have been prepared in good faith from the books and records of the Company and
the Subsidiary in accordance with past practices, 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. In addition, the Historical
Financial Statements for the fiscal year ending December 31, 1997 have been
prepared in conformity with generally accepted accounting principles,
consistently applied.
(h) Absence of Undisclosed Liabilities. Except as set forth on
Schedule 6(h), as of the Company's balance sheet date with respect to the fiscal
year ended December 31, 1997, (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) except those
incurred in the ordinary course of business.
(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, 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,
23
<PAGE>
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, 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;
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<PAGE>
(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, 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
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<PAGE>
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;
(xv) suffered any change, event or condition which, in any
case or in the
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<PAGE>
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 Historical
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
27
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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.
(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,
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<PAGE>
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.
(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.
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(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 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
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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.
(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]
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(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 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
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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 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
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<PAGE>
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 1996 or 1997 or in
the nine (9) month period ending,September 30, 1998 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 1996, 1997
and nine (9) month period ended September 30, 1998, 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 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 fiscal year ended December 31, 1997 and the nine
(9) month period ended September 30, 1998(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
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<PAGE>
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 1996 and 1997 fiscal years and the nine (9) month
period ended September 30, 1998.
(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 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.
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<PAGE>
(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]
(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
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<PAGE>
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 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
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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, 1996, 1997 and for the nine (9) month period ended September 30,
1998 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 199 or 1997 or in the nine
(9) month period ending September 30, 1998 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 1996 and 1997 and the ten (10) month period ending September 30,
1998, 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. Projectavision is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and International is an Italian corporation duly organized, validly
existing and in good standing under the laws of Italy, and Purchaser 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
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<PAGE>
to carry out the transactions contemplated by this Agreement. Each of
Projectavision and International have delivered to the Company copies of their
respective certificates of incorporation, and all amendments thereto, and their
respective by-laws 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 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
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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:
(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
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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 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
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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 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.
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<PAGE>
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);
(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.
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<PAGE>
(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.
(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.
45
<PAGE>
(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 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
46
<PAGE>
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) Subsequent to Balance
Sheet Date, 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 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
47
<PAGE>
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.
(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) 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
48
<PAGE>
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(a) 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(a), 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(a) 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(a).
(b) 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 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.]
49
<PAGE>
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 Balance Sheet Date, 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.
(iv) On the Closing Date, the Agreed Upon Accounts Payables
shall not exceed Two Million Five Hundred Thousand
($2,500,000) U.S. Dollars and there shall be no material
adverse change with respect to the
50
<PAGE>
Historical 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) 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.
51
<PAGE>
(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. Intentionally Deleted.
(a)
(b) Purchaser entitled to
16. (a) Termination. Intentionally Deleted.
(i)
17. Right to Designate Director. Simultaneously upon the Closing, the
Company shall have the option to designate two (2) individuals to be elected to
Purchaser's board of directors as a director in accordance with Purchaser's
by-laws. It is agreed that those individuals shall be Mr. Flavio Peralda and Mr.
Emillio Baj Macario.
18. Assumed Liabilities Escrow Account. Upon the Closing of this
Agreement, pursuant to an escrow agreement (the "Assumed Liabilities Escrow
Agreement")to be entered into with counsel for the Company, counsel for the
Purchaser and the parties hereto, pursuant to which Company's counsel shall act
as escrow agent (the "Escrow Agent")., Purchaser shall deposit, upon the
Closing, into a segregated interest bearing escrow account (the " Assumed
Liabilities Escrow Account") One Million Five Hundred Thousand ($1,500,000)
Dollars (the " Assumed Liabilities Deposit"). The Assumed Liabilities Deposit
shall be held by the Escrow Agent in accordance with the provisions of the
Assumed Liabilities Escrow Agreement and the provisions hereinbelow set forth.
The T
52
<PAGE>
Assumed Liabilities shall be paid on a timely basis by at the direction of
Seller, from time to time to those vendors and suppliers who are entitled to
same, immediate evidence of which shall be provided by Purchaser the Escrow
Agent to Purchaser. To the extent there remains any amount of the Assumed
Liabilities 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 Assumed Liabilities Deposit
shall be the sole and exclusive property of the Seller, provided however that,
Purchaser shall be entitled to a corresponding credit towards the Purchase
Price. All interest earned with respect to the Assumed Liabilities Deposit shall
be the property of the Purchaser and Purchaser shall be responsible for all
taxes in connection therewith.
19. [Intentionally Deleted]
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
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.
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<PAGE>
and
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) 39-0-96.72.02.75
Facsimile no.: (011) 39-0-96.32.88.34
Attn: Mr. Flavio Peralda
with a copy simultaneously by like means to:
Cesaris, Nunziante e Breveglieri
20121 Milano
Via Marte Di Pieta, 24
Milan, Italy
Telephone no.: (011) 39-02.72.55.11
Facsimile no.: (011) 39-02.72.55.13.33
Attn: Avv. Luca Breveglieri
and
Rubin, Bailin, Ontoli, Mayer, Baker & Fry LLP
405 Park Avenue
New York, New York 10022
Telephone no.: (212) 935-0900
Facsimile no.: (212) 826-9307
Attn: 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, (iii) on the seventh calendar day (or, if it is not a
business day, then the next succeeding business day thereafter)
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<PAGE>
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.
55
<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
56
<PAGE>
delivered if originally written in a language other than English, in the
original language in which it was written.
(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
57
<PAGE>
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 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.
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<PAGE>
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:
----------------------------
Name: Martin J. Holleran
Title: President and Chief
Executive Officer
PROJECTAVISION INTERNATIONAL
By:
----------------------------
Name: Martin J. Holleran
Title: Sole Director
VIDIKRON INDUSTRIES S.p.A.
