SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant |X| Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use
|_| Definitive Proxy Statement of the Commission Only (as
|_| Definitive Additional Materials permitted by Rule 14a-6(e)(2)
|_| Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
IAT RESOURCES CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No Fee Required
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
9,875,000 SHARES
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$1.70, (AVERAGE OF BID ($1.6875) AND ASK ($1.71875) PRICES ON NOVEMBER 2, 1999)
(4) Proposed maximum aggregate value of transaction:
$ 16,787,500
- --------------------------------------------------------------------------------
(5) Total fee paid:
$ 3,360.00
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
<PAGE>
IAT RESOURCES CORPORATION
-----------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD December 14, 1999
-----------
TO OUR STOCKHOLDERS:
Notice is hereby given that a Special Meeting of Stockholders of IAT
Resources Corporation ("IATR" or the "Company") will be held at the Beverly
Hilton Hotel, located at 9876 Wilshire Blvd., Beverly Hills, California 90210,
on December 14, 1999 at 10:00 a.m., Pacific standard time. The Special
Meeting is being held for the following purposes:
1. Pursuant to the stockholder approval requirements of the
Nasdaq SmallCap Market, to consider and vote upon a proposal
to approve the issuance of shares (the "Share Issuance") of
IATR common stock, par value $0.001 per share ("Common
Stock"), pursuant to the Merger of Infolocity, Inc. with and
into IATR, which Share Issuance will be in excess of 20% of
the number of shares of Common Stock outstanding and result in
a change of control of IATR;
2. Pursuant to the stockholder approval requirements of the
Nasdaq SmallCap Market, to consider and vote upon a proposal
to approve the issuance of shares of Common Stock (the
"Conversion Issuance") issuable upon conversion or exercise,
as the case may be, of 6% Convertible Subordinated Debentures
and Common Stock Purchase Warrants pursuant to the Placement
Agreement by and between the Company and Astor Capital, Inc.,
a California corporation, dated August 25, 1999 (the
"Placement Agreement");
3. To consider and vote upon a proposed amendment (the "Incentive
Plan Amendment") to the Company's 1998 Stock Incentive Plan to
increase the maximum number of shares of Common Stock that may
be issued pursuant to awards granted under the plan from
3,000,000 shares to 5,000,000 shares;
4. To consider and vote upon a proposed amendment (the "Name
Change Amendment") to the Company's Restated Certificate of
Incorporation to change the name of the Company from IAT
Resources Corporation to [________________];
5. To elect two (2) directors to hold office until the next
annual meeting of stockholders and until their respective
successors have been elected; and
6. To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements
thereof.
Only stockholders of record of the Common Stock of the Company at the
close of business on November 8, 1999 are entitled to notice of and to vote
at the Special Meeting and at any adjournments or postponements thereof.
The approval of the Share Issuance, the Conversion Issuance and the
Incentive Plan Amendment will require the affirmative vote of the holders of a
majority of the shares of IATR Common Stock represented at the Special Meeting.
The approval of the Name Change Amendment requires the affirmative vote of the
holders of a majority of the shares of IATR Common Stock outstanding. The
approval of the Share Issuance and the Conversion Issuance are not conditioned
upon the approval of the Incentive Plan Amendment or the Name Change Amendment.
The two nominees for director who receive the highest number of votes will be
named as interim directors. The election of directors is conditioned on the
approval of the Share Issuance. If the Share Issuance is not approved, no new
directors will be elected.
All stockholders are cordially invited to attend the Special Meeting in
person. However, to ensure your representation at the Special Meeting, you are
urged to mark, sign and return the enclosed Proxy as promptly as
<PAGE>
possible in the postage prepaid envelope enclosed for that purpose. Any
stockholder attending the Special Meeting may vote in person, even though he or
she has returned a Proxy.
This document provides you with detailed information about the matters
on which you are being asked to vote. We encourage you to read this entire
document carefully.
BY ORDER OF THE BOARD OF DIRECTORS
Arthur H. Bernstein
SECRETARY
Los Angeles, California 90036
November __, 1999
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR
PROXY AND VOTE YOUR SHARES IN PERSON.
Page 2
<PAGE>
IAT RESOURCES CORPORATION
5757 Wilshire Boulevard, Penthouse One
Los Angeles, CA 90036
(323) 634-8634
----------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON December 14, 1999
This Proxy Statement is being furnished to holders, as of
November 8, 1999 (the "Record Date"), of common stock, par value $0.001 per
share ("IATR Common Stock") of IAT Resources Corporation, a Delaware corporation
("IATR" or the "Company"), in connection with the solicitation of proxies by the
Board of Directors of IATR (the "Board") for use at the Special Meeting of
Stockholders (the "Special Meeting") to be held at the Beverly Hilton Hotel,
9876 Wilshire Boulevard, Beverly Hills, California 90210, on December 14, 1999
at 10:00 a.m., Pacific standard time, and at any adjournments or postponements
thereof, for the purposes set forth herein and in the attached Notice of Special
Meeting of Stockholders.
On September 16, 1999, the Board of Directors of IATR approved a merger
(the "Merger") of Infolocity, Inc., a California corporation ("Infolocity") and
Infolocity Merger Sub, a wholly owned subsidiary of IATR ("Merger Sub"). On
September 22, 1999, IATR and Infolocity entered into an Agreement and Plan of
Merger, as amended and restated on November 1, 1999 (the "Merger Agreement") by
and among IATR, Infolocity, Merger Sub and James J. Cerna Jr. and Victor A.
Holtorf (the "Principal Shareholders").
If the Merger is effected, Infolocity will become a wholly owned
subsidiary of IATR, and Infolocity stockholders will become stockholders of
IATR. As more fully set forth herein, each share of Infolocity's common stock,
par value $0.001 per share (the "Infolocity Common Stock") and each share of
Infolocity's Series A Preferred stock, par value $0.001 per share ("Infolocity
Preferred Stock") will be converted into the right to receive that number of
shares of IATR Common Stock as is equal to approximately 7,375,000 divided by
the sum of the combined total number of shares of Infolocity Common Stock and
Infolocity Preferred Stock. Under certain conditions described more fully
herein, if the closing price of IATR Common Stock does not maintain a certain
level above $1.75, the Company may have to issue up to an additional 3,500,000
shares of IATR Common Stock to holders of Infolocity Common Stock and Infolocity
Preferred Stock.
In order to effect the Merger, Infolocity's shareholders must approve
the Merger, and IATR's stockholders must authorize the issuance of in excess of
20% of the number of shares of IATR Common Stock outstanding as of the date of
the Merger Agreement. On September 22, 1999, the initial date of the Merger
Agreement, there were issued and outstanding 13,613,657 shares of IATR Common
Stock. Pursuant to the Merger Agreement, the Company must issue at least
7,375,000 and up to 10,750,000 shares of IATR Common Stock.
The Special Meeting has been called to consider and vote upon proposals
(i) to approve the issuance of shares of IATR Common Stock (the "Share
Issuance") pursuant to the Merger Agreement, which will be in excess of 20% of
the number of shares of IATR Common Stock outstanding before the date of the
Merger Agreement and result in a change of control of the issuer; (ii) to
approve the issuance of shares of IATR Common Stock (the "Conversion Issuance")
issuable upon conversion or exercise, as the case may be, of 6% Convertible
Subordinated Debentures and Common Stock Purchase Warrants pursuant to the
Placement Agreement dated August 25, 1999 by and between the Company and Astor
Capital, Inc., a California corporation (the "Placement Agreement"), which
issuance could be in excess of 20% of the number of shares of IATR Common Stock
outstanding on August 25, 1999; (iii) to amend the Company's 1998 Stock
Incentive Plan (the "Incentive Plan Amendment") to increase the maximum number
of shares of IATR Common Stock that may be issued pursuant to awards granted
under the plan from 3,000,000 shares to 5,000,000 shares; (iv) to approve a
proposed amendment to the Company's Restated Certificate of Incorporation to
change the name of the Company from IAT Resources Corporation to _______________
(the "Name Change Amendment"); (v) to elect two (2) directors to hold office
until the next annual meeting of stockholders and until their respective
successors have been elected; and (vi) to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof.
<PAGE>
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE
FOR APPROVAL OF THE SHARE ISSUANCE, THE CONVERSION ISSUANCE, THE INCENTIVE PLAN
AMENDMENT, THE NAME CHANGE AMENDMENT AND FOR JAMES J. CERNA, JR. AND VICTOR
A. HOLTORF AS DIRECTORS.
Accompanying this Proxy Statement is the Board's Proxy for the Special
Meeting, which you may use to indicate your vote on the proposals described in
this Proxy Statement. All Proxies which are properly completed, signed and
returned to the Company prior to the Special Meeting, and which have not been
revoked, will unless otherwise directed by the stockholder be voted in
accordance with the recommendations of the Board set forth in this Proxy
Statement. A stockholder may revoke his or her Proxy at any time before it is
voted either by filing with the Secretary of the Company, at its principal
executive offices, a written notice of revocation or a duly executed proxy
bearing a later date, or by attending the Special Meeting and expressing a
desire to vote his or her shares in person.
The close of business on November 8, 1999 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Special Meeting or at any adjournments or postponements of the Special
Meeting. At the Record Date, ____________ shares of Common Stock were
outstanding, and the Company had approximately _____ stockholders of record. The
Common Stock is the only outstanding class of securities of the Company entitled
to vote at the Special Meeting.
A stockholder is entitled to cast one vote for each share held of
record on the record date on all matters to be considered at the Special
Meeting. The two nominees for election as directors at the Special Meeting who
receive the highest number of affirmative votes will be elected. The Share
Issuance, the Conversion Issuance and the Incentive Plan Amendment each require
the affirmative vote of a majority of the total votes cast on each proposal in
person or by proxy. For purposes of the vote to approve the Share Issuance, the
Conversion Issuance and the Incentive Plan Amendment, abstentions will be
counted toward the tabulation of votes cast and will have the same effect as
negative votes. However, broker non-votes, while included in the determination
of shares present at the meeting for purposes of determining a quorum, will not
be counted as votes cast for or against approval of each of these proposals. The
Name Change Amendment requires the affirmative vote of a majority of the
outstanding shares of the Company's Common Stock. For purposes of the vote to
amend the Restated Certificate of Incorporation, abstentions and broker
non-votes will be counted as votes cast against approval of the Name Change
Amendment.
IATR is bearing all costs of soliciting proxies, and expressly reserves
the right to solicit proxies otherwise than by mail. The solicitation of proxies
by mail may be followed by telephone or other personal solicitations or certain
IATR shareholders and brokers by one or more of the directors or by officers or
employees of IATR. IATR may reimburse banks and brokers or other similar agents
or fiduciaries the expenses incurred by such agents or fiduciaries in mailing
the Proxy Statement to beneficial owners of IATR's common stock. IATR has
retained MacKenzie Partners to assist it in soliciting proxies. IATR estimates
that it will pay _________ for its services in connection with such
solicitations.
This Proxy Statement and the accompanying Proxy are first being mailed
to stockholders on or about November ___, 1999.
Page 2
<PAGE>
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS.........................................................6
SUMMARY .....................................................................9
THE COMPANIES................................................................15
THE SPECIAL MEETING..........................................................17
Date, Time, Place...................................................17
Matters to Be Considered............................................17
Vote Required.......................................................17
Voting of Proxies...................................................17
Revocability of Proxies.............................................17
Record Date; Stock Entitled to Vote; Quorum.........................18
Solicitation of Proxies.............................................18
Recommendations.....................................................19
PROPOSAL 1
APPROVAL OF THE ISSUANCE OF SHARES
OF COMMON STOCK PURSUANT TO THE
MERGER AGREEMENT....................................................20
General ...........................................................20
Required Vote.......................................................20
Background of The Merger............................................21
Board's Reasons For The Merger......................................22
Opinion of Financial Advisor........................................23
Interests of Certain Persons in The Merger..........................23
Structure of The Merger.............................................23
Merger Consideration................................................23
Regulatory Approval Required........................................24
Effective Time of the Merger........................................24
Management And Operations Following The Merger......................24
Page 3
<PAGE>
Material Federal Income Tax Consequences of the Merger..............24
Accounting Treatment of the Merger..................................25
Appraisal Rights....................................................25
Certain Legal Proceedings...........................................25
THE MERGER AGREEMENT.........................................................25
General ...........................................................25
Conversion of Shares................................................26
Adjustment to Merger Shares.........................................26
Representations and Warranties......................................26
Certain Covenants...................................................27
Certain Additional Covenants........................................29
Management of IATR Following the Merger.............................31
Director and Officer Indemnification................................31
Conditions to Closing...............................................32
Termination; Termination Fees and Expenses..........................33
Fees and Expenses...................................................34
Waiver and Amendment................................................34
ESTIMATED FEES AND EXPENSES..................................................35
PRICE RANGE OF COMMON STOCK..................................................35
SELECTED HISTORICAL FINANCIAL DATA...........................................37
PROPOSAL 2
APPROVAL OF THE ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK PURSUANT TO THE
PLACEMENT AGREEMENT WITH ASTOR CAPITAL, INC.........................38
The Placement Agreement with Astor Capital, Inc.....................39
Recommendation and Required Vote....................................40
PROPOSAL 3
APPROVAL OF THE AMENDMENT TO THE
1998 STOCK INCENTIVE PLAN...........................................41
General ...........................................................41
Page 4
<PAGE>
Summary of the 1998 Plan............................................41
Recommendation and Required Vote....................................44
PROPOSAL 4
APPROVAL OF THE AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY...................................45
Recommendation and Required Vote....................................45
PROPOSAL 5
ELECTION OF TWO DIRECTORS...........................................46
Information with Respect to Nominees and Current Directors..........46
Board Meetings and Committees.......................................49
Compensation of Directors...........................................49
EXECUTIVE COMPENSATION.......................................................49
PRINCIPAL STOCKHOLDERS.......................................................50
INDEPENDENT PUBLIC ACCOUNTANTS...............................................50
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......................50
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING................................50
SOLICITATION OF PROXIES......................................................50
ANNUAL REPORT ON FORM 10-K...................................................51
Page 5
<PAGE>
QUESTIONS AND ANSWERS
Q: WHY AM I RECEIVING THESE MATERIALS?
A: We have entered into an agreement with Infolocity to merge with Infolocity by
exchanging IATR Common Stock for all of the outstanding stock of Infolocity held
by its shareholders. Each of IATR's and Infolocity's board of directors have
approved the Merger Agreement. To accomplish the Merger, we need to issue in
excess of 20% of the outstanding IATR Common Stock at September 22, 1999, the
date of the Merger Agreement. As this issuance will dilute the holdings of
current IATR stockholders, the current stockholders must approve the issuance of
the additional shares. We are sending you these materials to help you decide
whether to approve the Share Issuance. Additionally, we are requesting approval
of the Conversion Issuance, an amendment to the Company's current Incentive
Plan, the election of two additional directors to the Board of Directors and the
change of the Company's name.
Q: WHY IS IATR PROPOSING TO MERGE WITH INFOLOCITY?
A: IATR announced earlier this year that it planned to refocus its business from
the entertainment industry to the internet industry. As part of this effort, we
began looking for an appropriate acquisition candidate from which to effect our
new business plan. After much diligence, we determined that Infolocity is that
candidate.
Q: DOES THE BOARD RECOMMEND VOTING IN FAVOR OF THE SHARE ISSUANCE?
A: Our Board has unanimously determined that the Share Issuance is fair to and
in the best interests of the shareholders, and unanimously recommends that
shareholders vote FOR the approval of the Share Issuance and the transactions
contemplated thereby.
Q: WHAT IS THE CONVERSION ISSUANCE?
A: We have issued 6% Convertible Subordinated Debentures and Common Stock
Purchase Warrants pursuant to a Placement Agreement by and between the Company
and Astor Capital, Inc. Upon the exercise of these debentures and warrants, we
will be required to issue additional shares of Common Stock. Currently, the
exercise of all outstanding debentures and warrants will require us to issue a
number of shares of IATR Common Stock that could potentially be in excess of 20%
of the amount of shares outstanding on the date of the Placement Agreement.
Q: DOES THE BOARD RECOMMEND VOTING IN FAVOR OF THE CONVERSION ISSUANCE?
A: Our Board has unanimously determined that the Conversion Issuance is fair to
and in the best interests of the shareholders, and unanimously recommends that
shareholders vote FOR the approval of the Conversion Issuance and the
transactions contemplated thereby.
Q: HOW WILL THE SHARE ISSUANCE AND THE CONVERSION ISSUANCE AFFECT MY
OWNERSHIP OF IATR?
A: You will have the same number of shares of IATR Common Stock you presently
have, with substantially all of the rights you now hold. However, your shares
will represent a significantly smaller percentage of the total shares of the
combined company that will be outstanding after all of the shares are issued
pursuant to the Share Issuance and the Conversion Issuance, as compared to your
current percentage ownership in IATR. After the Merger, however, the Company
will have significantly more resources than does the current IATR, including
additional experienced management and additional capital.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the Merger as quickly as possible. If we
receive shareholder approval of the Share Issuance, we hope to complete the
Merger in the fourth quarter of 1999.
Page 6
<PAGE>
Q: WHY IS THE INCENTIVE PLAN BEING AMENDED?