By:
----------------------------
Name: Flavio Peralda
Title: President
59
<PAGE>
Exhibit 10.54
--------------------------------------
--------------------------------------
EMPLOYMENT AGREEMENT
By and Between
PROJECTAVISION, INC.
and
EMILIO BAJ MACARIO
--------------------------------------
--------------------------------------
December 7, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment.................................................................1
2. Duties and Responsibilities of Employee....................................2
3. Exclusivity of Service.....................................................2
4. Compensation; Bonus........................................................2
5. Benefits...................................................................3
6. Term of Employment.........................................................4
7. Confidentiality; Inventions; Product Development, Etc......................4
8. Termination................................................................6
(b) Cause.............................................................7
9. Violation of Other Agreements..............................................8
10. Specific Performance; Damages..............................................8
11. Notices....................................................................9
12. Waivers....................................................................9
13. Preservation of Intent.....................................................9
14. Entire Agreement..........................................................10
15. Inurement; Assignment.....................................................10
16. Amendment.................................................................10
17. Headings..................................................................10
18. Counterparts..............................................................10
19. Governing Law.............................................................10
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated ___________, 1998, by and
between PROJECTAVISION, INC., a Delaware corporation having an office at Two
Penn Plaza, Suite 640, New York, NY 10121 ("Employer"), and EMILIO BAJ MACARIO,
an individual residing at _________________________ ("Employee"). [Note: The
actual employing entity may be an Italian affiliate (either a subsidiary or a
division), based upon the final structure of the transaction.]
W I T N E S S E T H:
WHEREAS, Employer has entered into an Agreement of Purchase and Sale of
Assets (the "Purchase Agreement") dated __________, 1998 by and among Employer,
Projectavision International and Vidikron Industries, S.p.A. ("Vidikron")
pursuant to which Employer is purchasing from Vidikron, and Vidikron is selling
to Employer, certain of the assets of Vidikron;
WHEREAS, the closing under the Purchase Agreement occurred concurrently
with the execution and delivery of this Agreement;
WHEREAS, Employee served as Managing Director of Vidikron;
WHEREAS, Employee has certain valuable experience and
expertise in Vidikron which could benefit Employer;
WHEREAS, Employer would suffer irreparable harm if Employee discloses
Confidential Information or Trade Secrets (each as hereinafter defined) or
otherwise violates the provision of this Agreement; and
WHEREAS, Employer desires to engage Employee as an employee of
Employer's Vidikron European Division (the "Vidikron European Division") and
Employee desires to provide his services in connection with Employer's business
and both parties desire to clarify and specify the rights and obligations which
each have with respect to the other in connection with such employment.
NOW, THEREFORE, in consideration of the agreements and covenants herein
set forth, the parties hereby agree as follows:
1. Employment
Employer hereby employs Employee as Managing Director of the Vidikron
European Division and Employee hereby accepts such employment and agrees to
render his services as an employee of Employer, for the term of this Agreement
(as set forth in Section
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<PAGE>
6 hereof), all subject to and on the terms and conditions herein set forth.
2. Duties and Responsibilities of Employee
(a) Employee shall be employed as Managing Director of the Vidikron
European Division, subject to the other provisions of this Section 2, initially
based out of the Vidikron European Division Office.
(b) In the performance of his duties, Employee shall report to
Employer's Chief Executive Officer. Employee shall use his best efforts to
maintain and enhance the business and reputation of Employer. Employee's duties
and responsibilities shall include, without limitation, responsibilities for
overseeing matters related to the Vidikron European Division's accounting,
personnel, information technology, technical production, sales department and
quality assurance program, and such other duties commensurate with and
appropriate to his position as may, from time to time, be designated to Employee
by the Board or its designee(s). Upon Employer's request, Employee shall also
perform similar services in an identical capacity for any other subsidiary or
division of Employer designated by Employer in Italy. Employee shall be
available to travel as the reasonable needs of Employer shall require.
(c) Employer agrees not to take any action to denigrate or lessen the
status, authority, responsibilities or perquisites of Employee hereunder.
Employee shall be entitled during the "Term" (as defined in Section 6 below), to
an office, secretary, and all senior executive privileges commensurate with his
title and position and he shall generally be treated in the same fashion as all
other senior executives of Employer.
3. Exclusivity of Service
Employee agrees to devote all of his business time, efforts and
attention to the business and affairs of Employer on an exclusive basis, and not
to engage in any other business activities for any person or entity, other than
personal investment activities, provided that such activities do not materially
affect the performance of Employee's duties hereunder.
4. Compensation; Bonus
(a) In consideration for his services to be performed under this
Agreement and as compensation therefor, Employee shall receive, in addition to
the benefits set forth in Section 5 hereof, a base salary (the "Base Salary") at
the annual rate of One Hundred Eighty Thousand ($180,000) Dollars. All payments
of
- 2 -
<PAGE>
Base Salary shall be payable in bi-weekly installments or otherwise in
accordance with Employer's policies. The Base Salary shall be reviewed by the
Board one year after the date hereof and may be increased at the Board's sole
discretion; provided, however, that at a minimum, the Board shall increase the
Base Salary by a percentage equal to the percentage increase of the rate of
inflation (the "Inflation Percentage") in Italy (as determined by ) with respect
to the first year of the Term (as hereinafter defined); provided, further, that
the Board shall have no obligation whatsoever to increase the Base Salary by
more than the Inflation Percentage.
(b) In addition to the Base Salary, Employee may receive an annual
bonus, in an amount of up to $25,000, for the first twelve (12) months of the
Term, based upon performance criteria to be agreed upon by Employer and Employee
within thirty (30) days subsequent to the execution hereof. The bonus program
with respect to the thirteenth through twenty-fourth months of the Term shall be
subject to the approval of the Board of Directors (the "Board").