A: The Board seeks to increase the maximum number of shares of Common Stock that
may be issued pursuant to awards granted under the plan from 3,000,000 shares to
5,000,000 shares in order to accommodate the new employees to be acquired from
Infolocity, as well as to attract new employees.
Q: WHY IS THE NAME OF THE COMPANY BEING CHANGED?
A: The Board feels that a new name for the Company is desirable to
reflect the new business plan and for better
name recognition as the Company's business expands.
Q: WHY ARE NEW DIRECTORS BEING ELECTED AT THIS MEETING?
A: As part of the terms of the Merger, we have agreed to expand the current
Board of directors to seven members, as currently permitted by our by-laws.
Pursuant to the Merger Agreement, the current Board has agreed to nominate the
current management of Infolocity, James J. Cerna, Jr. and Victor A. Holtorf to
fill the two vacancies and to bring their expertise to our Board in running the
combined Company.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The Meeting will be held on December 14, 1999, at the Beverly Hilton
Hotel, located at 9876 Wilshire Boulevard, Beverly Hills, California 90210 at
10:00 a.m., local time.
Q: WHO CAN VOTE ON THE SHARE ISSUANCE, THE CONVERSION ISSUANCE, THE
INCENTIVE PLAN AMENDMENT, AND THE DIRECTORS?
A: Holders of IATR Common Stock at the close of business on November 8, 1999,
the Record Date relating to the Meeting, may vote on the Share Issuance, the
Conversion Issuance, the Incentive Plan Amendment and the directors.
Q: WHAT DO I NEED TO DO NOW?
A: Read this Proxy Statement. Then, if you choose to vote by proxy, complete
your proxy card and indicate how you want to vote. Sign and mail the proxy card
in the enclosed return envelope as soon as possible. You should complete, sign
and return your proxy card even if you currently expect to attend the Special
Meeting and vote in person. Mailing in a proxy card now will not prevent you
from later canceling or "revoking" your proxy right up to the day of the Special
Meeting, and you will ensure that your shares get voted if you later find you
are unable to attend. If you sign and send in the proxy card and do not indicate
how you want to vote, your proxy will be voted FOR the Share Issuance, FOR the
Conversion Issuance, FOR the Incentive Plan Amendment and FOR James J.
Cerna, Jr. and Victor A. Holtorf as directors.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before the vote is taken at the
Special Meeting. You can do this in one of three ways. First, you can send a
written notice dated later than your proxy card stating that you would like to
revoke your current proxy. Second, you can complete and submit a new proxy card
dated later than your original proxy card. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy card to the
Secretary of IATR at 5757 Wilshire Boulevard, Los Angeles, California 90036. We
must receive the notice or new proxy card before the vote is taken at the
Special Meeting. Third, you can attend the Special Meeting and vote in person.
Simply attending the Special Meeting, however, will not revoke your proxy. If
you have instructed a broker to vote your shares, you must follow the directions
received from your broker as to how to change your vote.
Page 7
<PAGE>
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
A: YOUR BROKER WILL VOTE YOUR SHARES ONLY IF YOU TELL THE BROKER HOW TO VOTE.
TO DO SO, FOLLOW THE DIRECTIONS YOUR BROKER PROVIDES. WITHOUT INSTRUCTIONS,
YOUR BROKER WILL NOT VOTE YOUR SHARES AND THE FAILURE TO VOTE WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE APPROVAL OF THE SHARE ISSUANCE; AGAINST
THE APPROVAL OF THE CONVERSION ISSUANCE; AGAINST THE APPROVAL OF THE
INCENTIVE PLAN AMENDMENT; AND AGAINST THE NAME CHANGE AMENDMENT.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the Special Meeting or the Share Issuance, the
Conversion Issuance, the Incentive Plan Amendment or the election of the two
interim directors, you should contact:
IAT Resources Corporation
5757 Wilshire Boulevard, Penthouse One
Los Angeles, CA 90036
Attention: Irwin Meyer
Telephone: (323) 634-8634
Page 8
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT, THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. STOCKHOLDERS OF THE COMPANY ARE ENCOURAGED TO REVIEW CAREFULLY THIS
PROXY STATEMENT, THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN, IN THEIR ENTIRETY. THIS PROXY STATEMENT, INCLUDING THE ANNEXES HERETO,
CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, WHICH INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING,
WITHOUT LIMITATION, ACTUAL AND POTENTIAL COMPETITION, FAILURE TO INTEGRATE
INFOLOCITY AND CERTAIN TECHNOLOGY RISKS.
GENERAL
Pursuant to the Merger Agreement, Infolocity Merger Sub, a Delaware
corporation ("Merger Sub"), will merge with and into Infolocity, Inc., a
California corporation ("Infolocity"), with Infolocity surviving as a
wholly-owned subsidiary (the "Surviving Corporation") of the Company (the
"Merger"). At the effective time of the Merger (the "Effective Time"), each
issued and outstanding share of the common stock, par value $0.001, of Merger
Sub ("Merger Sub Common Stock") will be converted into and become one share of
common stock, par value $0.001 per share, of Infolocity ("Infolocity Common
Stock"). Further, at the Effective Time, each issued and outstanding share of
Infolocity Common Stock and each issued and outstanding share of Series A
Preferred Stock of Infolocity ("Infolocity Preferred Stock") will be converted
into the right to receive that number of shares of the Company's Common Stock as
is equal to 7,375,000 divided by the combined total outstanding Infolocity
Common Stock and Infolocity Preferred Stock. As of November ___, 1999, there
were outstanding ___________ shares of Infolocity Common Stock and ________
shares of Infolocity Preferred Stock.
The Common Stock of the Company is traded on the Nasdaq SmallCap
Market. The Nasdaq Stock Market, Inc. Marketplace Rules require a listed company
to obtain stockholder approval prior to issuing common stock (or shares
convertible into common stock) in connection with the acquisition of the stock
of another company when the amount of common stock to be issued (or issuable
upon conversion) is or is greater than 20% of the common stock or voting power
of the company outstanding prior to issuance and where such issuance would
result in a change of control of the company.
As of the Record Date, there were ____________ shares of Common Stock
outstanding. Pursuant to the Merger Agreement and pending shareholder approval
of the Merger by Infolocity stockholders and of the Share Issuance by IATR
stockholders, the Company will issue approximately 7,375,000 or more shares of
Common Stock to holders of Infolocity Common Stock and Infolocity Preferred
Stock. The Company must obtain stockholder approval because the amount of Common
Stock to be issued is or is greater than 20% of the Common Stock or voting power
of the Company outstanding prior to the issuance. In addition, the issuance of
the Common Stock will result in a change of control of the Company. If the
"Closing Value" of IATR Common Stock is less than $1.75 per share, unless the
Company elects to terminate the Merger Agreement, then the Company shall pay an
additional amount of IATR Common Stock to Infolocity stockholders determined by
(a) subtracting the Closing Value of the IATR Common Stock from $1.93, (b)
multiplying the difference by 7,375,000, and (c) dividing the result by the
Closing Value of IATR Common Stock. The Merger Agreement defines "Closing Value"
as the average per share closing sale price of the IATR Common Stock on the
Nasdaq SmallCap Market for the ten consecutive trading days immediately prior to
the business day prior to the Closing Date. For example, the closing sales price
for IATR Common Stock as of November 2, 1999 was $1.71875, and if this amount
were the Closing Value, the Company would have to issue approximately 906,455
additional shares of IATR Common Stock, or a total of approximately 8,281,455
shares. There is no assurance that the Closing Value will or will not exceed
$1.75 per share or how many additional shares will be issued under this
condition.
Based upon the outstanding shares of IATR and Infolocity as of the
Record Date, the stockholders of Infolocity immediately prior to the
consummation of the Merger would own approximately 35% of the outstanding IATR
Common Stock immediately following consummation of the Merger (or up to
approximately 43% if the additional shares are issued for the Closing Value
being less than $1.75). Such percentage could change depending upon whether
shares of IATR Common Stock and Infolocity Common Stock, issuable upon exercise
of outstanding
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<PAGE>
IATR and Infolocity stock options or other rights, are issued, whether
holders of Infolocity Preferred Stock elect to receive cash in lieu of shares of
IATR Common Stock and whether and to what extent Infolocity stockholders
exercise dissenters' rights.
THE COMPANIES
IATR
For approximately eight years, we operated under the name The Producers
Entertainment Group Ltd. Historically, we acquired, developed, produced and
distributed dramatic, comedy, documentary and instructional television series
and movies and theatrical motion pictures. We distributed our projects in the
United States and in international markets for exhibition on standard broadcast
television (network and syndication), basic cable and pay cable and for video
distribution. We also provided producer and executive producer services in
exchange for fees and participations in future profits from these projects.
Although we continue to engage in certain entertainment related production and
distribution activities, during the past eight months we have reduced our
network and cable television activities and have begun to redirect our core
business toward the internet and technology industry.
While operating as The Producers Entertainment Group, in July 1998, we
acquired MWI Distribution, Inc., which does business under the name MediaWorks
International. MediaWorks International continues to distribute television and
video programming in the international market, concentrating on children's and
family programming and animation. MediaWorks also co-produces animated and live
action programming ventures and sells direct-to-video series and specials.
As part of our expansion into the internet and on line commerce
industries, we have identified and made small investments in early and expansion
stage companies which we believe have unique internet-based hardware and/or
software applications and which show promise as catalysts in the internet and
online commerce industries. In February 1999, we purchased 150,000 shares of
common stock of flowersandgifts.com, a portal on the internet for the sale of
flowers and other gifts, and 100,000 shares of common stock of Pacific
Softworks, Inc., a licensor of internet-related software and related software
development tools, which recently completed an initial public offering. We also
have warrants to purchase up to an additional 100,000 shares of Pacific
Softworks' common stock.
INFOLOCITY
Founded in August 1998 and incorporated in the State of California,
Infolocity provides Internet-based business intelligence and information
management for both private and publicly-traded companies through its Investor
Facts division. The Company's proprietary Internet monitoring and search engine
constantly scours the Internet for pertinent information for its clients. This
information ranges from web news clippings to Internet message board, chat room
and discussion group postings. The Company's clients are then informed of online
perceptions, concerns, and issues, stock-manipulative or rumor-mongering
postings, and presented with online competitive intelligence that creates
strategic opportunity. InvestorFacts also provides a complete Internet
monitoring and competitive intelligence service.
THE SPECIAL MEETING
The IATR Special Meeting will be held at the Beverly Hilton, 9876
Wilshire Boulevard, Beverly Hills, California 90210, on December 14, 1999,
commencing at 10:00 a.m., California time, and at any adjournment or
postponement thereof.
STOCKHOLDERS ENTITLED TO VOTE
The Board of Directors has fixed November 8, 1999 as the Record Date
for the determination of the IATR stockholders entitled to notice of and to vote
at the Special Meeting. Accordingly, only IATR stockholders of record on the
Record Date will be entitled to notice of and to vote at the Special Meeting. As
of the Record Date, there were outstanding and entitled to vote ____________
shares of IATR Common Stock (constituting all of the voting stock of IATR),
which shares were held by approximately ____ holders of record. Each holder of
record of shares of IATR
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Common Stock on the Record Date is entitled to one vote per share, which may
be cast either in person or by properly executed proxy, at the Special
Meeting.
PURPOSE OF THE MEETING
The Special Meeting has been called to consider and vote upon proposals
(i) to approve the Share Issuance; (ii) to approve the Conversion Issuance;
(iii) to approve the Incentive Plan Amendment; (iv) to approve the Name Change
Amendment; (v) to elect two (2) directors to hold office until the next annual
meeting of stockholders and until their respective successors have been elected;
and (vi) to transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
RECOMMENDATIONS
The Board believes that the Merger represents an attractive strategic
fit between two companies with similar business strategies, as well as
complementary operations and geographical presences. The Board believes that the
combined company will have greater financial strength, operating efficiencies,
earning power and growth potential than IATR would have on its own. See "THE
MERGER -- Recommendations of the Board."
THE BOARD HAS APPROVED THE SHARE ISSUANCE, THE CONVERSION ISSUANCE, THE
INCENTIVE PLAN AMENDMENT, THE NAME CHANGE AMENDMENT AND THE ELECTION OF CERNA
AND HOLTORF AS DIRECTORS AND RECOMMENDS THAT HOLDERS OF IATR COMMON STOCK VOTE
IN FAVOR OF THE SHARE ISSUANCE, THE CONVERSION ISSUANCE, THE INCENTIVE PLAN
AMENDMENT, THE NAME CHANGE AMENDMENT AND THE ELECTION OF CERNA AND HOLTORF AS
DIRECTORS.
VOTE REQUIRED
The approval of the Share Issuance, the Conversion Issuance and the
Incentive Plan Amendment will require the affirmative vote of the holders of a
majority of the shares of IATR Common Stock represented at the Special Meeting.
The approval of the Share Issuance, the Conversion Issuance and the consummation
of the Merger are not predicated upon the approval of the Incentive Plan
Amendment. The two nominees for directors receiving the highest number of votes
will be elected as directors. The election of the directors is predicated upon
the approval of the Share Issuance - if the Share Issuance is not approved, no
new directors will be elected.
OPINION OF FINANCIAL ADVISOR
The number of shares of IATR Common Stock to be issued to the
Infolocity securities holders was determined by negotiation between IATR and
Infolocity. Inasmuch as IATR did not obtain an opinion of a financial advisor
regarding the fairness of the Merger to the IATR shareholders, nor did it engage
any investment banker to undertake an analysis and make financial presentations
to the Board regarding the valuation by IATR of Infolocity, IATR is not in a
position to state that the consideration in the Merger is necessarily reflective
or not reflective of the assets or business prospects of any of the parties to
the Merger Agreement. The Board, however, believes that the value of the
consideration in the Merger represents the results of extensive negotiations,
and the Board has approved this transaction largely in recognition of IATR's
uncertainty in its ability to pursue its business plan without additional
resources in the internet industry.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
If the Merger is consummated, Jeffrey Marcus, the son-in-law of Irwin
Meyer, will receive a finder's fee of approximately $280,000 for first bringing
Infolocity to the Board's attention.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective
(the "Effective Time") when the Merger Agreement and such other necessary
documents are filed with the California Secretary of State and the
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<PAGE>
certificate of merger is filed with the Delaware Secretary of State, as
applicable. This filing will occur upon shareholder approval of the Share
Issuance (the "Closing Date"), or at such other time after the Closing Date, as
provided in the certificate of merger and the Merger Agreement.
BACKGROUND TO THE MERGER
For a description of the events leading to the approval of the Merger
Agreement by the Board, see "Background to the Merger."
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
The Board of Directors of IATR following the Merger will consist of the
Board of Directors as before the Merger plus an additional two directors elected
at the Special Meeting. The Board has nominated and recommends that stockholders
vote for James J. Cerna, Jr. and Victor A. Holtorf.
CONDITIONS OF THE MERGER
The obligations of IATR and Infolocity to consummate the Merger are
subject to the satisfaction of a number of conditions, including, but not
limited to:
o the approval of the holders of shares of each of IATR, Merger Sub and
Infolocity;
o the absence of governmental prohibitions or injunctions to completion
of the merger;
o obtaining required regulatory approvals and required third-party
consents; and
o the receipt of legal opinions regarding certain tax consequences of
the Merger.
Certain of the conditions to the Merger may be waived by the party
entitled to assert the condition.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time: (a) by mutual written consent of each
of the parties to the Merger Agreement; (b) by IATR on behalf of IATR and Merger
Sub by giving written notice to Infolocity if: (i) there has been a material
violation or breach by Infolocity or any Principal Stockholder of any agreement,
covenant, representation or warranty contained in any agreement made pursuant to
the Merger Agreement (each, a "Transaction Contract"), which violation or breach
has not been cured within 30 days after receipt of notice thereof; or (ii) the
closing does not occur on or prior to December 31, 1999 or such later date as
may be agreed to in writing by the parties; or (iii) the Closing Value of IATR's
Common Stock is less than $1.75 per share (where "Closing Value" means the
average per share closing sale price of the IATR Common Stock on the Nasdaq
SmallCap Market for the ten consecutive trading days immediately prior to the
business day prior to the closing date); or (c) by Infolocity on behalf of
Infolocity and the Principal Stockholders by providing written notice to IATR
if: (i) there has been a material violation or breach by IATR or Merger Sub of
any agreement, covenant, representation or warranty contained in any Transaction
Contract, which violation or breach has not been cured within ten days after
receipt of notice thereof; or (ii) the Closing does not occur on or prior to
December 31, 1999, or as of a later date agreed to in writing by the Parties.
APPRAISAL RIGHTS
Delaware law does not provide any appraisal rights or the right to
receive cash for shares to holders of IATR common stock who object to the Merger
and who vote against or abstain from voting in favor of the Share Issuance, and
IATR does not intend to make available such rights to its stockholders.
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<PAGE>
THE CONVERSION ISSUANCE
Pursuant to the Placement Agreement, which is attached hereto as
Exhibit "B" to this Proxy Statement, the Company may issue and sell to
purchasers designated by Astor Capital, Inc. (the "Purchasers") under certain
circumstances an aggregate of up to $4,000,000 principal amount of the Company's
6% Subordinated Convertible Debentures Due 2001 (the "Debentures"), Series A
Stock Purchase Warrants (the "Series A Warrants") to purchase up to 400,000
shares of Common Stock at an exercise price equal to 120% of Market Price (as
defined herein) on the date the Series A Warrants are first issued and Series B
Stock Purchase Warrants (the "Series B Warrants", collectively with the Series
A Warrants and the Debentures, the "Securities") to purchase up to 300,000
shares of Common Stock at an exercise price equal to 130% of Market Price (as
defined herein). The Company may have to issue additional shares of IATR Common
Stock upon the exercise of such Securities.
THE INCENTIVE PLAN AMENDMENT
The Board of Directors has approved the Incentive Plan Amendment to
increase the number of shares of Common Stock available for issuance under the
1998 Stock Option Plan from 3,000,000 shares to 5,000,000 shares. The complete
text of the Incentive Plan Amendment is attached hereto as Exhibit "C" to this
Proxy Statement. The Incentive Plan Amendment is being submitted to the
stockholders for approval.
THE NAME CHANGE AMENDMENT
The Board of the Company has approved, subject to stockholder approval,
the Name Change Amendment. The complete text of the Amendment is set forth as
Exhibit "D" to this Proxy Statement. The Board of Directors believes that it is
in the best interest of the Company to effect the name change in order to more
accurately reflect the Company's change in direction in terms of new areas of
business.
CERTAIN LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to various
claims and legal actions. The Company believes that it will not be materially
adversely affected by the ultimate outcome of any of these matters, either
individually or in the aggregate.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to be a tax-free reorganization in which no gain
or loss will be recognized by IATR or its stockholders. For a further discussion
of the federal income tax consequences of the Merger, see "THE MERGER -- Certain
Federal Income Tax Consequences."
ACCOUNTING TREATMENT
Under applicable accounting standards, the Merger will be treated as a
pooling of interests.
SURRENDER OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, IATR (or
an agent thereof) will mail transmittal forms and exchange instructions to each
holder of record of Infolocity Common Stock to be used to surrender and exchange
certificates formerly evidencing shares of Infolocity Common Stock for
certificates evidencing the shares of IATR Common Stock to which such holder has
become entitled. After receipt of such transmittal forms, each holder of
certificates formerly representing Infolocity Common Stock will be able to
surrender such certificates, and each such holder will receive in exchange
therefor (i) certificates evidencing the number of whole shares of IATR Common
Stock to which such holder is entitled; and (ii) a check of IATR in an amount
equal to the cash, representing fractional shares, if any, that such holder has
a right to receive pursuant to the Merger Agreement.
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<PAGE>
After the Effective Time, each certificate formerly representing
Infolocity Common Stock, until so surrendered and exchanged, will be deemed, for
all purposes, to evidence only the right to receive the number of whole shares
of IATR Common Stock which the holder of such certificate is entitled to receive
in the Merger.
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
IATR is providing the following financial information to aid you in
your analysis of the financial aspects of the Merger. The information is only a
summary and you should read it in conjunction with the historical financial
statements and related notes contained in the annual reports and other
information that IATR has filed with the Securities and Exchange Commission. The
Annual Report on Form 10-KSB is attached to this Proxy Statement as Exhibit G.
The following unaudited pro forma financial data and explanatory notes
give effect to the consummation of the Merger of Infolocity with IATR. The
unaudited pro forma data should be read in conjunction with the historical
consolidated financial statements of IATR and the historical financial
statements of Infolocity, which are included in or attached to this Proxy
Statement.
The unaudited pro forma financial data has been prepared utilizing
IATR's audited consolidated financial statements for the year ended June 30,1999
and the audited financial statements of Infolocity for the period ended June
30,1999.
<TABLE>
AT OR FOR THE YEAR ENDED JUNE 30, 1999
<CAPTION>
Pro Forma IATR Infolocity
<S> <C> <C> <C>
Operating revenues 2,065,658 2,010,423 55,235
Income (loss) from continuing operations (2,300,013) (2,243,626) (58,343)
Income (loss) from continuing operations $ (0.11)(1) $ (0.17)(2) $(0.03)(3)
per common share
Cash dividends declared per common share 0 0 0
Total assets 4,454,620 4,040,644 413,976
Long term obligations and
redeemable preferred stock 33,258 33,258 0
<FN>
(1) Based on 20,706,070 total outstanding common shares, including 13,331,070
plus the 7,375,000 to be issued upon approval of the Share Issuance
(2) Based on 13,331,070 total outstanding shares of IATR Common Stock
(3) Based on 2,083,370 total outstanding shares of Infolocity Common Stock
</FN>
</TABLE>
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THE COMPANIES
IAT RESOURCES CORPORATION
5757 Wilshire Boulevard, PH 1
Los Angeles, California 90036
Telephone: (323) 634-8634
For approximately eight years, we operated under the name The Producers
Entertainment Group Ltd. Historically, we acquired, developed, produced and
distributed dramatic, comedy, documentary and instructional television series
and movies and theatrical motion pictures. We distributed our projects in the
United States and in international markets for exhibition on standard broadcast
television (network and syndication), basic cable and pay cable and for video
distribution. We also provided producer and executive producer services in
exchange for fees and participations in future profits from these projects.
Although we continue to engage in certain entertainment related production and
distribution activities, during the past eight months we have reduced our
network and cable television activities and have begun to redirect our core
business toward the internet and technology industry.
While operating as The Producers Entertainment Group, in July 1998, we
acquired MWI Distribution, Inc., which does business under the name MediaWorks
International. MediaWorks International continues to distribute television and
video programming in the international market, concentrating on children's and
family programming and animation. MediaWorks also co-produces animated and live
action programming ventures and sells direct-to-video series and specials.
As part of our expansion into the internet and online commerce
industries, we have identified and made small investments in early and expansion
stage companies which we believe have unique internet-based hardware and/or
software applications and which show promise as catalysts in the internet and
online commerce industries. In February 1999, we purchased 150,000 shares of
common stock of flowersandgifts.com, a portal on the internet for the sale of
flowers and other gifts, and 100,000 shares of common stock of Pacific
Softworks, Inc., a licensor of internet-related software and related software
development tools, which recently completed an initial public offering. We also
have warrants to purchase up to an additional 100,000 shares of Pacific
Softworks' common stock.
We are currently developing programs to integrate and deliver internet
services and online content in the education and entertainment segments.
Currently, we are in discussions to provide internet access and portal
development for a state university medical system and an educational content
provider to U.S. public schools. We are also looking to acquire software and
hardware companies that provide competitive advantages in the delivery of online
services and content to enterprise systems within these markets.
Our current strategy is to divide IATR's operation into two separate
divisions. We will continue to operate our MediaWorks International subsidiary
which will distribute family and children's television programming throughout
the world, as well as represent the sale of movies in certain international
territories. On closing the merger with Infolocity, Inc., which is subject to
the conditions described above, we will conduct our internet and technology
business through our wholly-owned subsidiary, Infolocity. Infolocity's primary
business, Investorfacts, is a unique business to business internet service using
Infolocity's proprietary search engine FIRST (Fast Internet Real Time Search
Technology). FIRST searches 50,000 internet locations and 400 publications, 24
hours per day, 7 days per week, in 15 seconds and notifies Infolocity's clients
through detailed analytical reports, of critical information received in
accordance with the client's specific criteria. We will work to build new
services and products and to create new technologies with commercial and
business appeal using FIRST. We will also attempt to seek out other companies
which further the use of the FIRST technology, create meaningful synergies, or
are potential acquisition candidates.
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<PAGE>
INFOLOCITY, INC.
165 Mitchell Avenue, Suite 200
South San Francisco, California 94080
Telephone: (650) 873-0385
Founded in August 1998 and incorporated in the State of California,
Infolocity provides Internet-based business intelligence and information
management for both private and publicly-traded companies through its Investor
Facts division. Infolocity's proprietary Internet monitoring and search engine
constantly scours the Internet for pertinent information for its clients. This
information ranges from web news clippings to Internet message board, chat room
and discussion group postings. Infolocity's clients are then informed of online
perceptions, concerns, and issues, stock-manipulative or rumor-mongering
postings, and presented with online competitive intelligence that creates
strategic opportunity. InvestorFacts also provides a complete Internet
monitoring and competitive intelligence service.
Infolocity provides its clients with a unique, proactive service that
is unmatched within the online community:
o Infolocity's technology provides real-time monitoring of Internet message
boards, chat forums, news groups, and rumor sites.
o Infolocity's experienced team of financial analysts reviews the contents of
each message to determine its relevance, rather than simply providing
clients with a lengthy list containing all of the information posted to the
Internet.
o Infolocity's clients are immediately alerted to potentially damaging rumors
or inaccurate information discovered on the Internet.
o Infolocity's financial experts offer a prompt response to these Internet
messages with accurate, relevant, publicly disseminated information, at the
request of the client.
o Infolocity provides risk and rumor evaluation for each client through a
proprietary system of financial analysis and both quantitative and
qualitative modeling.
o Infolocity provides each client with periodic activity reports detailing
the message and rumor activity on the Internet during that period, as well
as a summary of actions.
o Infolocity provides competitive intelligence (CI) for their clients,
monitoring the Internet for information about their competitors, markets,
or other topics of interest.
o Infolocity's experts provide CI analysis to identify strategic
opportunities for its clients.
o Infolocity offers Strategic Information Dissemination (SID) to implement
strategic plans exploiting those opportunities.
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THE SPECIAL MEETING
DATE, TIME, PLACE
This Proxy Statement is being furnished to holders of IATR Common Stock in
connection with the solicitation of proxies by the Board of Directors for use at
the Special Meeting to be held on December 14, 1999, at the Beverly Hilton
Hotel, 9876 Wilshire Boulevard, Beverly Hills, California 90210, commencing at
10:00 a.m., Pacific standard time, and at any adjournment or postponement
thereof.
This Proxy Statement and the accompanying forms of proxy are first being
mailed to stockholders of IATR on or about November ___, 1999.
MATTERS TO BE CONSIDERED
The Special Meeting has been called to consider and vote upon proposals (i)
to approve the Share Issuance; (ii) to approve the Conversion Issuance; (iii) to
approve the Incentive Plan Amendment; (iv) to approve the Name Change Amendment;
(v) to elect two (2) directors to hold office until the next annual meeting of
stockholders and until their respective successors have been elected; and (vi)
to transact such other business as may properly come before the Special Meeting
or any adjournments or postponements thereof.
VOTE REQUIRED
The approval of the Share Issuance, the Conversion Issuance and the
Incentive Plan Amendment will require the affirmative vote of the holders of a
majority of the shares of IATR Common Stock represented at the Special Meeting.
The approval of the Name Change Amendment requires the affirmative vote of the
holders of a majority of the shares of IATR Common Stock outstanding as of the
Record Date. The approval of the Share Issuance, the Conversion Issuance and the
consummation of the Merger are not predicated upon the approval of the Incentive
Plan Amendment or the Name Change Amendment. The two nominees for directors
receiving the highest number of votes will be elected as directors. The election
of the directors is predicated upon the approval of the Share Issuance - if the
Share Issuance is not approved, no new directors will be elected.
VOTING OF PROXIES
This Proxy Statement is being furnished to IATR stockholders in connection
with the solicitation of proxies by and on behalf of the Board for use at the
Special Meeting, and is accompanied by a form of proxy.
All shares of IATR Common Stock which are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting, and not revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted for approval of the Share
Issuance, the Conversion Issuance, the Incentive Plan Amendment, the Name Change
Amendment and in favor of the election of Cerna and Holtorf as directors.
If any other matters are properly presented at the Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Special Meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment. Proxies voted
against the Share Issuance, the Conversion Issuance or the Incentive Plan
Amendment will not be voted in favor of adjournment for the purpose of the
continued solicitation of proxies.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of IATR, at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy
originally filed, (ii) duly executing a later
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dated proxy relating to the same shares and delivering it to the Secretary of
IATR before the taking of the vote at the Special Meeting or (iii) attending
the Special Meeting and voting in person (although attendance at the
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent to IATR at 5757
Wilshire Boulevard, PH 1, Los Angeles, CA 90036, Attention: Secretary, or hand
delivered to the Secretary of IATR at or before the taking of the vote at the
Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
The Board of Directors has fixed November 8, 1999 as the Record Date for
the determination of the IATR stockholders entitled to notice of and to vote at
the Special Meeting. Accordingly, only IATR stockholders of record on the Record
Date will be entitled to notice of and to vote at the Special Meeting. As of the
Record Date, there were outstanding and entitled to vote ____________ shares of
IATR Common Stock (constituting all of the voting stock of IATR), which shares
were held by approximately _____ holders of record. Each holder of record of
shares of IATR Common Stock on the Record Date is entitled to one vote per
share, which may be cast either in person or by properly executed proxy, at the
Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of IATR Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
Shares of IATR Common Stock represented in person or by proxy will be counted
for the purpose of determining whether a quorum is present at the Special
Meeting. Shares that are present and entitled to vote which abstain from voting
as to a particular matter will be treated as shares that are present and
entitled to vote at the Special Meeting for purposes of determining whether a
quorum exists. The Share Issuance, the Conversion Issuance and the Incentive
Plan Amendment must be approved by the holders of a majority of the shares of
IATR Common Stock represented at the Special Meeting. The Name Change Amendment
must be approved by the holders of a majority of shares of IATR Common Stock
outstanding as of the Record Date. Abstentions will have the same effect as a
vote against the Share Issuance, the Conversion Issuance, the Incentive Plan
Amendment and the Name Change Amendment. The two persons receiving the highest
number of votes will be elected as directors.
As of the Record Date, directors and executive officers of IATR and their
affiliates may be deemed to have or share beneficial ownership of approximately
15.2% of the outstanding shares of IATR Common Stock. Each of the directors and
executive officers of IATR has advised IATR that he or she intends to vote or
direct the vote of all shares of IATR Common Stock over which he or she has or
shares voting control for approval of the Share Issuance, the Conversion
Issuance, the Incentive Plan Amendment and the Name Change Amendment. See
"Security Ownership of Certain Beneficial Owners and Management."
SOLICITATION OF PROXIES
All expenses of IATR's solicitation of proxies, including the cost of
mailing this Proxy Statement to IATR stockholders, will be borne by IATR. In
addition to solicitation by use of the mails, proxies may be solicited from IATR
stockholders by directors, officers and employees of IATR in person or by
telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. IATR has
retained MacKenzie Partners, a proxy solicitation firm, for assistance in
connection with the solicitation of proxies for the Special Meeting at a cost of
approximately $___________ plus reimbursement of reasonable out-of-pocket
expenses. Arrangements will also be made with brokerage houses, custodians,
nominees and fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such brokerage houses, custodians,
nominees and fiduciaries, and IATR will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith.
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<PAGE>
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND
RECOMMENDS A VOTE FOR APPROVAL OF THE SHARE ISSUANCE, THE
CONVERSION ISSUANCE, THE INCENTIVE PLAN AMENDMENT, THE NAME
CHANGE AMENDMENT AND FOR THE ELECTION OF JAMES J. CERNA, JR. AND
VICTOR A. HOLTORF AS DIRECTORS.
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<PAGE>
PROPOSAL 1
APPROVAL OF THE ISSUANCE OF SHARES
OF COMMON STOCK PURSUANT TO THE
MERGER AGREEMENT
GENERAL
The Common Stock of the Company is traded on the Nasdaq SmallCap
Market. The Nasdaq Stock Market, Inc. Marketplace Rules requires the Company to
obtain stockholder approval prior to issuing common stock (or shares convertible
into common stock) in a transaction other than a public offering at a price less
than the greater of book or market value of the common stock when the amount of
common stock to be issued (or issuable upon conversion) is or is greater than
20% of the common stock or voting power of the company outstanding prior to
issuance and where such issuance would result in a change of control of the
company.
Pursuant to the Merger Agreement, Merger Sub will merge with and into
Infolocity, with Infolocity surviving as the Surviving Corporation and a wholly
owned subsidiary of the Company (the "Merger"). At the Effective Time, each
issued and outstanding share of Merger Sub Common Stock will be converted into
and become one share of Infolocity Common Stock. Further, at the Effective Time,
each issued and outstanding share of Infolocity Common Stock and Infolocity
Series A Preferred Stock will be converted into the right to receive that number
of shares of IATR Common Stock as is equal to the Merger Shares divided by the
Outstanding Infolocity Shares. The Merger Shares will mean the approximately
7,375,000 shares of the Company Common Stock. The Outstanding Infolocity Shares
means the total outstanding stock of Infolocity as of the Effective Date, which
as of November __, 1999, was ___________ shares of Infolocity Common Stock plus
________ shares of Infolocity Preferred Stock, or a total of ___________ shares.
If the Closing Value of IATR Common Stock is less than $1.75 per share,
unless the Company elects to terminate the Merger Agreement, then the Company
shall pay an additional amount of IATR Common Stock to Infolocity stockholders
determined by (a) subtracting the Closing Value of the IATR Common Stock from
$1.93, (b) multiplying the difference by 7,375,000, and (c) dividing the result
by the Closing Value of IATR Common Stock. For example, the closing sales price
for IATR Common Stock as of November 2, 1999 was $1.71875, and if this amount
were the Closing Value, the Company would have to issue approximately 906,455
additional shares of IATR Common Stock, or a total of approximately 8,281,455
shares. There is no assurance that the Closing Value will or will not exceed
$1.75 per share.