5. Benefits
In addition to the Base Salary and bonus provided for in Section 4
hereof, Employee shall be entitled to the following benefits during and in
respect of the Term (as defined below):
(a) Employee shall be entitled to four (4) weeks annual paid vacation,
in accordance with Employer's policies, annually to be taken by Employee at
times mutually and reasonably agreed upon by Employer and Employee in addition
to all other holidays established as part of Employer's standard practices. No
payment shall be made to Employee for unused vacation days nor may more than
fifty (50%) percent of such days be carried over to future years.
(b) Employee shall be entitled to reimbursement for all reasonable
travel, entertainment and other reasonable expenses incurred in connection with
Employer's business, provided that such expenses are adequately documented and
vouchered in accordance with Employer's policies.
(c) On the date hereof, Employer shall grant to Employee options (the
"Options") to purchase eighty eight thousand (88,000) shares of common stock
(the "Common Stock") of Employer (as may be adjusted for stock splits, stock
dividends, recapitalization and any similar transactions), par value $.0001 per
share, pursuant to Employer's 1990 Stock Option Plan (the "Plan") and a Stock
Option Agreement to be entered into by Employer and Employee in the form adopted
pursuant to the Plan promptly following the mutual execution and delivery of
this Agreement. Fifty percent (50%) of the Options shall vest, and become
exercisable, one (1) year from and after the date hereof and the remaining fifty
percent (50%) of the Options shall vest, and become exercisable, two (2) years
from and after the date hereof. All Options shall, subject to the terms and
conditions of the Plan, be exercisable at the price per share of the Common
Stock on the date of the issuance of the Options.
(d) In the event that subsequent to the execution hereof the Company
institutes any new benefits for senior executives that were not effected as of
the date hereof, Employee shall be entitled to fully participate in any such
newly instituted benefits for senior executives.
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<PAGE>
6. Term of Employment
The term (the "Term") of employment shall be from the date hereof
through two (2) years after the closing, unless terminated prior thereto in
accordance with Section 8 hereof. In addition, the Term shall be subject to a
one (1) year removal after said two (2) year period upon the mutual agreement of
the parties.
7. Confidentiality; Inventions; Product Development, Etc.
(a) Employee agrees and covenants that, at any time during employment
by Employer or thereafter, he will not (without first obtaining the written
permission of Employer) divulge to any person or entity, nor use (either himself
or in connection with any business) any "Confidential Information" or "Trade
Secrets" (each as hereinafter defined in Section 7(c) hereof) to which he may
have had access or which had been revealed to him during the course of his
employment unless such disclosure is pursuant to a court order, disclosure in
litigation involving the Employer or in any reports or applications required by
law to be filed with any governmental agency.
(b) Employee hereby grants to Employer or its nominee all rights of
every kind whatsoever, exclusively and perpetually, in and to all services
performed, products created and product ideas conceived by Employee for Employer
or its nominee, and hereby agrees, upon Employer's request therefor, to assign
and transfer to Employer or its nominee, any and all inventions, Trade Secrets,
product ideas, improvements, processes, Confidential Information and "know how"
relating to the business or products of Employer or any subsidiary or division
thereof, including any thereof which Employee may learn, possess or acquire
during Employee's employment by Employer, and agrees that all such things and
such knowledge are, and will be, the sole and exclusive property of Employer or
its nominee, and are known or held by Employee only for the benefit of Employer
or its nominee. Any patent, trademark, servicemark or copyright applications and
patents, trademarks, servicemarks or copyrights developed, obtained or conceived
by Employee while employed or engaged by Employer which relate to the business
or product development activities of Employer or its nominee, as well as all
physical embodiments of Confidential Information, shall be and remain the sole
exclusive property of Employer, or its nominee. At Employer's request, Employee
will execute any and all applications, assignments or other instruments which
Employer or its nominee shall deem necessary to apply for and obtain Letters
Patent of the United States or any foreign country or to protect otherwise
Employer's interest therein.
- 4 -
<PAGE>
(c) As used in this Agreement, the term "Confidential Information"
shall mean and include all information and data in respect of Employer's
operations, financial condition, products, customers and business (including,
without limitation, artwork, photographs, specifications, facsimiles, samples,
business, marketing or promotional plans, creative written material and
information relating to characters, concepts, names, trademarks and copyrights)
which may be communicated to Employee or to which Employee may have access in
the course of Employee's employment by Employer and which are designated or
treated by the Employer as confidential, and with respect to which Employer has
taken reasonable measures to maintain confidentiality. Notwithstanding the
foregoing, the term "Confidential Information" shall not include information
which:
(i) is, at the time of the disclosure, a part of the public
domain through no act or omission by Employee;
(ii) was otherwise in Employee's lawful possession prior to the
disclosure; or
(iii) is hereafter lawfully disclosed to Employee by a third party
who or which did not acquire the information under an
obligation of confidentiality to or through Employer.
As used in this Agreement, the term "Trade Secrets" shall mean and
include information, without regard to form, including, but not limited to,
technical or non-technical data, a formula, a pattern, a compilation, a program,
a device, a method, a technique, a drawing, a process, financial data, financial
plans, product plans, or a list of actual or potential customers or suppliers
which is not commonly known by or available to the public and which information
(i) derives economic value, actual or potential, from not being known to, and
not being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and (ii) is the subject of efforts by
the Employer, that are reasonable under the circumstances to maintain its
secrecy including but not limited to the entering into of agreements containing
similar provisions as set forth herein with respect to confidentiality with
other senior executives of the Company.
Any combination of known information shall be within any of the
foregoing exclusions only if the combination as such is within such exclusions.