As of the Record Date, there were ____________ shares of Common Stock
outstanding. Pursuant to the Merger Agreement and pending stockholder approval,
the Company will issue at least approximately 7,375,000 shares of Common Stock
to holders of Infolocity Common Stock. The Company must obtain stockholder
approval of the issuance of its Common Stock in the Merger because the amount of
Common Stock to be issued pursuant to the Merger Agreement is greater than 20%
of the Common Stock outstanding prior to the date of the Merger Agreement. In
addition, the issuance of the Common Stock will result in a change of control of
the Company, as defined under the rules of Nasdaq. Such a change of control
requires stockholder approval.
Based upon the outstanding shares of IATR and Infolocity as of the
Record Date, the stockholders of Infolocity immediately prior to the
consummation of the Merger would own approximately 35% of the outstanding IATR
Common Stock immediately following consummation of the Merger (or up to
approximately 44% if the additional shares are added for the Closing Value being
less than $1.75). Such percentage could change depending upon whether shares of
IATR Common Stock and Infolocity Common Stock, issuable upon exercise of
outstanding IATR and Infolocity stock options or other rights, are issued, and
whether and to what extent Infolocity stockholders exercise dissenters' rights
and if any holders of Infolocity Preferred Stock select cash instead of stock.
REQUIRED VOTE
The issuance of a number of shares of the Company's Common Stock equal
to or in excess of 20% of the number of shares of the Company's Common Stock
outstanding before the date of the Merger Agreement or which will result in a
change of control of the Company requires the affirmative vote of a majority of
the total votes cast on
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the proposal in person or by proxy. With respect to this proposal, abstentions
will be counted toward the tabulation of votes cast and will have the same
effect as negative votes. However, broker non-votes, while included in
the determination of shares present at the meeting for purposes of determining a
quorum, will not be counted as votes cast for or against approval of this
proposal. The Board is of the opinion that the issuance of the Common Stock
pursuant to the Merger Agreement is in the best interests of the Company and
recommends a vote "FOR" the approval of this Proposal 1. All proxies will be
voted to approve this Proposal 1 unless a contrary vote is indicated on the
enclosed proxy card.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE ISSUANCE OF COMMON STOCK PURSUANT TO THE MERGER
AGREEMENT AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
BACKGROUND OF THE MERGER
In May 1999, Jeffrey Marcus, the son-in-law of Irwin Meyer, introduced
Mr. Meyer to Victor Holtorf, the President of Infolocity, and the three met in
the Company's Los Angeles office to discuss possible synergies. Mr. Marcus was
aware of IATR's need to acquire an internet-related business as part of IATR's
overall business plan. Mr. Holtorf explained Infolocity's business of providing
internet-based business intelligence and information management for both private
and publicly-traded companies through its Investor Facts division. Mr. Holtorf
mentioned that Infolocity informs its clients of online perceptions, concerns,
and issues, protects them from stock-manipulative or rumor-mongering postings,
and presents them with online competitive intelligence that creates strategic
opportunity. Mr. Meyer was impressed with the concept and suggested a follow-up
meeting at the offices of Infolocity.
On June 22, Mr. Meyer and Barry Sandrew, Chief Technology Officer of
IATR, visited Infolocity in San Francisco and met Jim Cerna, Chief Executive
Officer of Infolocity, Carlos Gonzalez, Chief Technology Officer of Infolocity
and the rest of the staff. The staff demonstrated the software used by
Infolocity, discussed the potential of the business and then discussed their
need for capital to grow the business consistently.
On July 1, Mr. Meyer visited Infolocity at its San Francisco offices
with Arthur Bernstein, Executive Vice President, Secretary and a director of
IATR, Michael Iscove, a director of IATR and Howard Sterling, Senior Vice
President of Sands Brothers, an investment banking firm located in New York.
After completing some initial due diligence of Infolocity, including a review of
its financial statements, the Board of Directors of IATR concluded that
Infolocity was indeed a good fit for IATR's business plan and decided to pursue
a bid to purchase Infolocity, subject to further due diligence, in an all stock
transaction.
On July 8 and 9, Mr. Cerna visited the offices of IATR and had thorough
discussions with Mr. Meyer and Todd Sanders of Strategic Capital, a financial
advisor to IATR. Different financing terms were discussed during the two days,
with no absolute conclusion reached. Mr. Cerna also met with Barry Sandrew and
Tom Daniels, a director of IATR.
Over the course of the next couple of weeks, the staff of IATR
conducted additional due diligence of Infolocity, and the officers continued to
negotiate terms which the Board deemed appropriate and fair for the purchase of
Infolocity.
IATR engaged Digital Video Art, an independent technology consultant,
to visit Infolocity in San Francisco and prepare a full technology report.
Digital Video Art submitted a detailed technology report pursuant to which
the Board concluded that the technology of Infolocity was sufficient to proceed
with the transaction.
On July 27, Mr. Meyer, Mr. Bernstein, Mr. Iscove and counsel for IATR,
met with Mr. Cerna, Mr. Holtorf and counsel for Infolocity at the
offices of IATR's counsel to discuss the terms of the deal and finalize the
letter of intent. After lengthy discussion and debate and considering the due
diligence conducted over the last couple of weeks, the parties arrived at a
purchase price of approximately $14 million. The parties agreed on an all stock
transaction,
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or 7,250,000 shares of IATR Common Stock based on a value of IATR Common Stock
of approximately $1.93 a share, which was within the approximate recent trading
range for IATR Common Stock at that time. The officers of Infolocity expressed a
concern that the value of the IATR Common Stock may become lower by the time the
transaction closed and therefore holders of Infolocity stock would be receiving
less than the $14 million purchase price agreed to. After further discussion,
the parties agreed to an adjustment to the number of shares of IATR Common Stock
issued to Infolocity should the price of IATR Common Stock fall below $1.75 a
share. Although much progress was made, no finalized deal was signed at this
meeting.
Mr. Meyer again visited Infolocity on August 3 and August 5 to continue
negotiating terms of the deal. Over the next two weeks, Mr. Cerna met with Mr.
Meyer, Mr. Daniels and representatives of Astor Capital, a placement agent for
the Company in its placement of certain warrants and debentures. Mr. Meyer and
Mr. Daniels also met with several of the sales staff of Infolocity to continue
to familiarize themselves with the internal operations of Infolocity.
During the next several weeks, negotiations continued over the specific
terms of the deal. On September 16, 1999, the Board approved the version of the
Merger Agreement submitted which represented all of the terms that had been
negotiated between the parties over the course of the meetings and due
diligence. The Board approved such terms and recommended the stockholders of
IATR vote for approval of the Share Issuance in order to facilitate the Merger.
On November 1, 1999, the parties executed the amended and restated
merger agreement, providing for an increase in merger consideration from
7,250,000 shares to 7,375,000 shares of IATR common stock. The parties
negotiated this increase in consideration upon further analysis of the capital
structure of the Company.
BOARD'S REASONS FOR THE MERGER
On September 16, 1999 the Board unanimously approved the Merger and
recommended that shareholders vote to approve the Share Issuance. See "THE
MERGER - Background of the Merger." In making its determination and
recommendation, the members of the Board considered various factors, including,
but not limited to, the following, all of which they believe support such
approval and adoption:
(i) The Board considered Infolocity's business, its current
financial condition and results of operations, its future prospects and the
current and anticipated developments in the Company's business plan;
(ii) The Company's business strategy includes developing an internet
and technology business. On closing the merger with Infolocity, the Company
plans to conduct the internet and technology business through its wholly-owned
subsidiary, Infolocity. Infolocity's primary business, Investorfacts, is a
unique business to business internet service using Infolocity's proprietary
search engine FIRST (Fast Internet Real Time Search Technology). Infolocity has
patents pending for its technology as well as its business use. The Company will
work to build new services and products and to create new technologies with
commercial and business appeal using FIRST and will also attempt to seek out
other companies which further the use of the FIRST technology, create meaningful
synergies, or are potential acquisition candidates;
(iii) The Board considered the complementary nature of Infolocity's
operations and management culture with that of the Company. Specifically, the
Board considered that Infolocity's strong emphasis on employee relations and
customer satisfaction would complement the Company's pursuit of the same goals;
the Board also discussed the likelihood that Infolocity's dynamic management
culture would integrate well with a similar culture at the Company;
(iv) The Board considered the terms of the Merger Agreement and its
legal and tax implications and considered them to be fair and standard for
transactions of this nature;
(v) The Board considered the fact that the Merger Consideration is all
IATR Common Stock, and the amount will be adjusted under certain conditions and
represents a fair consideration for the business to be acquired;
(vi) The Board also considered certain factors which may be
characterized as countervailing considerations, including the possibility that
combining the businesses of the Company and Infolocity may prove more difficult
than expected in terms of integrating different operational systems and strategy
and the risk that the management of the Company may not be as successful as
Infolocity's management at servicing its targeted consumer base.
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In view of the wide variety of factors considered, the Board did not
find it practicable to, and did not, quantify, or otherwise attempt to assign
relative weights to, the specific factors considered or determine that any
factor was of particular importance in reaching its determination that the
potential benefits of the Merger and the Share Issuance outweighed the potential
risks and is fair to, and in the best interests of, the Stockholders. Individual
directors may have given differing weights to the different factors.
THE COMPANY BOARD HAS APPROVED THE SHARE ISSUANCE AND HAS DETERMINED
THAT IT IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S PUBLIC
STOCKHOLDERS.
OPINION OF FINANCIAL ADVISOR
The number of shares of IATR Common Stock to be issued to the
Infolocity securities holders was determined by negotiation between IATR and
Infolocity. Inasmuch as IATR did not obtain an opinion of a financial advisor
regarding the fairness of the Merger to the IATR stockholders, nor did it engage
any investment banker to undertake an analysis and make financial presentations
to the Board regarding the valuation by IATR of Infolocity, IATR is not in a
position to state that the consideration in the Merger is necessarily reflective
or not reflective of the assets or business prospects of any of the parties to
the Merger Agreement. The Board, however, believes that the value of the
consideration in the Merger represents the results of extensive negotiations,
and the Board has approved this transaction largely in recognition of IATR's
uncertainty in its ability to pursue its business plan without additional
resources in the internet industry.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
If the Merger is consummated, Jeffrey Marcus, the son-in-law of Irwin
Meyer, will receive a finder's fee of approximately $280,000 for first bringing
Infolocity to the Board's attention.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and subject
to the terms of the General Corporation Law of the State of California ("CGCL")
and the General Corporation Law of the State of Delaware ("DGCL"), at the
Effective Time of the Merger, Merger Sub will merge with and into Infolocity,
and Infolocity will continue its corporate existence following the Merger as a
wholly owned subsidiary of IATR. At the Effective Time, the separate corporate
existence of Merger Sub will terminate.
MERGER CONSIDERATION
Upon consummation of the Merger, each issued and outstanding share of
Infolocity Common Stock and each issued and outstanding share of Infolocity
Preferred Stock shall be converted into the right to receive that number of
validly issued, fully paid and non-assessable shares of IATR Common Stock as is
equal to 7,375,000 shares divided by the total number of outstanding Infolocity
Common Stock and Infolocity Preferred Stock. No fractional shares of IATR Common
Stock will be issued in the Merger, but in lieu thereof, any holder of
Infolocity Common Stock or Infolocity Preferred Stock who would otherwise be
issued a fractional share of IATR Common Stock after aggregating all of the
shares of the IATR Common Stock otherwise issuable to such holder of Infolocity
Common Stock or Infolocity Preferred Stock in the Merger, shall be paid cash
equal to the value of such fractional share, based on a per share value of the
IATR Common Stock of $2.05. If the "Closing Value" of IATR Common Stock is less
than $1.75 per share, unless the Company elects to terminate the Merger
Agreement, then the Company shall pay an additional amount of IATR Common Stock
to Infolocity stockholders determined by (a) subtracting the Closing Value of
IATR Common Stock from $1.93, (b) multiplying the difference by 7,375,000, and
(c) dividing the result by the Closing Value of IATR Common Stock. The Merger
consideration was determined through arm's-length negotiations between IATR and
Infolocity.
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REGULATORY APPROVAL REQUIRED
IATR is not aware of any material governmental or regulatory approval
required for completion of the Merger, other than compliance with the applicable
corporate law of Delaware and California.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger will become effective
(the "Effective Time") when the Merger Agreement and such other necessary
documents are filed with the California Secretary of State and the certificate
of merger is filed with the Delaware Secretary of State, as applicable. This
filing will occur upon shareholder approval of the Share Issuance (the "Closing
Date"), or at such other time after the Closing Date, as provided in the
certificate of merger and the Merger Agreement.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
The Merger Agreement provides that from the Effective Time and up to
but not including the second anniversary thereof, the Company shall nominate
Cerna and Holtorf for election as directors at each meeting or other action of
stockholders at which directors are elected and shall use its best efforts to
cause the election of Cerna and Holtorf, including soliciting proxies in favor
of the election of each of them. During the same period, Cerna and Holtorf each
shall vote his shares of IATR Common Stock to elect the nominees of the Company
as directors.
On the Closing Date and following each annual meeting of the
stockholders of IATR during the period from the Effective Time up to but not
including the second anniversary thereof, the Board of Directors of IATR will
appoint an Executive Committee (the "Executive Committee"), which will report to
the Board of Directors of IATR. The responsibilities of the Executive Committee
will include directing and administering the day to day operations of both IATR
and the Surviving Corporation, reviewing and making recommendations to IATR's
Board of Directors on all potential acquisitions and investments and public and
private financings, and such other responsibilities as the Board of Directors
may delegate consistent with the DGCL. From the Effective Time and up to but not
including the second anniversary thereof, the Executive Committee will consist
of Cerna, Holtorf and two designees of IATR, one of whom will be Irwin Meyer.
Notwithstanding anything to the contrary contained in the Merger
Agreement, each Principal Stockholder agreed that he will resign from all
positions held as a member (or member of any committee) of the Board of
Directors of IATR or any of its subsidiaries if and when his employment with
IATR under his respective employment agreement is terminated by IATR for cause
or disability in accordance with the applicable employment agreement or is
voluntarily terminated by such Principal Stockholder other than for Good Reason
as defined in the employment agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following general discussion summarizes certain material federal
income tax consequences of the Merger to IATR stockholders. It does not address
any federal income tax consequences of the Merger to Infolocity stockholders.
This discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the related treasury regulations, existing administrative
interpretations and court decisions, all of which are subject to change,
possibly for retroactive effect.
We understand that the Merger will have the federal income tax
consequences discussed below, but our understanding of the material federal
income tax consequences of the Merger to IATR and its stockholders is based upon
the advice of our tax advisor. We cannot assure you that the Internal Revenue
Service or a court will not adopt contrary positions if the issues are
litigated.
We understand that current stockholders of IATR will not recognize gain
or loss for federal income tax purposes as a result of the Merger. We also
understand that IATR should not recognize gain or loss for federal income tax
purposes as a result of the Merger.
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THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, SUCH AS FINANCIAL INSTITUTIONS, BROKER-DEALERS, PERSONS WHO
RECEIVED PAYMENT IN RESPECT OF OPTIONS TO ACQUIRE COMMON STOCK, STOCKHOLDERS WHO
ACQUIRED COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR
OTHERWISE AS COMPENSATION, PERSONS OWNING COMMON STOCK AS PART OF A "STRADDLE,"
"HEDGE" OR "CONVERSION TRANSACTION," INDIVIDUALS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES AND FOREIGN CORPORATIONS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX, AND STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND CHANGES
IN SUCH TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
Under applicable accounting standards, the Merger will be treated as a
pooling of interests.
APPRAISAL RIGHTS
Delaware law does not require that holders of IATR Common Stock who
object to the Merger and who vote against or abstain from voting in favor of the
Share Issuance be afforded any appraisal rights or the right to receive cash for
their shares of IATR Common Stock, and IATR does not intend to make available
such rights to its stockholders.
CERTAIN LEGAL PROCEEDINGS
In the normal course of business, the Company is subject to various
claims and legal actions. The Company believes that it will not be materially
adversely affected by the ultimate outcome of any of these matters, either
individually or in the aggregate.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex I to this Proxy Statement and is
incorporated herein by reference. This summary is qualified in its entirety by
reference to the Merger Agreement. Stockholders of IATR are urged to read the
Merger Agreement in its entirety for a more complete description of the terms
and conditions of the Merger.
GENERAL
The Merger Agreement provides that the Merger will become effective at
the Effective Time, when the certificate of merger, the articles of merger and
such other necessary documents are filed with the Delaware Secretary of State
and the California Secretary of State, as applicable. This filing will occur at
the Closing Date, or at such other time after the Closing Date, as provided in
the certificate of merger and the articles of merger.
Upon the terms and subject to the conditions set forth in the Merger
Agreement, at the Effective Time and in accordance with the DGCL and CGCL,
Merger Sub will be merged with and into Infolocity in accordance with the terms
and conditions of the Merger Agreement, and the separate existence of Merger Sub
will cease. Infolocity will be the surviving corporation in the Merger.