Nothing in this Section 7 shall limit any protection, definition or
remedy provided to Employer under any law, statute or legal principle relating
to Confidential Information or Trade Secrets.
- 5 -
<PAGE>
(d) Employee agrees that at the time of leaving the employ of Employer
he will deliver to Employer and not keep or deliver to anyone else any and all
notes, notebooks, drawings, memoranda, documents, and in general, any and all
material relating to the business of Employer (except Employee's personal files
and records) or relating to any employee, officer, director, agent or
representative of Employer.
(e) Employee agrees that commencing as of the date hereof and for a
period of one (1) year following the termination of his employment with the
Company, Employee will not, directly or indirectly: (a) engage in or become
interested (whether as owner, principal, agent, stockholder, member, partner,
trustee, venturer, lender or other investor, director, officer, employee,
consultant or through the agency of any corporation, partnership, limited
liability company, association or agent or otherwise) in any business or
enterprise that shall then be in whole or in substantial part competitive with
the business conducted by the Company (or any other subsidiary thereof);
provided, however, ownership of less than one percent (1%) of the outstanding
securities of any class of any entity listed on a national securities exchange
or traded in the over-the-counter market shall not be considered a breach of
this Section 7(e).
8. Termination
(a) General. In the event Employee is terminated other than pursuant to
Sections 8(b), 8(c) and 8(d) hereof, or in the event of a breach by Employer of
this Agreement (which breach shall not have been cured by Employer within thirty
(30) days after written notice thereof from Employee, which written notice, to
be effective, must describe with specificity the nature of the alleged breach),
(i) Employer shall pay to Employee Employee's Base Salary under Section 4 hereof
in a lump sum (net of all applicable withholding taxes and other amounts that
have routinely been deducted from Employee's Base Salary payments hereunder
prior to any such termination) within ten (10) business days, (ii) Employer
shall pay to Employee all other benefits under Section 5(d) hereof until the two
year anniversary of the date set forth above, and (iii) all options set forth in
Section 5(c) shall automatically vest upon any such termination.
(b) Cause. Notwithstanding the terms of this Agreement, Employer may
discharge Employee and terminate this Agreement in the event that (i) Employee
shall materially fail to perform his material duties hereunder with reasonable
diligence or shall violate any material covenant of his herein contained, (ii)
Employee shall engage in an act of dishonesty in connection with his duties
hereunder or theft, (iii) Employee shall unreasonably refuse to carry out the
lawful order of Employer commensurate and appropriate with Employee's duties to
be performed hereunder, (iv) Employee shall be charged with a felony involving
moral turpitude (which shall include any felony relating to drugs) or shall be
- 6 -
<PAGE>
convicted of, or plead nolo contendere (or make an equivalent plea) in respect
of, any governmental indictment, complaint or other formal allegation or (v)
Employee shall have breached in any material respect any material agreement,
covenant, undertaking or representation and/or warranty under either (x) the
Purchase Agreement or (y) that certain Non- Competition and Continuity of
Business Dealings Undertaking made by Employee in favor of Employer of even date
herewith. Notwithstanding the foregoing to the contrary, prior to discharging
Employee pursuant to clauses (i) or (iii) of the immediately preceding sentence,
Employer shall give Employee ten (10) days' prior written notice of any breach
or failure and a reasonable opportunity to cure any such breach or failure, or
cease violating any covenant contained herein, the extent curable or ceasable;
provided, however, that no notice shall be required to be given in the event
such breach, failure or violation is not curable or ceasable. In the event
Employee is discharged pursuant to this Section 8(b), Employee's Base Salary and
bonus under Section 4 hereof and all benefits under Section 5 hereof shall
terminate immediately upon such discharge (subject to applicable law such as
COBRA), and Employer shall have no further obligation to Employee except the
payment to and reimbursement to Employee for any monies due to Employee which
right to payment or reimbursement accrued prior to such discharge.
(c) Incapacity. Should Employee, in the reasonable judgment of a
physician chosen by the Board, become incapacitated to the extent that he is
unable to perform his material duties pursuant to this Agreement for a period of
four (4) consecutive months by reason of illness, disability, or other
incapacity, Employer may terminate this Agreement upon one (1) month's notice
after said four (4) month period. In addition, upon any such termination, all
options set forth in Section 5(c) shall automatically vest.
Notwithstanding the foregoing, in the event that Employee (or
his representative) disputes the determination made by the physician chosen by
the Board to evaluate Employee's ability to perform his material duties
hereunder, Employee (or his representative) shall have the right to have a
physician of their choosing evaluate Employee. In the event that physician
chosen by the Board and the Employee (or his representative) cannot agree, then
the two (2) physicians shall choose a third physician, whose determination shall
be final and binding upon the parties.
(d) Death. This Agreement shall terminate immediately upon the death of
Employee, in which case Employee's legal representatives shall be entitled to
receive promptly a payment equal to the lesser of four (4) months Base Salary or
the Base Salary for the remaining Term hereof.
- 7 -
<PAGE>
9. Violation of Other Agreements
Employee represents and warrants to Employer that he is legally able to
enter into this Agreement and accept employment with Employer; that Employee is
not prohibited by the terms of any agreement, understanding or policy from
entering into this Agreement; and the terms hereof will not and do not violate
or contravene the terms of any agreement, understanding or policy to which
Employee is or may be a party, or by which Employee may be bound. Employee
agrees that, as it is a material inducement to Employer that Employee make the
foregoing representations and warranties and that they be true in all respects,
Employee shall forever indemnify and hold Employer harmless from and against all
liability, costs or expenses (including attorney's fees and disbursements) on
account of the foregoing representations being untrue.
10. Specific Performance; Damages
In the event of a breach or threatened breach of the provisions of
Section 7 hereof, Employee agrees that the injury which would be suffered by
Employer would be of a character which could not be fully compensated for solely
by a recovery of monetary damages. Accordingly, Employee agrees that in the
event of a breach or threatened breach of Section 7 hereof, in addition to and
not in lieu of any damages sustained by Employer and any other remedies which
Employer may pursue hereunder or under any applicable law, Employer shall have
the right to equitable relief, including issuance of a temporary or permanent
injunction, by any court of competent jurisdiction against the commission or
continuance of any such breach or threatened breach, without the necessity of
proving any actual damages or posting of any bond or other surety therefor. In
addition to, and not in limitation of the foregoing, Employee understands and
confirms that, in the event of a breach or threatened breach of Section 7
hereof, Employee may be held financially liable to Employer for any loss
suffered by Employer as a result.
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 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
- 8 -
<PAGE>
accordance with the terms of this Section, together with copies thereof as
follows:
In the case of Employer, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
Attention: Clifford A. Brandeis, Esq.
In the case of Employee, with a copy to:
Cesaris, Nunziante e Breveglieri
20121 Milano
Via Marte Di Pieta, 24
Milan, Italy
Telephone no.: (011) 39-02.72.55.11
Facsimile no.: (011) 39-02.72.55.13.33
Attn: Avv. Luca Breveglieri
and
Rubin, Bailin, Ontoli, Mayer, Baker & Fry LLP
405 Park Avenue
New York, New York 10022
Telephone no.: (212) 935-0900
Facsimile no.: (212) 826-9307
Attn: Joseph Rubin, Esq.
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. Waivers
No waiver by any party of any default with respect to any provision,
condition or requirement hereof shall be deemed to be a waiver of any other
provision, condition or requirement hereof; nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
- 9 -
<PAGE>
13. Preservation of Intent
Should any provision of this Agreement be determined by a court having
jurisdiction in the premises to be illegal or in conflict with any laws of any
state or jurisdiction or otherwise unenforceable, Employer and Employee agree
that such provision shall be modified to the extent legally possible so that the
intent of this Agreement may be legally carried out.
14. Entire Agreement
This Agreement sets forth the entire and only agreement or
understanding between the parties relating to the subject matter hereof and
supersedes and cancels all previous agreements, negotiations, letters of intent,
correspondence, commitments and representations in respect thereof among them,
and no party shall be bound by any conditions, definitions, warranties or
representations with respect to the subject matter of this Agreement except as
provided in this Agreement.
15. Inurement; Assignment
The rights and obligations of Employer under this Agreement shall inure
to the benefit of and shall be binding upon any successor of Employer or to the
business of Employer, subject to the provisions hereof. Employer may assign this
Agreement to any person, firm or corporation controlling, controlled by, or
under common control with Employer, provided that such assignee is the entity
conducting the business and operations in Italy where Employee is being engaged
to provide his services hereunder. Neither this Agreement nor any rights or
obligations of Employee hereunder shall be transferable or assignable by
Employee.
16. Amendment
This Agreement may not be amended in any respect except by an
instrument in writing signed by the parties hereto.
17. Headings
The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
18. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
- 10 -
<PAGE>
19. Governing Law
This Agreement shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York, without giving
reference to principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
------------------------------
EMILIO BAJ MACARIO
PROJECTAVISION, INC.
By:__________________________
Name: Martin J. Holleran
Title: President and Chief
Executive Officer
- 11 -
<PAGE>
EXHIBIT 10.55
================================================================================
EMPLOYMENT AGREEMENT
By and Between
PROJECTAVISION, INC.
and
FLAVIO PERALDA
================================================================================
December 7, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. Employment..............................................................1
2. Duties and Responsibilities of Employee.................................2
3. Exclusivity of Service..................................................2
4. Compensation; Bonus.....................................................2
5. Benefits................................................................3
6. Term of Employment......................................................4
7. Confidentiality; Inventions; Product Development, Etc...................4
8. Termination.............................................................6
(b) Cause..............................................................6
(c) Incapacity.........................................................7
(d) Death..............................................................7
9. Violation of Other Agreements...........................................8
10. Specific Performance; Damages...........................................8
11. Notices.................................................................8
12. Waivers.................................................................9
13. Preservation of Intent..................................................9
14. Entire Agreement........................................................9
15. Inurement; Assignment..................................................10
16. Amendment..............................................................10
17. Headings...............................................................10
18. Counterparts...........................................................10
19. Governing Law..........................................................10
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated December 7, 1998, by and
between PROJECTAVISION, INC., a Delaware corporation having an office at Two
Penn Plaza, Suite 640, New York, NY 10121 ("Employer"), and FLAVIO PERALDA, an
individual residing at _________________________ ("Employee").
W I T N E S S E T H:
WHEREAS, Employer has entered into an Agreement of Purchase and Sale of
Assets (the "Purchase Agreement") dated __________, 1998 by and among Employer,
Projectavision International and Vidikron Industries, S.p.A. ("Vidikron")
pursuant to which Employer is purchasing from Vidikron, and Vidikron is selling
to Employer, certain of the assets of Vidikron;
WHEREAS, the closing under the Purchase Agreement occurred concurrently
with the execution and delivery of this Agreement;
WHEREAS, Employee served as President of Vidikron;
WHEREAS, Employee has certain valuable experience and expertise in
Vidikron which could benefit Employer;
WHEREAS, Employer would suffer irreparable harm if Employee discloses
Confidential Information or Trade Secrets (each as hereinafter defined) or
otherwise violates the provision of this Agreement; and
WHEREAS, Employer desires to engage Employee as an employee of
Employer's Vidikron European Division (the "Vidikron European Division") and
Employee desires to provide his services in connection with Employer's business
and both parties desire to clarify and specify the rights and obligations which
each have with respect to the other in connection with such employment.