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CONVERSION OF SHARES
At the Effective Time, each issued and outstanding share of common
stock of Merger Sub will be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation. Upon
consummation of the Merger, pursuant to the Merger Agreement, each issued and
outstanding share of Infolocity Common Stock and each issued and outstanding
share of Infolocity Preferred Stock (collectively, the Infolocity Stock) will be
converted into the right to receive that number of validly issued, fully paid
and non-assessable shares of IATR Common Stock (including fractional shares) as
is equal to 7,375,000 shares of IATR Common Stock (the "Merger Shares") divided
by the number of Outstanding Infolocity Shares (the "Merger Consideration"). As
a result of the Merger, and as of the Effective Time, all shares of Infolocity
Stock will no longer be outstanding and will automatically be canceled and
retired; in addition, each holder of shares of Infolocity Stock will thereafter
cease to have any rights with respect to such shares, except the right to
receive, without interest, the Merger Consideration upon the surrender of a
certificate that, immediately prior to the Effective Time, represented an
outstanding share or shares of Infolocity Stock. Each share of Infolocity Stock
issued and held in Infolocity's treasury immediately prior to the Effective
Time, and each share of Infolocity Stock owned by IATR or Merger Sub immediately
prior to the Effective Time, will, by virtue of the Merger, cease to be
outstanding and will be canceled and retired and will cease to exist without
payment of any consideration therefore.
ADJUSTMENT TO MERGER SHARES
If the Closing Value of IATR Common Stock is less than $1.75 per share,
IATR may by giving written notice to Infolocity terminate the Merger Agreement.
In the event that the Closing Value of IATR Common Stock is less than $1.75 per
share and IATR does not elect to terminate the Merger Agreement, then IATR shall
pay an additional amount of IATR Common Stock to Infolocity stockholders
determined by (a) subtracting the Closing Value of the IATR Common Stock from
$1.93, (b) multiplying the difference by 7,375,000, and (c) dividing the result
by the Closing Value of IATR Common Stock. The number of Shares computed will be
added to the Merger Shares.
If IATR purchases for cash any shares of the Infolocity Preferred Stock
as provided for under the Merger Agreement, that number of shares of IATR Common
Stock (rounded up to the nearest whole share) which equals the amount determined
by dividing the total cash amount paid by IATR in purchasing such shares of
Infolocity Series A Preferred Stock by $1.93 will be subtracted from the Merger
Shares.
As soon as reasonably practicable after the Effective Time, IATR (or an
agent thereof) will mail transmittal forms and exchange instructions to each
holder of record of Infolocity Stock to be used to surrender and exchange
certificates formerly evidencing shares of Infolocity Stock for certificates
evidencing the shares of IATR Common Stock to which such holder has become
entitled. After receipt of such transmittal forms, each holder of certificates
formerly representing Infolocity Stock will be able to surrender such
certificates to the exchange agent, and each such holder will receive in
exchange therefor (i) certificates evidencing the number of whole shares of IATR
Common Stock to which such holder is entitled; and (ii) a check from IATR in an
amount equal to the cash, if any, that such holder has a right to receive
pursuant to the Merger Agreement.
After the Effective Time, each certificate formerly representing
Infolocity Stock until so surrendered and exchanged, will be deemed, for all
purposes, to evidence only the right to receive the number of whole shares of
IATR Common Stock which the holder of such certificate is entitled to receive in
the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties by Infolocity, the Principal Stockholders, IATR and Merger Sub
relating to, among other things: (a) due organization, valid existence and good
standing of each of IATR, Infolocity and each of IATR's subsidiaries and certain
similar corporate matters; (b) the capital structure of each of IATR and
Infolocity; (c) the authorization, execution, delivery and enforceability of the
Merger Agreement and the consummation of the transactions contemplated by the
Merger Agreement and related matters; (d) conflicts under articles of
incorporation or by-laws, required consents or approvals and violations of any
instruments or law; (e) documents and financial statements filed by IATR with
the Securities and Exchange Commission (the "SEC") and the accuracy of
information contained therein; (f) undisclosed liabilities; (g) the absence of
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certain material adverse events or changes; (h) taxes and tax returns; (i)
properties; (j) software; (k) agreements, contracts and commitments; (l)
litigation; (m) permits; (n) employee benefit plans; (o) compliance with laws;
(p) accounting and tax matters relating to the Merger; (q) the accuracy of
information supplied by IATR, the Merger Sub and Infolocity in connection with
the filing of this Proxy Statement and/or in the execution of the Merger
Agreement; (r) labor matters; (s) insurance; (t) opinions of financial advisors
for Infolocity and its subsidiaries; (u) the existence of subsidiaries of
Infolocity; (v) brokers retained by either Infolocity, IATR or Merger Subsidiary
in connection with execution of the Merger Agreement; (w) other relationships;
(y) conflicts of interest; (z) the IATR Board of Directors; (aa) the validity of
the Merger Shares; and (bb) IATR's compliance with listing requirements for the
Nasdaq SmallCap Market and related matters.
The Merger Agreement also contains certain additional representations
and warranties of the Principal Stockholders, made severally but not jointly,
relating to, among other things: (a) the authority of each Principal Stockholder
to execute and deliver Transaction Contracts; (b) the enforceability and legally
binding effect of the Merger Agreement and each Transaction Contract; (c)
conflicts or defaults under the terms of contracts to which Principal
Stockholders are parties or are otherwise bound, violations of any instruments
or law and the imposition of liens on assets of Principal Stockholders; (d)
ownership rights of Principal Stockholders to Infolocity shares; (e) brokers;
(f) required consents or approvals; (g) receipt of Merger Shares for investment
purposes only; (h) disclosure of information; (i) investment experience; and (j)
the status of the Merger Shares as "restricted securities".
CERTAIN COVENANTS
COVENANTS OF INFOLOCITY AND THE PRINCIPAL STOCKHOLDERS. Prior to the
Closing, except as contemplated by the Merger Agreement or with the prior
written consent of IATR, Infolocity has agreed, and the Principal Stockholders
have agreed to cause Infolocity:
(a) to conduct its operations according to its ordinary and usual
course of business;
(b) not to transfer any assets, other than asset transfers according to
its ordinary and usual course of business;
(c) not to propose, adopt or authorize any amendment to the charter
documents of Infolocity except as provided for in the Merger Agreement;
(d) to promptly notify IATR of any material change in Infolocity's
business, properties, assets or liabilities or in the operation of its
properties and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or the breach in
any material respect of any representation or warranty of Infolocity;
(e) not to adopt, or amend to increase compensation or benefits payable
under, any benefit plan, contract or arrangement for the benefit of employees;
(f) except pursuant to the exercise of stock equivalents of Infolocity
existing on the date of, and disclosed in, the Merger Agreement, not to (i)
authorize, issue, sell, pledge, encumber or agree to authorize, issue, sell,
pledge or encumber any equity securities of Infolocity, (ii) effect any stock
split, combination, recapitalization or otherwise change its capitalization as
it existed on the date of the Merger Agreement, (iii) grant, confer or award any
stock equivalents, or alter any terms of or accelerate the vesting or exercise
date of any outstanding stock equivalents, (iv) redeem or otherwise acquire any
of its outstanding equity securities or make any commitment to take such action,
or (v) declare, set aside or pay any dividend or distribution payable in cash,
equity securities or other property with respect to Infolocity's equity
securities;
(g) not to enter into any material contract;
(h) not to amend, modify or terminate, or grant any waiver of any right
under, any material contract, and not to make any payment under any material
contract which is not required to be made strictly in accordance with the terms
of the material contract;
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(i) to comply with all of its obligations and duties under any material
contract and not to create or permit to exist any default or event of default on
behalf of Infolocity under any material contract, or any event or circumstance
which, with lapse of time or notice, or both, would constitute a default under a
material contract;
(j) not to commence or settle any litigation or other legal action;
(k) to use its best efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those persons having
business relationships with Infolocity;
(l) to duly comply in all material aspects with all applicable
laws;
(m) not to (i) acquire any assets, other than in the ordinary course of
business consistent with past practice, (ii) dispose of or encumber any assets
other than in the ordinary course of business consistent with past practice or
relinquish, forfeit or waive any right under any contract, permit or other
instrument that is material to its business or operations as presently conducted
or proposed to be conducted, (iii) incur any indebtedness for borrowed money, or
assume, guarantee or otherwise as an accommodation become responsible for, the
obligations of any other person, (iv) acquire any equity securities of any
person, or (v) enter into any other transaction other than in the ordinary
course of business consistent with past practice;
(n) to maintain all properties necessary for the conduct of the
business of Infolocity, whether owned or leased, in substantially the same
condition as they now are;
(o) to maintain its books, records and accounts in the usual, regular
and ordinary manner, on a basis consistent with prior periods;
(p) not to enter into any contract of any kind or nature with any
affiliate, or make any payment or other asset transfer to or for the benefit of
any affiliate (other than employment compensation in the ordinary course of
business consistent with past practice);
(q) not to enter into any transaction or perform any act which would
make any of the representations, warranties or agreements of Infolocity and the
Principal Stockholders contained in the Merger Agreement false or misleading in
any material respect if made again immediately after such transaction or act;
and
(r) not to take any affirmative action (including, without limitation,
entering into any contract) or fail to take any action within its control that
is likely to cause any of the above changes to occur.
COVENANTS OF IATR. Prior to the Closing, except as contemplated by the
Merger Agreement or with the prior written consent of Infolocity, IATR has
agreed, and has agreed to cause each of its subsidiaries:
(a) to conduct its operations according to its ordinary and usual
course of business;
(b) not to transfer any assets, other than asset transfer
according to its ordinary and usual course of business;
(c) to promptly notify Infolocity of any material change in the
business, properties, assets or liabilities of IATR and its subsidiaries or in
the operation of its properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) or the breach in any material respect of any representation or
warranty of IATR contained in the Merger Agreement;
(d) not to adopt, or amend to increase compensation or benefits payable
under, any benefit plan, contract or arrangement for the benefit of existing
employees;
(e) except pursuant to the exercise or conversion of stock equivalents
of Infolocity existing on the date of the Merger Agreement and disclosed in the
Merger Agreement or by issuances of IATR capital stock at a price per
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<PAGE>
share not less than eighty percent of the closing price per share of IATR Common
Stock on the Nasdaq SmallCap Market on the trading day prior to the issuance,
which issuances will be approved by IATR's Board of Directors and the proceeds
of such issuances will be used for working capital and other valid business
purposes of IATR and its Subsidiaries as determined in good faith by IATR's
Board of Directors, no to (i) authorize, issue, sell, pledge, encumber or agree
to authorize, issue, sell, pledge or encumber any equity securities of
Infolocity, (ii) effect any stock split, combination, recapitalization of its
capital stock as it existed on the date of the Merger Agreement, (iii) redeem or
otherwise acquire for cash any of its outstanding equity securities or make any
commitment to take such action, or (iv) declare, set aside or pay any dividend
or distribution payable in cash, equity securities or other property with
respect to IATR's equity securities, other than regularly scheduled dividend
payments on IATR's preferred stock;
(f) to comply with all of its obligations and duties under any contract
and not to create or permit to exist any default or event of default on behalf
of IATR or any of its subsidiaries under any contract, or any event or
circumstance which, with lapse of time or notice, or both, would constitute a
default under a contract, in each case which would have a material adverse
effect on the business condition of IATR and its subsidiaries taken as a whole;
(g) to use its best efforts to preserve intact its business
organization and goodwill, keep available (except for terminations for cause)
the services of its officers and employees and maintain satisfactory
relationships with those persons having business relationships with IATR or any
of its subsidiaries;
(h) to duly comply in all material aspects with all applicable laws;
(i) to maintain all properties necessary for the conduct of the
business of IATR and its subsidiaries, whether owned or leased, in substantially
the same condition as they were at the date of the Merger Agreement;
(j) to maintain its books, records and accounts in the usual, regular
and ordinary manner, on a basis consistent with prior periods;
(k) not to make any payment or other asset transfer to or for the
benefit of any affiliate (other than employment compensation in the ordinary
course of its business consistent with past practice);
(l) not to enter into any transaction or perform any act which would
make any of the representations, warranties or agreements of IATR contained in
the Merger Agreement false or misleading in any material respect if made again
immediately after such transaction or act; and
(m) not to take any affirmative action (including, without limitation,
entering into any contract) or fail to take any action within its control that
is likely to cause any of the changes or events listed above to occur.
CERTAIN ADDITIONAL COVENANTS
In addition to the covenants described above, IATR and Infolocity
agreed to the following:
(a) INSPECTION OF RECORDS. Between the date of the Merger Agreement and
the Closing, Infolocity will allow the duly authorized officers, attorneys,
accountants and other representatives of IATR access at all reasonable times to
the records and files, correspondence, audits and properties, as well as to all
information in each case relating to the business and affairs of Infolocity.
(b) ACQUISITION PROPOSALS. From the date of the Merger Agreement
through the Effective Time, Infolocity agreed and each of the Principal
Stockholders agreed that each of them will, and they will direct and use their
respective best efforts to cause the officers, directors, employers, agents and
representatives of Infolocity not to, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer to the stockholders of Infolocity) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, Infolocity. Each
party also agreed to immediately cease and cause to be terminated any existing
activities, discussions or negotiations with respect to any of the foregoing.
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<PAGE>
(c) STOCKHOLDER MEETINGS. As promptly as practicable after the date of
the Merger Agreement, the Principal Stockholders will use their respective best
efforts to obtain the written approval of each other holder of Infolocity Stock
to the Merger Agreement. As promptly as practicable after the date of the Merger
Agreement, IATR agreed to prepare and file with the SEC this Proxy Statement.
(d) INFOLOCITY EMPLOYMENT OFFERS. As promptly as practicable following
the date of the Merger Agreement, Cerna and Holtorf will submit to IATR a
written schedule of proposed salaries, benefits and new stock option terms for
each of Infolocity's current employees. Upon the approval of such schedule by
IATR, Infolocity will extend new employment offers to all of its current
employees on an "at will" basis at the respective salaries, benefits and new
stock option terms for such employees set forth in the schedule as approved by
IATR.
(e) RULE 145 AFFILIATES. Prior to the Effective Time, Infolocity will
deliver to IATR a letter identifying all persons who were, in Infolocity's
reasonable judgment, at the record date for its stockholders meeting (or the
record date for receipt of a written consent) to approve the Merger Agreement
and the Merger, "affiliates" of Infolocity for purposes of Rule 145 under the
Securities Act ("Rule 145 Affiliates"). Each of such Rule 145 Affiliates will
deliver to IATR on or prior to the Effective Time a written agreement which
provides that such person will not offer to sell, sell or otherwise dispose of
any IATR Common Stock received in the Merger except pursuant to an effective
registration statement or in compliance with Rule 145.
(f) REORGANIZATION. From and after the date of the Merger Agreement and
until the Effective Time, none of IATR, Infolocity, Merger Sub, the Principal
Stockholders or any of their respective subsidiaries or other affiliates will
knowingly take any action, or knowingly fail to take any action, that would
jeopardize qualification of the Merger as a reorganization with the meaning of
Section 368(a) of the Code. Following the Effective Time, IATR will use its
best efforts to conduct its business in a manner that would not jeopardize the
characterization of the Merger as a reorganization within the meaning of
Section 368(a) of the Code. Each of IATR and Infolocity will reflect the Merger
on their respective federal income tax returns as a Section 368(a)(2)(E)
reorganization.
(g) NO TRANSFER OF EQUITY SECURITIES. Each Principal Stockholder agreed
that, prior to the consummation of the Merger, such Principal Stockholder will
not transfer in any way any of the equity securities of Infolocity held by such
Principal Stockholder or any interest therein.
(h) MERGER TAX MATTERS. The Parties agreed that none of IATR, Merger
Sub nor any of their respective affiliates, nor their officers, directors,
agents, or representatives had made any representation or warranty with respect
to the tax consequences of the Merger for the stockholders of Infolocity.
(i) INVESTOR LETTER. Infolocity will use its best efforts to obtain
from each of its stockholders an investor letter in a form acceptable to IATR
and its counsel containing representations and warranties of such stockholders
substantially similar to those of the Principal Stockholders in the Merger
Agreement.
(j) PURCHASE OF INFOLOCITY SERIES A PREFERRED STOCK. The Principal
Stockholders shall deliver to IATR a list of the holders of Infolocity Series A
Preferred Stock who desire to receive cash from IATR for their shares of such
stock. IATR will offer to purchase the shares of Infolocity Series A Preferred
Stock from the holders identified in such list for cash equal to $3.60 per
share. The closing of IATR's purchase of such shares will occur immediately
prior to the Effective Time of the Merger and will be subject to the
consummation of the Merger and the execution by the selling stockholders of
documentation containing representations and warranties and other provisions
reasonably acceptable to IATR. IATR has determined that the maximum aggregate
amount payable to all holders of Series A Preferred Stock is $280,000.
(k) PUBLIC ANNOUNCEMENTS. No public announcements or other disclosures
of the Merger Agreement or the transactions contemplated thereby will be made by
any party without the prior written consent of the other parties until the
Closing Date, except as appropriate under applicable securities laws or in
connection with obtaining financing contemplated by the Merger Agreement.