NOW, THEREFORE, in consideration of the agreements and covenants herein
set forth, the parties hereby agree as follows:
1. Employment
Employer hereby employs Employee as President of the Vidikron European
Division and Employee hereby accepts such employment and agrees to render his
services as an employee of Employer, for the term of this Agreement (as set
forth in Section 6 hereof), all subject to and on the terms and conditions
herein set forth.
<PAGE>
2. Duties and Responsibilities of Employee
(a) Employee shall be employed as President of the Vidikron European
Division, subject to the other provisions of this Section , initially based out
of the Vidikron European Division Office.
(b) In the performance of his duties, Employee shall report to
Employer's Chief Executive Officer. Employee shall use his best efforts to
maintain and enhance the business and reputation of Employer. Employee's duties
and responsibilities shall include, without limitation, responsibilities for
overseeing matters related to the Vidikron European Division's accounting,
personnel, information technology, technical production, sales department and
quality assurance program, and such other duties commensurate with and
appropriate to his position as may, from time to time, be designated to Employee
by the Board or its designee(s). Upon Employer's request, Employee shall also
perform similar services in an identical capacity for any other subsidiary or
division of Employer designated by Employer in Italy. Employee shall be
available to travel as the reasonable needs of Employer shall require.
(c) Employer agrees not to take any action to denigrate or lessen the
status, authority, responsibilities or perquisites of Employee hereunder.
Employee shall be entitled during the "Term" (as defined in Section 6 below), to
an office, secretary, and all senior executive privileges commensurate with his
title and position and he shall generally be treated in the same fashion as all
other senior executives of Employer.
3. Exclusivity of Service
Employee agrees to devote all of his business time, efforts and
attention to the business and affairs of Employer on an exclusive basis, and not
to engage in any other business activities for any person or entity, other than
personal investment activities, provided that such activities do not materially
affect the performance of Employee's duties hereunder.
4. Compensation; Bonus
(a) In consideration for his services to be performed under this
Agreement and as compensation therefor, Employee shall receive, in addition to
the benefits set forth in Section 5 hereof, a base salary (the "Base Salary") at
the annual rate of One Hundred Eighty Thousand ($180,000) Dollars. All payments
of
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<PAGE>
Base Salary shall be payable in bi-weekly installments or otherwise in
accordance with Employer's policies.
(b) In addition to the Base Salary, Employee may receive an annual
bonus, in an amount of up to $25,000, based upon performance criteria to be
agreed upon by Employer and Employee within thirty (30) days subsequent to the
execution hereof.
5. Benefits
In addition to the Base Salary and bonus provided for in Section
hereof, Employee shall be entitled to the following benefits during and in
respect of the Term (as defined below):
(a) Employee shall be entitled to four (4) weeks annual paid vacation,
in accordance with Employer's policies, annually to be taken by Employee at
times mutually and reasonably agreed upon by Employer and Employee in addition
to all other holidays established as part of Employer's standard practices. No
payment shall be made to Employee for unused vacation days.
(b) Employee shall be entitled to reimbursement for all reasonable
travel, entertainment and other reasonable expenses incurred in connection with
Employer's business, provided that such expenses are adequately documented and
vouchered in accordance with Employer's policies.
(c) On the date hereof, Employer shall grant to Employee options (the
"Options") to purchase eighty eight thousand (88,000) shares of common stock
(the "Common Stock") of Employer (as may be adjusted for stock splits, stock
dividends, recapitalization and any similar transactions), par value $.0001 per
share, pursuant to Employer's 1990 Stock Option Plan (the "Plan") and a Stock
Option Agreement to be entered into by Employer and Employee in the form adopted
pursuant to the Plan promptly following the mutual execution and delivery of
this Agreement. Fifty percent (50%) of the Options shall vest, and become
exercisable, one (1) year from and after the date hereof and the remaining fifty
percent (50%) of the Options shall vest, and become exercisable, two (2) years
from and after the date hereof. All Options shall, subject to the terms and
conditions of the Plan, be exercisable at the price per share of the Common
Stock on the date of the issuance of the Options.
- 3 -
<PAGE>
(d) In the event that subsequent to the execution hereof the Company
institutes any new benefits for senior executives that were not effected as of
the date hereof, Employee shall be entitled to fully participate in any such
newly instituted benefits for senior executives.
6. Term of Employment
The term (the "Term") of employment shall be from the date hereof
through one (1) year after the closing, unless terminated prior thereto in
accordance with Section hereof. In addition, the Term of this Agreement may also
be extended for two (2) successive one (1) year terms upon the mutual agreement
of the parties.
7. Confidentiality; Inventions; Product Development, Etc.
(a) Employee agrees and covenants that, at any time during employment
by Employer or thereafter, he will not (without first obtaining the written
permission of Employer) divulge to any person or entity, nor use (either himself
or in connection with any business) any "Confidential Information" or "Trade
Secrets" (each as hereinafter defined in Section (c) hereof) to which he may
have had access or which had been revealed to him during the course of his
employment unless such disclosure is pursuant to a court order, disclosure in
litigation involving the Employer or in any reports or applications required by
law to be filed with any governmental agency.
(b) Employee hereby grants to Employer or its nominee all rights of
every kind whatsoever, exclusively and perpetually, in and to all services
performed, products created and product ideas conceived by Employee for Employer
or its nominee, and hereby agrees, upon Employer's request therefor, to assign
and transfer to Employer or its nominee, any and all inventions, Trade Secrets,
product ideas, improvements, processes, Confidential Information and "know how"
relating to the business or products of Employer or any subsidiary or division
thereof, including any thereof which Employee may learn, possess or acquire
during Employee's employment by Employer, and agrees that all such things and
such knowledge are, and will be, the sole and exclusive property of Employer or
its nominee, and are known or held by Employee only for the benefit of Employer
or its nominee. Any patent, trademark, servicemark or copyright applications and
patents, trademarks, servicemarks or copyrights developed, obtained or conceived
by Employee while employed or engaged by Employer which relate to the business
or product development activities of Employer or its nominee, as well as all
physical embodiments of Confidential Information, shall be and remain the sole
exclusive property of Employer, or its nominee. At Employer's request, Employee
will execute any and all
- 4 -
<PAGE>
applications, assignments or other instruments which Employer or its nominee
shall deem necessary to apply for and obtain Letters Patent of the United States
or any foreign country or to protect otherwise Employer's interest therein.
(c) As used in this Agreement, the term "Confidential Information"
shall mean and include all information and data in respect of Employer's
operations, financial condition, products, customers and business (including,
without limitation, artwork, photographs, specifications, facsimiles, samples,
business, marketing or promotional plans, creative written material and
information relating to characters, concepts, names, trademarks and copyrights)
which may be communicated to Employee or to which Employee may have access in
the course of Employee's employment by Employer and which are designated or
treated by the Employer as confidential, and with respect to which Employer has
taken reasonable measures to maintain confidentiality. Notwithstanding the
foregoing, the term "Confidential Information" shall not include information
which:
(i) is, at the time of the disclosure, a part of the public
domain through no act or omission by Employee;
(ii) was otherwise in Employee's lawful possession prior to the
disclosure; or
(iii) is hereafter lawfully disclosed to Employee by a third
party who or which did not acquire the information under an
obligation of confidentiality to or through Employer.
As used in this Agreement, the term "Trade Secrets" shall mean and
include information, without regard to form, including, but not limited to,
technical or non-technical data, a formula, a pattern, a compilation, a program,
a device, a method, a technique, a drawing, a process, financial data, financial
plans, product plans, or a list of actual or potential customers or suppliers
which is not commonly known by or available to the public and which information
(i) derives economic value, actual or potential, from not being known to, and
not being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and (ii) is the subject of efforts by
the Employer, that are reasonable under the circumstances to maintain its
secrecy including but not limited to the entering into of agreements containing
similar provisions as set forth herein with respect to confidentiality with
other senior executives of the Company.
- 5 -
<PAGE>
Any combination of known information shall be within any of the
foregoing exclusions only if the combination as such is within such exclusions.
Nothing in this Section shall limit any protection, definition or
remedy provided to Employer under any law, statute or legal principle relating
to Confidential Information or Trade Secrets.
(d) Employee agrees that at the time of leaving the employ of Employer
he will deliver to Employer and not keep or deliver to anyone else any and all
notes, notebooks, drawings, memoranda, documents, and in general, any and all
material relating to the business of Employer (except Employee's personal files
and records) or relating to any employee, officer, director, agent or
representative of Employer.
(e) Employee agrees that commencing as of the date hereof and for a
period of one (1) year following the termination of his employment with the
Company, Employee will not, directly or indirectly: (a) engage in or become
interested (whether as owner, principal, agent, stockholder, member, partner,
trustee, venturer, lender or other investor, director, officer, employee,
consultant or through the agency of any corporation, partnership, limited
liability company, association or agent or otherwise) in any business or
enterprise that shall then be in whole or in substantial part competitive with
the business conducted by the Company (or any other subsidiary thereof);
provided, however, ownership of less than one percent (1%) of the outstanding
securities of any class of any entity listed on a national securities exchange
or traded in the over-the-counter market shall not be considered a breach of
this Section 7(e).
8. Termination
(a) General. In the event Employee is terminated other than pursuant to
Sections 8(b), 8(c) and 8(d) hereof, or in the event of a breach by Employer of
this Agreement (which breach shall not have been cured by Employer within thirty
(30) days after written notice thereof from Employee, which written notice, to
be effective, must describe with specificity the nature of the alleged breach),
(i) Employer shall pay to Employee Employee's Base Salary under Section 4 hereof
in a lump sum (net of all applicable withholding taxes and other amounts that
have routinely been deducted from Employee's Base Salary payments hereunder
prior to any such termination) within ten (10) business days, (ii) Employer
shall pay to Employee all other benefits under Section 5(d) hereof until the one
year anniversary of the
- 6 -
<PAGE>
date set forth above, and (iii) all options set forth in Section 5(c) shall
automatically vest upon any such termination.
(b) Cause. Notwithstanding the terms of this Agreement, Employer may
discharge Employee and terminate this Agreement in the event that (i) Employee
shall materially fail to perform his material duties hereunder with reasonable
diligence or shall violate any material covenant of his herein contained, (ii)
Employee shall engage in an act of dishonesty in connection with his duties
hereunder or theft, (iii) Employee shall unreasonably refuse to carry out the
lawful order of Employer commensurate and appropriate with Employee's duties to
be performed hereunder, (iv) Employee shall be charged with a felony involving
moral turpitude (which shall include any felony relating to drugs) or shall be
convicted of, or plead nolo contendere (or make an equivalent plea) in respect
of, any governmental indictment, complaint or other formal allegation or (v)
Employee shall have breached in any material respect any material agreement,
covenant, undertaking or representation and/or warranty under either (x) the
Purchase Agreement or (y) that certain Non- Competition and Continuity of
Business Dealings Undertaking made by Employee in favor of Employer of even date
herewith. Notwithstanding the foregoing to the contrary, prior to discharging
Employee pursuant to clauses (i) or (iii) of the immediately preceding sentence,
Employer shall give Employee ten (10) days' prior written notice of any breach
or failure and a reasonable opportunity to cure any such breach or failure, or
cease violating any covenant contained herein, the extent curable or ceasable;
provided, however, that no notice shall be required to be given in the event
such breach, failure or violation is not curable or ceasable. In the event
Employee is discharged pursuant to this Section (b), Employee's Base Salary and
bonus under Section hereof and all benefits under Section hereof shall terminate
immediately upon such discharge (subject to applicable law such as COBRA), and
Employer shall have no further obligation to Employee except the payment to and
reimbursement to Employee for any monies due to Employee which right to payment
or reimbursement accrued prior to such discharge.