(l) FILINGS; OTHER ACTIONS. Subject to the terms and conditions
provided in the Merger Agreement, IATR, Infolocity, the Principal Stockholders
and Merger Sub will: (i) use their respective best efforts to cooperate
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with one another in (x) determining which filings are required to be made, and
which consents, approvals, permits or authorizations are required to be
obtained, prior to the Effective Time in connection with the execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby and (y) timely making all such filings and timely seeking
all such consents, approvals, permits or authorizations; and (ii) use their
respective best efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by the Merger
Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of the Merger Agreement, the
proper officers and directors of IATR and the Principal Stockholders will take
all such necessary action.
(m) TERMINATION OF LIENS. The Principal Stockholders will cause all
liens for the benefit of Cerna encumbering any shares of Infolocity Common Stock
to be terminated prior to the Closing Date.
CERTAIN ADDITIONAL AGREEMENTS. Under the terms of the Merger Agreement,
the Parties agreed that any and all information that had been disclosed by one
Party to the other during the discussions and negotiations leading up to the
execution of the Merger Agreement would constitute confidential information and
trade secrets of the disclosing Party, and each Party agreed that they would not
at any time prior to the Closing or at any time thereafter, use or disclose such
confidential information or trade secrets other than in accordance with the
terms and provisions of the Merger Agreement, and subject to certain enumerated
exceptions. The Parties also agreed that subsequent to the Effective Time, but
in no event later than 30 days after the Effective Time, IATR would prepare and
file a Registration Statement on Form S-3 with the SEC and would include in such
Registration Statement all of the Merger Shares issued pursuant to the Merger.
IATR would pay all registration expenses incurred in connection with the
preparation and filing of the Registration Statement, and would use its best
efforts to register or qualify the shares of Merger Shares covered by the
Registration Statement under such securities or blue sky laws in such
jurisdictions as the Principal Stockholders might reasonably request. IATR also
agreed that at all times until the third anniversary of the Closing Date it
would use its best efforts to continue to meet the conditions required in order
to utilize the Registration Statement and to maintain its listing on the Nasdaq
SmallCap Market or, alternatively, list on another national securities exchange.
From the Effective Time up to but not including the second anniversary thereof,
Cerna and Holtorf each (severally and not jointly) will vote his shares of
capital stock of IATR to elect the nominees of IATR as directors of IATR at each
meeting or other action of stockholders at which directors are elected.
MANAGEMENT OF IATR FOLLOWING THE MERGER
At the Effective Time, the Board of Directors of IATR will consist of
seven members. As part of the Proxy Statement, IATR will nominate Cerna and
Holtorf to IATR's Stockholders for election as directors at IATR's Stockholders
Meeting, subject to the consummation of the Merger and effective as of the
Effective Time. From the Effective Time up to but not including the second
anniversary thereof, IATR will nominate Cerna and Holtorf for election as
directors at each meeting or other action of stockholders at which directors are
elected and will use its best efforts to cause the election of Cerna and
Holtorf, including soliciting proxies in favor of the election of each of them.
From the Effective Time up to but not including the second anniversary thereof,
Cerna and Holtorf each (severally and not jointly) will vote his shares of
capital stock of IATR to elect the nominees of IATR as directors of IATR at each
meeting or other action of stockholders at which directors are elected.
DIRECTOR AND OFFICER INDEMNIFICATION
INDEMNIFICATION. IATR agreed to indemnify the stockholders of
Infolocity and each of their respective officers, directors, employees, agents
and Affiliates, and each of their successors and assigns from and against any
and all damages incurred in connection with, arising out of, resulting from or
incident to: (a) any breach of, or any inaccuracy in any of, the representations
or warranties of IATR or Merger Sub contained in the Merger Agreement, or any
default in any agreements made by IATR or Merger Sub in the Merger Agreement or
writing delivered in connection therewith; or (b) any action, compromise,
settlement, assessment or judgment arising out of or incidental to any of the
matters indemnified against in the Merger Agreement.
The Principal Stockholders agreed to, jointly and severally, indemnify,
save and hold harmless IATR, Merger Sub, and each of their respective officers,
directors, employees, agents and affiliates, and each of their successors
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and assigns from and against any and all damages incurred in connection with,
arising out of, resulting from or incident to: (a) any breach of, or any
inaccuracy in any of, the representations or warranties of Infolocity and the
Principal Stockholders contained in the Merger Agreement, or any default in any
agreements made by Infolocity in the Merger Agreement or writing delivered in
connection therewith; (b) any failure by Infolocity prior to the Effective Time
to obtain or maintain in effect any permit relating to Infolocity and/or its
business, assets or operations; or (c) any action, compromise, settlement,
assessment or judgment arising out of or incidental to any of the matters
indemnified in the Merger Agreement.
INSURANCE. Following the Closing, each Principal Stockholder will be
named as an insured in the directors and officers liability insurance policies
maintained by IATR, in such a manner as to provide the Principal Stockholder the
same rights and benefits as are accorded to the most favorably insured of IATR's
directors. Cerna and Holtorf also agreed that Infolocity and/or the Surviving
Corporation could purchase key man insurance on them in such amounts as the
Board of Directors of Infolocity and IATR deemed appropriate.
CONDITIONS TO CLOSING
The Merger Agreement provides that obligations of IATR and Merger Sub
to consummate the Merger and to take the other actions required to be taken by
IATR and Merger Sub at Closing pursuant to the Transaction Contracts are subject
to the following conditions (any of which may be waived by IATR in writing, in
whole or in part):
(a) the representations and warranties of each of Infolocity and the
Principal Stockholders set forth in the Merger Agreement will be true and
correct; (b) each of Infolocity and the Principal Stockholders will have
performed in all material respects all obligations and complied in all material
respects with all covenants required by any Transaction Contract to be performed
or complied with by any of them on or prior to the Closing Date; (c) all
consents, permits and approvals required, in the reasonable opinion of counsel
for IATR, as a condition to the lawful consummation of the Merger and of the
transactions contemplated in the Merger Agreement, or as necessary to avoid a
breach of or default or an acceleration of a contractual right or payment under
any material contract to which Infolocity, IATR or any of its subsidiaries is a
party, will have been obtained; (d) Infolocity and the Principal Stockholders
will have delivered to IATR a certificate, dated the Closing Date and executed
by Infolocity and each Principal Stockholder, certifying that certain specified
conditions have been satisfied; (e) Infolocity will have delivered to IATR
certain financial statements in form and substance satisfactory to IATR; (f) all
filings required to be made prior to the Effective Time by Infolocity or IATR
with, and all consents, approvals, orders, registrations and authorizations
required to be obtained prior to the Effective Time by Infolocity or IATR from
governmental authorities in connection with the execution and delivery of the
Merger Agreement by the Parties have been made or obtained; (g) each of the
Principal Stockholders will have executed and delivered to IATR a
non-competition agreement; (h) each of the employees of Infolocity shall deliver
to IATR a non-disclosure agreement; (i) prior to the Closing Date, IATR will
have received a lock-up agreement from each Principal Stockholder to the effect
that each such holder will not sell, transfer or otherwise dispose of the IATR
Common Stock received in the Merger for a period ending on the second
anniversary of the Closing; ( j) prior to the Effective Time, the stockholders
of Infolocity will have approved the Merger; (k) prior to the Effective Time,
IATR Stockholders shall approve the Merger; (l) IATR will have received Investor
Letters executed by each stockholder of Infolocity; (m) each person required
will have executed and delivered to IATR a Rule 145 Affiliate Letter; (n) each
of Cerna, Holtorf and Carlos Gonzalez will have executed and delivered
employment agreements to IATR; (o) all stockholder, voting, registration rights
or other agreements with respect to Infolocity Stock will have been terminated;
(p) all Liens for the benefit of Cerna encumbering any shares of Infolocity
Common Stock will have been terminated; (q) Cerna, Anthony Cerna and Carlos
Gonzalez each will have executed and delivered to IATR an Amendment to
Assignment of Rights to Software; (r) no Action pertaining to the transactions
contemplated by this Agreement or to their consummation will have been
instituted or threatened on or prior to the Closing Date; (s) there will not
exist any circumstance and there will not have occurred any event which has had
or reasonably could have had a material adverse effect on the Business Condition
of Infolocity and (t) IATR will have received from Capstone Law Group LLP,
counsel to Infolocity, an opinion letter, dated as of the Closing Date and
addressed to IATR, in form and substance satisfactory to IATR.
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The Merger Agreement provides that obligations of Infolocity and the
Principal Stockholders to consummate the Merger and to take the other actions
required to be taken by Infolocity and the Principal Stockholders at the Closing
pursuant to the Transaction Contracts is subject to the following conditions
(any of which may be waived by Infolocity in writing, in whole or in part):
(a) the representations and warranties of each of IATR and Merger Sub
set forth in the Merger Agreement will be true and correct; (b) each of IATR and
Merger Sub will have performed in all material respects all obligations and
complied in all material respects with all covenants required by any Transaction
Contract to be performed or complied with by any of them on or prior to the
Closing Date; (c) IATR and Merger Sub each will have delivered to Infolocity and
the Principal Stockholders a certificate, dated the Closing Date and executed by
each of IATR and Merger Sub, certifying that certain conditions have been
satisfied; (d) all filings required to be made prior to the Effective Time by
IATR or Merger Sub with, and all consents, approvals, orders, registrations and
authorizations required to be obtained prior to the Effective Time by IATR or
Merger Sub from Governmental Authorities in connection with the execution and
delivery of this Agreement by IATR and Merger Sub and the consummation of the
transactions contemplated hereby by IATR and Merger Sub will have been made or
obtained; (e) approval by IATR stockholders of all conditions necessary to
effect the Merger; (f) each of Cerna and Holtorf will have been elected as
directors of IATR, subject to the consummation of the Merger and effective as of
the Effective Time; (g) no Action pertaining to the transactions contemplated by
this Agreement or to their consummation will have been instituted or threatened
on or prior to the Closing Date; (h) there will not exist any circumstance and
there will not have occurred any event which has had or reasonably could have a
material adverse effect on the Business Condition of IATR and its Subsidiaries
taken as a whole; (i) IATR and Merger Sub will have executed and delivered to
Cerna, Holtorf and Carlos Gonzalez their respective Employment Agreements; (j)
IATR will have been in compliance with the published net tangible assets
requirement for the continued listing of the Listed Securities on the Nasdaq
SmallCap Market as of a date prior to the Closing Date at least as recent as
September 30, 1999, as supported by the financial statements of Infolocity
included in the 10-Q, which financial statements will have been prepared with
the assistance of the accounting firm of Parks Palmer Business Services Inc. and
reviewed by the accounting firm of Singer Lewak Greenbaum & Goldstein, LLP; (k)
Infolocity and the Principal Stockholders will have received from Troop Steuber
Pasich Reddick & Tobey, LLP, counsel to IATR, an opinion letter, dated as of the
Closing Date and addressed to Infolocity and the Principal Stockholders, in form
and substance satisfactory to Infolocity and the Principal Stockholders.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time:
(a) by mutual written consent of each of the Parties to the Merger
Agreement; or
(b) by IATR on behalf of IATR and Merger Sub by giving written notice
to Infolocity if: (i) there has been a material violation or breach by
Infolocity or any Principal Stockholder of any agreement, covenant,
representation or warranty contained in any Transaction Contract, which
violation or breach has not been cured within 30 days after receipt of notice
thereof; or (ii) the Closing does not occur on or prior to December 31, 1999 or
such later date as may be agreed to in writing by the Parties; or (iii) the
Closing Value of IATR's Common Stock is less than $1.75 per share. In the event
that the Closing Value of IATR's Common Stock is less than $1.75 per share and
IATR does not elect to terminate the Merger Agreement, it will be obligated to
pay to Infolocity an additional amount of shares of IATR Common Stock. See
"MERGER AGREEMENT - Adjustment to Merger Shares."
(c) by Infolocity on behalf of Infolocity and the Principal
Stockholders by providing written notice to IATR if: (i) there has been a
material violation or breach by IATR or Merger Sub of any agreement, covenant,
representation or warranty contained in any Transaction Contract, which
violation or breach has not been cured within ten days after receipt of notice
thereof; or (ii) the Closing does not occur on or prior to December 31, 1999, or
as of a later date agreed to in writing by the Parties.
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In the event that the Merger Agreement terminates prior to the Closing,
neither IATR, Merger Sub nor the Principal Stockholders will have any
liabilities or obligations to any other Party, except for (i) any material
breach of any covenants to be performed prior to the Closing Date, which occur
prior to such termination or (ii) any intentional material breach of or material
inaccuracy in any representation or warranty occurring prior to such
termination. In addition, the following provisions or agreements will remain in
full force and effect and survive any termination of the Merger Agreement: (i)
the Parties' covenant to use best efforts to cooperate in making necessary
filings, obtaining necessary consents and authorizations and taking necessary
and contemplated actions under the Merger Agreement; (ii) the Parties'
confidentiality agreement; and (iii) obligations regarding payment of
transaction expenses and costs and attorneys' fees.
FEES AND EXPENSES
The Merger Agreement provides that if the Closing occurs, IATR will pay
all transaction expenses incurred by each of the parties. If the Closing does
not occur, all transaction expenses incurred by each party will be paid by the
party incurring such expenses. The Merger Agreement also states that if any
Action is instituted to remedy, prevent or obtain relief from a default in the
performance by any party to the Merger Agreement of its obligations under the
Merger Agreement, the prevailing party will recover its reasonable attorneys'
fees incurred in each and every such Action, including, without limitation, any
and all appeals or petitions therefrom.
WAIVER AND AMENDMENT
At any time prior to the Effective Time, each of the Parties (in the
case of IATR, Merger Sub and Infolocity through action taken or authorized by
the respective Boards of Directors of IATR, Merger Sub and Infolocity) may, to
the extent such actions are legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other party thereto,
(ii) waive any inaccuracies in the representations and warranties of the other
party contained in the Merger Agreement or in any document delivered pursuant
thereto and (iii) waive compliance with any of the agreements or conditions of
the other party contained in the Merger Agreement. Any agreement on the part of
a party to the Merger Agreement to any such extension or waiver will be valid
only if set forth in a written instrument signed on behalf of such party, but
such extension or waiver or failure to insist on strict compliance with
an obligation, covenant, agreement or condition will not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Prior to the
Effective Time, any provision of the Merger Agreement may be amended or modified
at any time, by a written agreement between the Parties executed in the same
manner as the Merger Agreement; provided, however, that after the meeting of the
Infolocity stockholders approving the Merger, the Merger Agreement may not be
amended if to do so would violate the CGCL or reduce the amount or change the
form of the consideration to be received by Infolocity stockholders in the
Merger.
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ESTIMATED FEES AND EXPENSES
IATR will pay certain costs and expenses related to this Proxy
Statement. It is estimated that, if the Merger is consummated, expenses incurred
in connection therewith will be approximately as follows:
IATR Infolocity
SEC filing fees.................. $4,056 --
Legal fees and expenses.......... $200,000 $100,000
Accounting fees and expenses..... $5,000 $15,000
Printing costs................... $20,000 $10,000
Exchange agent fees and expenses. $10,000 -
Miscellaneous.................... $10,000 -
------------ -------------
Total................... $249,056 $125,000
============ =============
PRICE RANGE OF COMMON STOCK
Our Common Stock is currently traded on the Nasdaq SmallCap Market
("Nasdaq") under the symbol "IATR." The following table sets forth the high and
low bid prices on Nasdaq for the periods indicated, as reported by Nasdaq,
retroactively adjusted for the May 1996 one-for-four and the May 1998
one-for-three reverse stock splits. The quotations are inter-dealer prices
without adjustment for retail mark-ups, mark-downs or commissions, and do not
necessarily represent actual transactions.
<TABLE>
Common Stock
-----------------------------------
<CAPTION>
High Bid Low Bid
-------------- ---------------
Fiscal Year -1999:
Quarter Ended
<S> <C> <C>
September 30, 1998................... $2.00 $0.75
December 31, 1998.................... 0.88 0.19
March 31, 1999....................... 4.25 0.22
June 30, 1999........................ 3.88 1.00
Fiscal Year - 1998:
Quarter Ended
September 30, 1997................... $3.38 $2.25
December 31, 1997.................... 3.28 1.88
March 31, 1998....................... 2.72 1.50
June 30, 1998........................ 2.38 1.44
</TABLE>
On November 2, 1999, the prices of the Common Stock as reported by
Nasdaq were $1.69 bid and $1.72 asked. On such date there were approximately 208
holders of record of the Common Stock. The number of stockholders does not take
into account stockholders for whom shares are being held in the name of
brokerage firms or clearing agencies.
As of November 1, 1999, we have outstanding 1,000,000 shares of
Series A Preferred Stock which is entitled to annual dividends aggregating
$425,000. We have outstanding 2,500,000 shares of Series C Preferred Stock.
Holders of our Series C Preferred Stock are entitled to dividends of 8%
annually, so long as we earn over $1,000,000 in any fiscal year. No dividends
are currently due on the Series C Preferred Stock. No dividends may
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be paid on the Common Stock unless all dividends on the Series A Preferred Stock
and Series C Preferred Stock have been paid or provision has been made for such
payment. Pursuant to the terms of our outstanding Series A Preferred Stock,
which we issued in a public offering consummated in December 1994, and pursuant
to the terms of our outstanding Series C Preferred Stock, at our option, we may
pay dividends on the preferred stock in cash or in shares of our Common Stock.