(c) Incapacity. Should Employee, in the reasonable judgment of a
physician chosen by the Board, become incapacitated to the extent that he is
unable to perform his material duties pursuant to this Agreement for a period of
four (4) consecutive months by reason of illness, disability, or other
incapacity, Employer may terminate this Agreement upon one (1) month's notice
after said four (4) month period. In addition, upon any such termination, all
options set forth in Section 5(c) shall automatically vest.
- 7 -
<PAGE>
Notwithstanding the foregoing, in the event that Employee (or his
representative) disputes the determination made by the physician chosen by the
Board to evaluate Employee's ability to perform his material duties hereunder,
Employee (or his representative) shall have the right to have a physician of
their choosing evaluate Employee. In the event that physician chosen by the
Board and the Employee (or his representative) cannot agree, then the two (2)
physicians shall choose a third physician, whose determination shall be final
and binding upon the parties.
(d) Death. This Agreement shall terminate immediately upon the death of
Employee, in which case Employee's legal representatives shall be entitled to
receive promptly a payment equal to the lesser of four (4) months Base Salary or
the Base Salary for the remainder of the Term of this Agreement.
9. Violation of Other Agreements
Employee represents and warrants to Employer that he is legally able to
enter into this Agreement and accept employment with Employer; that Employee is
not prohibited by the terms of any agreement, understanding or policy from
entering into this Agreement; and the terms hereof will not and do not violate
or contravene the terms of any agreement, understanding or policy to which
Employee is or may be a party, or by which Employee may be bound. Employee
agrees that, as it is a material inducement to Employer that Employee make the
foregoing representations and warranties and that they be true in all respects,
Employee shall forever indemnify and hold Employer harmless from and against all
liability, costs or expenses (including attorney's fees and disbursements) on
account of the foregoing representations being untrue.
10. Specific Performance; Damages
In the event of a breach or threatened breach of the provisions of
Section hereof, Employee agrees that the injury which would be suffered by
Employer would be of a character which could not be fully compensated for solely
by a recovery of monetary damages. Accordingly, Employee agrees that in the
event of a breach or threatened breach of Section hereof, in addition to and not
in lieu of any damages sustained by Employer and any other remedies which
Employer may pursue hereunder or under any applicable law, Employer shall have
the right to equitable relief, including issuance of a temporary or permanent
injunction, by any court of competent jurisdiction against the
- 8 -
<PAGE>
commission or continuance of any such breach or threatened breach, without the
necessity of proving any actual damages or posting of any bond or other surety
therefor. In addition to, and not in limitation of the foregoing, Employee
understands and confirms that, in the event of a breach or threatened breach of
Section hereof, Employee may be held financially liable to Employer for any loss
suffered by Employer as a result.
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 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 Employer, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
Attention: Clifford A. Brandeis, Esq.
In the case of Employee, with a copy to:
Cesaris, Nunziante e Breveglieri
20121 Milano
Via Marte Di Pieta, 24
Milan, Italy
Telephone no.: (011) 39-02.72.55.11
Facsimile no.: (011) 39-02.72.55.13.33
Attn: Avv. Luca Breveglieri
and
Rubin, Bailin, Ontoli, Mayer, Baker & Fry LLP
405 Park Avenue
New York, New York 10022
Telephone no.: (212) 935-0900
Facsimile no.: (212) 826-9307
Attn: Joseph Rubin, Esq.
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.
- 9 -
<PAGE>
12. Waivers
No waiver by any party of any default with respect to any provision,
condition or requirement hereof shall be deemed to be a waiver of any other
provision, condition or requirement hereof; nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
13. Preservation of Intent
Should any provision of this Agreement be determined by a court having
jurisdiction in the premises to be illegal or in conflict with any laws of any
state or jurisdiction or otherwise unenforceable, Employer and Employee agree
that such provision shall be modified to the extent legally possible so that the
intent of this Agreement may be legally carried out.
14. Entire Agreement
This Agreement sets forth the entire and only agreement or
understanding between the parties relating to the subject matter hereof and
supersedes and cancels all previous agreements, negotiations, letters of intent,
correspondence, commitments and representations in respect thereof among them,
and no party shall be bound by any conditions, definitions, warranties or
representations with respect to the subject matter of this Agreement except as
provided in this Agreement.
15. Inurement; Assignment
The rights and obligations of Employer under this Agreement shall inure
to the benefit of and shall be binding upon any successor of Employer or to the
business of Employer, subject to the provisions hereof. Employer may assign this
Agreement to any person, firm or corporation controlling, controlled by, or
under common control with Employer, provided that such assignee is the entity
conducting the business and operations in Italy where Employee is being engaged
to provide his services hereunder. Neither this Agreement nor any rights or
obligations of Employee hereunder shall be transferable or assignable by
Employee.
- 10 -
<PAGE>
16. Amendment
This Agreement may not be amended in any respect except by an
instrument in writing signed by the parties hereto.
17. Headings
The headings in this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
18. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
19. Governing Law
This Agreement shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York, without giving
reference to principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
_____________________________
FLAVIO PERALDA
PROJECTAVISION, INC.
By:__________________________
Name: Martin J. Holleran
Title: President and Chief
Executive Officer
- 11 -
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