We have never paid a cash dividend on our Common Stock and presently
intend to retain any future earnings for investment and use in our business
operations. We cannot assure you that our operations will generate the revenues
and cash flow required to declare cash dividends on our outstanding Common Stock
in future fiscal periods or that we will have legally available funds to pay
dividends on our Common Stock. Consequently, we do not expect to pay cash
dividends in the foreseeable future except to the extent required to satisfy our
obligations with respect to our outstanding Series A Preferred Stock .
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SELECTED HISTORICAL FINANCIAL DATA
Attached to this Proxy Statement is the Company's Annual Report on Form
10-KSB as filed with the Securities and Exchange Commission on October 13, 1999.
The Annual Report includes relevant historical financial data of the Company.
Attached as Appendix "E" to this Proxy Statement are the relevant financial data
of Infolocity as well as certain pro forma financial data.
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PROPOSAL 2
APPROVAL OF THE ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK PURSUANT TO THE
PLACEMENT AGREEMENT WITH ASTOR CAPITAL, INC.
The IATR Common Stock is traded on the Nasdaq SmallCap Market. The
Nasdaq Stock Market, Inc. Marketplace Rules require the Company to obtain
stockholder approval prior to issuing common stock (or shares convertible into
common stock) in a transaction other than a public offering at a price less than
the greater of book or market value of the common stock when the amount of
common stock to be issued (or issuable upon conversion) is or is greater than
20% of the common stock or voting power of the company outstanding prior to
issuance.
Pursuant to a Placement Agreement dated August 25, 1999 between Astor
Capital, Inc. ("Astor") and us, we have authorized the issuance and sale of (i)
up to $4,000,000 principal amount of our 6% Convertible Subordinated Debentures
Due 2001 (the "Debentures") convertible into shares of common stock; (ii) Series
A Stock Purchase Warrants (the "Series A Warrants") to purchase up to 400,000
shares of common stock at an exercise price of $1.25625 per share and (iii)
Series B Stock Purchase Warrants (the "Series B Warrants" and together with the
Series A Warrants, the "Warrants," and collectively with the Debentures, the
"Securities") to purchase up to 300,000 shares of common stock at an exercise
price of $1.361 per share. We propose to issue and sell to purchasers designated
by Astor (collectively, the "Purchasers") an aggregate of up to $4,000,000
principal amount of the Debentures, 300,000 Series A Warrants and 300,000 Series
B Warrants in units (the "Units") each consisting of $10,000 principal amount of
Debentures, 750 Series A Warrants and 750 Series B Warrants. We have agreed to
issue and sell the Securities to the Purchasers at a purchase price of $10,000
per Unit (the "Purchase Price") in a series of closings (the "Closings").
Subsequent to August 25, 1999, a number of Purchasers converted their Debentures
to Series G Preferred Stock.
On August 27, 1999, IATR issued and sold to Brittanica Associates
Limited a convertible debenture in the principal amount of $375,000. On that
date, IATR also granted Brittanica warrants to acquire an aggregate of 56,250
shares of common stock. On September 24, 1999, IATR issued and sold to
Brittanica a convertible debenture in the principal amount of $200,000. On that
date, IATR also granted Brittanica warrants to acquire an aggregate of 30,000
shares of common stock. On October 20, 1999, IATR issued and sold to Brittanica
a convertible debenture in the principal amount of $25,000. On that date, IATR
also granted Brittanica warrants to acquire an aggregate of 3,750 shares of
common stock.
On September 2, 1999, IATR issued and sold to IIG Equity Fund, NV a
convertible debenture in the principal amount of $100,000. On that date, IATR
also granted IIG warrants to acquire an aggregate of 15,000 shares of common
stock.
On September 7, 1999, IATR issued and sold to Spiga Limited a
convertible debenture in the principal amount of $275,000. On that date, IATR
also granted Spiga warrants to acquire an aggregate of 41,250 shares of common
stock. On October 20, 1999, IATR issued and sold to Spiga a convertible
debenture in the principal amount of $25,000. On that date, IATR also granted
Spiga warrants to acquire an aggregate of 3,750 shares of common stock. On
October 27, 1999, IATR issued and sold to Spiga a convertible debenture in the
principal amount of $20,000. On that date, IATR also granted Spiga warrants to
acquire an aggregate of 3,000 shares of common stock.
On September 24, 1999, IATR issued and sold to Venezuela Recovery Fund
N.V. a convertible debenture in the principal amount of $100,000. On that date,
IATR also granted Venezuela warrants to acquire an aggregate of 15,000 shares of
common stock.
On September 24, 1999, IATR issued and sold to Lina Abballe a
convertible debenture in the principal amount of $300,000. On that date, IATR
also granted Lina Abballe warrants to acquire an aggregate of 45,000 shares of
common stock.
On October 20, 1999, IATR issued and sold to Allan Rothstein a
convertible debenture in the principal amount of $60,000. On that date, IATR
also granted Allan Rothstein warrants to acquire an aggregate of 15,000 shares
of common stock.
On October 20, 1999, IATR issued and sold to Albertus Vanleiden a
convertible debenture in the principal amount of $100,000. On that date, IATR
also granted Albertus Vanleiden warrants to acquire an aggregate of 9,000 shares
of common stock.
On October 20, 1999, IATR issued and sold Amar Rai a convertible
debenture in the principal amount of $40,000. On that date, IATR also granted
Amar Rai warrants to acquire an aggregate of 6,000 shares of common stock.
On October 20, 1999, IATR issued and sold to Anthony Intieri a
convertible debenture in the principal amount of $50,000. On that date, IATR
also granted Anthony Intieri warrants to acquire an aggregate of 7,500 shares of
common stock.
On October 20, 1999, IATR issued and sold to Gary Kaplowitz a
convertible debenture in the principal amount of $100,000. On that date, IATR
also granted Gary Kaplowitz warrants to acquire an aggregate of 15,000 shares of
common stock.
On October 20, 1999, IATR issued and sold to Maria Calma a convertible
debenture in the principal amount of $50,000. On that date, IATR also granted
Maria Calma warrants to acquire an aggregate of 7,500 shares of common stock.
On October 20, 1999, IATR issued and sold to Sarah Tawaststjerna a
convertible debenture in the principal amount of $20,000. On that date, IATR
also granted Sarah Tawaststjerna warrants to acquire an aggregate of 3,000
shares of common stock.
On October 22, 1999, IATR issued and sold to William Duncan a
convertible debenture in the principal amount of $40,000. On that date, IATR
also granted William Duncan warrants to acquire an aggregate of 6,000 shares of
common stock.
On October 22, 1999, IATR issued and sold to Gabriel Cerrone a
convertible debenture in the principal amount of $100,000. On that date, IATR
also granted Gabriel Cerrone warrants to acquire an aggregate of 15,000 shares
of common stock.
On October 22, 1999, IATR issued and sold to Joseph Schottland a
convertible debenture in the principal amount of $20,000. On that date, IATR
also granted Joseph Schottland warrants to acquire an aggregate of 3,000 shares
of common stock.
We have authorized the issuance, sale and delivery of, and have
reserved for issuance up to 8,650,000 shares of IATR Common Stock upon
conversion of the Debentures and up to 700,000 shares of IATR Common Stock upon
exercise of the Warrants. In addition, we are obligated to issue and sell a
number of additional shares of common stock (i) in connection with conversion of
Debentures in the event the number of shares previously authorized and reserved
for issuance upon conversion of the Debentures is inadequate to provide for our
conversion obligations pursuant to the Debentures and (ii) under certain
circumstances relating to the filing and effectiveness of a registration
statement to be filed under the Securities Act.
In the event Nasdaq aggregates the issuances of the Securities made on
August 27, September 2, September 7, Setember 24, October 20 and October 22,
1999 and the issuances of the Series A Warrants to Astor in connection therewith
with any future issuances under the Placement Agreement, stockholder approval is
required to the extent that the IATR Common Stock issuable upon conversion
and/or exercise of the Debentures and Warrants, as the case may be, pursuant to
these issuances and any future issuances of the Securities under the terms of
the Placement Agreement, exceeds 19.99% of the outstanding Common Stock of the
Company at the date of the Placement Agreement.
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THE PLACEMENT AGREEMENT WITH ASTOR CAPITAL, INC.
On August 25, 1999, the Company entered into the Placement Agreement
with Astor. Under the terms of the Placement Agreement, the Company agreed to
issue and sell the Securities in a series of up to four tranches on closing
dates scheduled so that no less than an aggregate of 75 Units were issued and
sold by September 3, 1999; no less than an aggregate of 175 Units were issued
and sold by September 30, 1999; no less than an aggregate of 250 Units are
issued and sold by the later of (a) five business days following the closing of
the Merger and (b) October 31, 1999; and an aggregate of 400 Units are issued
and sold by the later of (x) five business day following the declaration by the
SEC of the effectiveness of one or more registration statements filed under the
Securities Act of 1933, as amended (the "Act") that include within the coverage
thereof the resale of all Securities issued by the Company as contemplated in
the Placement Agreement and (y) November 30, 1999; provided, however, that each
closing date may be extended by the mutual written agreement of the Company and
Astor for a period not to exceed thirty days.
Pursuant to the Placement Agreement, on each of the closing dates, as
part of its placement fee the Company will issue and deliver Series A Warrants
to Astor at the rate of 250 Series A Warrants for each Unit sold on such closing
date. In addition, the Company has obligated itself to issue and sell a number
of additional shares of Common Stock (i) in connection with the conversion of
Debentures in the event the number of shares previously authorized and reserved
for issuance upon conversion of the Debentures is inadequate to provide for the
Company's obligations pursuant to the Debentures as set forth in the Placement
Agreement and (ii) under certain circumstances relating to the filing and
effectiveness of a registration statement to be filed under the Act as set forth
in the Placement Agreement.
Pursuant to the Placement Agreement, the Company also agreed that as
the number of shares of Common Stock then reserved for issuance upon conversion
of the Debentures from time to time falls below one hundred fifteen percent
(115%) of the number of shares that would be required for conversion of all
Debentures then outstanding at the then Market Price of Common Stock, the
Company will immediately authorize the issuance and sale of, and will reserve
from the authorized but unissued shares of Common Stock, sufficient additional
shares so that the number of shares of Common Stock then authorized and reserved
for issuance and sale upon conversion of the Debentures equals or exceeds one
hundred thirty percent (130%) of the number of shares that would be required for
conversion of all Debentures then outstanding at the then Market Price of Common
Stock. As the number of shares of Common Stock then reserved for issuance upon
conversion of the Debentures from time to time exceeds one hundred fifty percent
(150%) of the number of shares that would be required for conversion of all
Debentures then outstanding at the then Market Price of Common Stock, the
Company may in its discretion reduce the number of shares reserved from the
authorized but unissued shares of Common Stock for issuance and sale upon
conversion of the Debentures to a number of shares of Common Stock no less than
the number that equals one hundred thirty percent (130%) of the number of shares
that would be required for conversion of all Debentures then outstanding at the
then Market Price of Common Stock. As the number of shares of Common Stock to be
issued under certain circumstances relating to the filing and effectiveness of a
registration statement to be filed under the Securities Act becomes known, the
Company will immediately authorize the issuance and sale of the shares of
Company Common Stock so to be issued. The Company also agreed, among other
things, to the following:
(i) to retain Astor as a financial advisor for a period of 24 months
commencing upon the completion of the offering contemplated in the Placement
Agreement, for which services Astor will be compensated in accordance with the
terms set forth in the Placement Agreement;
(ii) within 30 days following the first closing date and within 30 days
following each subsequent closing date, to prepare and file a registration
statement under the Securities Act of 1933, as amended, which registration
statement will provide for the resale by the Purchasers and by Astor of the
shares of Common Stock issuable upon conversion of the Debentures and exercise
of the Warrants acquired on such closing date.
The Company and Astor have agreed to continue to work together in the
future and the Company believes that Astor will continue to provide equity
funding to the Company. Accordingly, the Board believes that it is important to
the Company to obtain the approval of the stockholders with respect to future
stock issuances.
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If this Proposal is not approved by the stockholders, then the Company
will be required to locate new sources of financing for the Company.
RECOMMENDATION AND REQUIRED VOTE
The issuance at a discount of a number of shares of the Company's
Common Stock equal to or in excess of 20% of the number of shares of the
Company's Common Stock outstanding before the issuance requires the affirmative
vote of a majority of the total votes cast on the proposal in person or by
proxy. With respect to this proposal, abstentions will be counted toward the
tabulation of votes cast and will have the same effect as negative votes.
However, broker non-votes, while included in the determination of shares present
at the meeting for purposes of determining a quorum, will not be counted as
votes cast for or against approval of this proposal. The Board is of the opinion
that the issuance of additional shares of Common Stock issuable upon the
conversion of the Debentures and/or exercise of the Warrants, as the case may
be, pursuant to the Placement Agreement is in the best interests of the Company
and recommends a vote "FOR" the approval of this Proposal 2. All proxies will be
voted to approve this Proposal 2 unless a contrary vote is indicated on the
enclosed proxy card.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE ISSUANCE OF ADDITIONAL COMMON STOCK ISSUABLE UPON
THE CONVERSION OF THE DEBENTURES AND/OR EXERCISE OF THE WARRANTS, AS
THE CASE MAY BE, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
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PROPOSAL 3
APPROVAL OF THE AMENDMENT TO THE
1998 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors has approved the Incentive Plan Amendment. The
complete text of the Incentive Plan Amendment is attached hereto as Exhibit "C".
The Incentive Plan Amendment is being submitted to the stockholders for
approval.
The Board of Directors approved the Incentive Plan Amendment to ensure
that a sufficient number of shares are available for issuance under the 1998
Plan. The 1998 Plan provides for the issuance of awards to purchase shares of
the Company's Common Stock to non-employee directors, officers, employees and
consultants of the Company. As of the Record Date, approximately ___ persons
were eligible to receive awards under the 1998 Plan and ________ shares were
granted as awards under the 1998 Plan. The Board of Directors believes that the
ability to grant stock-based awards is important to the future success of the
Company. Among other things, the increase in the number of shares reserved under
the 1998 Plan is to cover grants made or to be made to employees of Infolocity.
The grant of stock options and other stock-based awards can motivate high levels
of performance and provide an effective means of recognizing contributions of
key personnel to the success of the Company. In addition, stock-based
compensation can be valuable in recruiting and retaining key personnel who are
in great demand as well as rewarding and providing incentives to the Company's
current directors, officers, employees and consultants. The increase in the
number of shares available for awards under the 1998 Plan will enable the
Company to continue to realize the benefits of granting stock-based
compensation.
As of November 2, 1999, the last reported sales price of the Common
Stock on the Nasdaq SmallCap Market was $1.71875 per share.
SUMMARY OF THE 1998 PLAN
The following is a summary of the principal features of the 1998 Plan.
PURPOSE. The purpose of the 1998 Plan is to advance the interests of
the Company and its stockholders by strengthening the Company's ability to
obtain and retain the services of the types of employees, consultants, officers
and directors who will contribute to the Company's long term success and to
provide incentives which are linked directly to increases in stock value which
will inure to the benefit of all stockholders of the Company.
ADMINISTRATION. The 1998 Plan may be administered by the Board of the
Company, or a committee of the Board whose members will serve at the pleasure of
the Board. The party administering the 1998 Plan is referred to herein as the
"Administrator." Subject to the provisions of the 1998 Plan, the Administrator
has full and final authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted awards under
the 1998 Plan, (ii) to determine the type, size and terms of individual awards
to be made to each person selected, (iii) to determine the time when awards will
be granted and to establish objectives and conditions (including, without
limitation, vesting and performance conditions), if any, for earning awards,
(iv) to amend the terms or conditions of any outstanding award, subject to
applicable legal restrictions and to the consent of the other party to such
award, (v) to authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the 1998 Plan, and (vii) to
make any and all other determinations which the Administrator determines to be
necessary or advisable in the administration of the 1998 Plan. The Administrator
will have full power and authority to administer and interpret the Plan and to
adopt, amend and revoke such rules, regulations, agreements, guidelines and
instruments for the administration of the 1998 Plan and for the conduct of its
business as the Administrator deems necessary or advisable.
ELIGIBILITY. Any person who is a director, officer, employee or
consultant of the Company, or any of its subsidiaries (a "Participant"), will be
eligible to be considered for the grant of awards under the 1998 Plan. No
Participant may receive awards representing more than 50% of the number of
shares of Common Stock covered by the 1998 Plan.
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TYPES OF AWARDS. Awards authorized under the 1998 Plan may consist of
any type of arrangement with a Participant that, by its terms, involves or might
involve or be made with reference to the issuance of shares of the Company's
Common Stock, or a derivative security with an exercise or conversion price
related to the Common Stock or with a value derived from the value of the Common
Stock. Awards are not restricted to any specified form or structure and may
include sales, bonuses and other transfers of stock, restricted stock, stock
options, reload stock options, stock purchase warrants, other rights to acquire
stock or securities convertible into or redeemable for stock, stock appreciation
rights, phantom stock, dividend equivalents, performance units or performance
shares, or any other type of award which the Administrator will determine is
consistent with the objectives and limitations of the 1998 Plan. An award may
consist of one such security or benefit, or two or more of them in tandem or in
the alternative.
CONSIDERATION. The Common Stock or other property underlying an award
may be issued for any lawful consideration as determined by the Administrator,
including, without limitation, a cash payment, services rendered, or the
cancellation of indebtedness. In addition, an award may permit the recipient to
pay the purchase price of the Common Stock or other property or to pay such
recipient's tax withholding obligation with respect to such issuance, in whole
or in part, by delivering previously owned shares of capital stock of the
Company or other property, or by reducing the number of shares of Common Stock
or the amount of other property otherwise issuable pursuant to such award.
TERMINATION OF AWARDS. All awards granted under the 1998 Plan expire
ten years from the date of grant, or such shorter period as is determined by the
Administrator. No option is exercisable by any person after such expiration. If
an award expires, terminates or is canceled, the shares of Common Stock not
purchased thereunder will again be available for issuance under the 1998 Plan.
AMENDMENT AND TERMINATION OF THE 1998 PLAN. The Administrator may amend
the 1998 Plan at any time, may suspend it from time to time or may terminate it
without approval of the stockholders; provided, however, that stockholder
approval is required for any amendment which materially increases the number of
shares for which awards may be granted, materially modifies the requirements of
eligibility, or materially increases the benefits which may accrue to recipients
of awards under the 1998 Plan. However, no such action by the Board or
stockholders may unilaterally alter or impair any award previously granted under
the 1998 Plan without the consent of the recipient of the award. In any event,
the 1998 Plan will terminate on the tenth anniversary of the date the 1998 Plan
is approved by the stockholders unless sooner terminated by action of the Board.
EFFECT OF SECTION 16(B) OF THE EXCHANGE ACT. The acquisition and
disposition of Common Stock by officers, directors and greater-than-ten percent
stockholders of the Company ("Insiders") pursuant to awards granted to them
under the 1998 Plan may be subject to Section 16(b) of the Exchange Act.
Pursuant to Section 16(b), a purchase of common stock by an Insider within six
months before or after a sale of common stock by the Insider could result in
recovery by the Company of all or a portion of any amount by which the sale
proceeds exceeds the purchase price. Insiders are required to file reports of
changes in beneficial ownership under Section 16(a) of the Exchange Act upon
acquisitions and dispositions of shares. Rule 16b-3 provides an exemption from
Section 16(b) liability for certain transactions pursuant to certain employee
benefit plans. The 1998 Plan is designed to comply with Rule 16b-3.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE
COMPENSATION. Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), places a limit of $1,000,000 on the amount of compensation that
may be deducted by the Company in any year with respect to each of the Company's
five most highly paid executive officers. Certain "performance-based"
compensation that has been approved by the Company's stockholders is not subject
to the deduction limit. The 1998 Plan is intended to qualify as
performance-based compensation which is not subject to the $1,000,000 limitation
of Section 162(m) of the Code.
Federal Income Tax Consequences for Stock Options:
As of April 21, 1999, the only type of award granted by the Company has
been stock options. The following is a general discussion of the principal tax
considerations for both "incentive stock options" within the meaning of Section
422 of the Code ("Incentive Stock Options") and non-statutory stock options
("Non-statutory Stock Options"), and is based upon the tax laws and regulations
of the United States existing as of the date hereof, all of which are subject to
modification at any time. The 1998 Plan does not constitute a qualified
retirement plan under Section 401(a)
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of the Code (which generally covers trusts forming part of a stock bonus,
pension or profit-sharing plan funded by the employer and/or employee
contributions which are designed to provide retirement benefits to participants
under certain circumstances) and is not subject to the Employee Retirement
Income Security Act of 1974 (the pension reform law which regulates most types
of privately funded pension, profit sharing and
other employee benefit plans).
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is
recognized for federal income tax purposes by an optionee at the time an
Incentive Stock Option is granted, and, except as discussed below, no income is
recognized by an optionee upon his or her exercise of an Incentive Stock Option.
If the optionee makes no disposition of the Common Stock received upon exercise
within two years from the date such option was granted or one year from the date
such option is exercised, the optionee will recognize mid-term or long-term
capital gain or loss when he or she disposes of his or her Common Stock
depending on the length of the holding period. Such gain or loss generally will
be measured by the difference between the exercise price of the option and the
amount received for the Common Stock at the time of disposition.
If the optionee disposes of the Common Stock acquired upon exercise of
an Incentive Stock Option within two years after being granted the option or
within one year after acquiring the Common Stock, any amount realized from such
disqualifying disposition will be taxable as ordinary income in the year of
disposition to the extent that (i) the lesser of (a) the fair market value of
the shares on the date the Incentive Stock Option was exercised or (b) the fair
market value at the time of such disposition exceeds (ii) the Incentive Stock
Option exercise price. Any amount realized upon disposition in excess of the
fair market value of the shares on the date of exercise will be treated as
long-term, mid-term or short-term capital gain, depending upon the length of
time the shares have been held.
The use of stock acquired through exercise of an Incentive Stock Option
to exercise an Incentive Stock Option will constitute a disqualifying
disposition if the applicable holding period requirement has not been satisfied.
For alternative minimum tax purposes, the excess of the fair market
value of the stock as of the date of exercise over the exercise price of the
Incentive Stock Option is included in computing that year's alternative minimum
taxable income. However, if the shares are disposed of in the same year, the
maximum alternative minimum taxable income with respect to those shares is the
gain on disposition. There is no alternative minimum taxable income from a
disqualifying disposition in subsequent years.
CONSEQUENCES TO EMPLOYEES: NON-STATUTORY STOCK OPTIONS. No income is
recognized by a holder of Non- statutory Stock Options at the time Non-statutory
Stock Options are granted under the 1998 Plan. In general, at the time shares of
Common Stock are issued to a holder pursuant to exercise of Non-statutory Stock
Options, the holder will recognize ordinary income equal to the excess of the
fair market value of the shares on the date of exercise over the exercise price.
A holder will recognize gain or loss on the subsequent sale of Common
Stock acquired upon exercise of Non- statutory Stock Options in an amount equal
to the difference between the selling price and the tax basis of the Common
Stock, which will include the price paid plus the amount included in the
holder's income by reason of the exercise of the Non-statutory Stock Options.
Provided the shares of Common Stock are held as a capital asset, any gain or
loss resulting from a subsequent sale will be short-term, mid-term or long-term
capital gain or loss depending upon the length of time the shares have been
held.
CONSEQUENCES TO THE COMPANY: INCENTIVE STOCK OPTIONS. The Company will
not be allowed a deduction for federal income tax purposes at the time of the
grant or exercise of an Incentive Stock Option. There are also no federal income
tax consequences to the Company as a result of the disposition of Common Stock
acquired upon exercise of an Incentive Stock Option if the disposition is not a
disqualifying disposition. At the time of a disqualifying disposition by an
optionee, the Company will be entitled to a deduction for the amount received by
the optionee to the extent that such amount is taxable to the optionee as
ordinary income.
CONSEQUENCES TO THE COMPANY: NON-STATUTORY STOCK OPTIONS. Generally,
the Company will be entitled to a deduction for federal income tax purposes in
the year and in the same amount as the optionee is considered to have realized
ordinary income in connection with the exercise of Non-statutory Stock Options.
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RECOMMENDATION AND REQUIRED VOTE
The Approval of the Incentive Plan Amendment requires the affirmative
vote of a majority of the shares of the Company's Common Stock present or
represented and entitled to vote on this matter at the Special Meeting. An
abstention will be counted toward the tabulation of votes cast and will have the
same effect as a vote against the proposal. A broker non-vote, however, will
not be treated as a vote cast for or against approval of the proposal.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE AMENDMENT TO THE 1998 STOCK INCENTIVE PLAN TO
INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE 1998
PLAN, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
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PROPOSAL 4
APPROVAL OF THE AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY
The Board of the Company has approved, subject to stockholder approval,
the Name Change Amendment which will effect a change in the name of the Company
from IAT Resources Corporation to [_______________] (the "Name Change"). The
complete text of the Amendment is set forth as Exhibit "D" to this Proxy
Statement. The Board of Directors believes that it is in the best interest of
the Company to effect the Name Change in order to more accurately reflect the
Company's change in direction in terms of new areas of business.
The Amendment will be presented to stockholders in the form of a
resolution as follows:
RESOLVED, that Article Second of the Restated Certificate of
Incorporation of this Corporation be amended so that such Article, as
amended, shall be and read as follows:
2. The name of the corporation is [__________________________].
If the Name Change is approved by the requisite vote of the Company's
stockholders, the Name Change will be effective upon the close of business on
the date of filing of the Amendment with the Delaware Secretary of State, which
filing is expected to take place shortly after the Special Meeting. If this
proposal is not approved by the stockholders, then the Amendment will not be
filed.
RECOMMENDATION AND REQUIRED VOTE
The Board has unanimously approved the Name Change Amendment. The
affirmative vote of a majority of the outstanding shares of the Company's Common
Stock is required to approve the Name Change Amendment. For purposes of the vote
to amend the Restated Certificate of Incorporation, abstentions and broker
non-votes will be counted as votes cast against approval of the Name Change
Amendment. The Board is of the opinion that the Name Change Amendment is
advisable and in the best interests of the Company and recommends a vote FOR the
approval of the Name Change Amendment. All proxies will be voted to approve the
Name Change Amendment unless a contrary vote is indicated on the enclosed proxy
card.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE NAME CHANGE AMENDMENT TO EFFECT THE NAME CHANGE
OF THE COMPANY, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
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PROPOSAL 5
ELECTION OF TWO DIRECTORS
Pursuant to the Merger Agreement, the Company agreed that it will
nominate James J. Cerna, Jr. ("Cerna") and Victor A. Holtorf ("Holtorf") for
election as directors at the Company's Special Meeting, subject to the
consummation of the Merger and effective as of the Effective Time of the Merger.
From and after the Effective Time of the Merger, the Company also agreed that it
will nominate Cerna and Holtorf for election as directors at each meeting or
other action of stockholders at which directors are elected and will use its
best efforts to cause the election of Cerna and Holtorf, including soliciting
proxies in favor of the election of each of them. Pursuant to the Merger
Agreement, Cerna and Holtorf agreed that they will vote their shares of capital
stock of the Company to elect the nominees of the Company as directors of the
Company at each meeting or other action of stockholders at which directors are
elected.
In accordance with the Bylaws of IATR (the "Bylaws"), the Company's
directors are elected at each Annual Meeting of stockholders and hold office
until the next election of directors and until their successors are duly
elected. The Bylaws provide that the Board will consist of no fewer than two and
no more than nine directors as determined from time to time by the Board. The
Board currently consists of five directors. Upon consummation of the Merger, the
Board will consist of seven members.
Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them for the nominees named below. The Company has no reason to
believe that any nominee will be unable or unwilling to serve if elected as a
director.
The Board proposes the election of the following nominees as directors:
1. James J. Cerna, Jr.
2. Victor A. Holtorf
If elected, each nominee is expected to serve until the 2000 Annual
Meeting of Stockholders and thereafter until his or her successor is duly
elected and qualified.
INFORMATION WITH RESPECT TO NOMINEES AND CURRENT DIRECTORS
The following table sets forth certain information with respect to the nominees
and executive officers of the Company as of September 14, 1999:
<TABLE>
<CAPTION>
AGE AT YEAR FIRST
SEPTEMBER ELECTED OR
14, 1999 APPOINTED
NAME DIRECTOR PRINCIPAL OCCUPATION
- -------------------------- -------------- -------------- -------------------------------------------------------
<S> <C> <C> <C>
James J. Cerna, Jr. 30 1999 Prior to founding Infolocity in 1998, Mr. Cerna was the
manager of the GT Global/AIM Funds Performance and
Risk analysis group in San Francisco. He began his
career with GT in 1994 as a Senior Analyst. Prior to
GT, Mr. Cerna was an International Equity Analyst
with Bailard, Biehl, and Kaiser ("BB&K") in San
Mateo, CA for three years. Before moving to BB&K,
Mr. Cerna was employed as a stockbroker with Thomas
James & Associates in Burlinghame, California. Mr.
Cerna is a member of the San Francisco Society of
Securities Analysts as well as a CFA level II candidate.
He has received five certificates of Achievement from
the Institute of Chartered Financial Analysts, and is
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<PAGE>
honored by Strathmore's Who's Who for leadership and
achievement in the Securities Industry. Mr. Cerna
holds NASD licenses as well as State of California
licenses as a securities broker/dealer.
Victor A. Holtorf 36 1999 Mr. Holtorf has served as President of Infolocity since
January 1999. In 1988, Mr. Holtorf joined Oracle
Corporation, where he initially created and headed the
Oracle Real Estate Corporation, its commercial real
estate development subsidiary, and later rose to the
position of Vice President and Chief Financial Officer
until his departure in [1994]. From 1994 to 1997, he
started and headed several successful companies
including NUVO, Inc. (a retail sporting goods chain),
MART Cattle Co. (a cattle production and trading
company), and Dashabout Shuttle (a transportation
company). Mr. Holtorf obtained his Master's Degree
from M.I.T. where he studied business at the Sloan
School of Management, and construction management
at the School of Civil Engineering.
Ivan Berkowitz 53 1999 Mr. Berkowitz has been director of the Company since
February 1999. Since 1993, Mr. Berkowitz has served
as Managing General Partner of Steib & Company, also
a privately held New York based investment company.
Between 1995 and 1997, Mr. Berkowitz served as Chief
Executive Officer of PolyVision Corporation. Between
1990 and 1994, Mr. Berkowitz served as Chairman of
the Board of Directors of Migdalei Shekel. Currently,
Mr. Berkowitz serves on the Board of Directors of the
following public companies: Propierre, a real estate
fund, HMG WorldWide, a manufacturer of point of
purchase displays, PolyVision Corporation, a
manufacturer of school products and displays, and
Migdalei Shekel, a real estate company based in Tel
Aviv. Since 1989, Mr. Berkowitz has served as
President of Great Court Holdings Corporation, a
privately held New York based investment company.
Mr. Berkowitz holds a BA (cum laude) from Brooklyn
College, an MBA in Finance from Baruch College, City
University of New York and a Ph.D. in International
Law from Cambridge University, England.
Arthur H. Bernstein 36 1995 Mr. Bernstein has been a director of the Company since
February 1995 and has served as the Executive Vice
President of the Company since October 1997 as well as
the Company's Secretary since March 1995. Between
June 1992 and October 1997, Mr. Bernstein served as
a Senior Vice President of the Company and
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<PAGE>
was the Company's Vice President-Business and Legal Affairs
from September 1991 to June 1992. Prior to this, from
July 1989 to August 1991, Mr. Bernstein was the
Director of Legal and Business Affairs for New World
Entertainment Ltd., a television production and
distribution company. From 1987 to June 1989, he was
Assistant General Counsel of Four Star International,
Inc., a television production and distribution company.
Mr. Bernstein received a B.S. in finance and marketing
from Philadelphia College of Textiles and Sciences in
1984 and his law degree from Temple University in 1987.
Michael Iscove 48 1997 Mr. Iscove has been a director of the Company since
October 1997. Since June 1995, Mr. Iscove has served
as the Chairman, President and Chief Executive Officer
of Sirius Corporate Finance Inc., a consulting firm
providing strategic planning, corporate finance,
restructuring and mergers and acquisitions support.
Prior to that, from April 1986 to June 1995, Mr. Iscove
was the President of Creative Fusion, a consulting
company. In 1978, Mr. Iscove received a Chartered
Accounts Designation in accounting from The Canadian
Institute of Chartered Accountants. In 1972, Mr.
Iscove received a B.A. degree in English from York
University, Toronto, Canada.
Irwin Meyer 63 1989 Mr. Meyer has been a director of the Company since its
inception in 1989 and has served as its Chief Executive
Officer since February 1995. Since January 1999, Mr.
Meyer has been Chairman of the Board of Directors.
At various times prior to October 1997, Mr. Meyer
served as the Company's Chairman of the Board (April
1996-October 1997; January 1991-June 1992); Co-
Chairman of the Board (February 1990-December 1990)
and President (February 1995-October 1997). Mr.
Meyer was an executive producer of seven of the
Company's made-for-television movies. In 1995 he
was nominated for Producer of the Year by the
Producers Guild of America. Mr. Meyer received the
Antoinette Perry ("Tony") Award, the New York
Drama Critics Circle Award, the Drama Desk Award,
the Outer Critics Circle Award and the Cue Magazine
Golden Apple Award for his 1977 production of the
musical "Annie." Mr. Meyer is a member of the
Academy of Motion Picture Arts and Sciences and the
Academy of Television Arts and Sciences. He holds a
B.S. from New York University.
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Thomas Daniels 46 1998 Mr. Daniels has been a director of IATR since July
1998. Since the Company's acquisition of MediaWorks
in July 1998, Mr. Daniels has served as President of
MediaWorks. Mr. Daniels, along with Mr. Craig
Sussman, founded MediaWorks in 1996. From 1992
until 1995, Mr. Daniels served as an Executive
Consultant of International Distribution for Landmark
Entertainment Group. From 1989 until 1992, Mr.
Daniels served as a senior production and distribution
executive with Blake Edwards Television, Paramount
Pictures Television and Columbia Pictures Television.
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Board has an Audit Committee and a Compensation Committee. The
Audit Committee currently consists of Michael Iscove and Ivan Berkowitz.
Responsibilities of the Audit Committee include (i) reviewing financial
statements and consulting with the independent auditors concerning the Company's
financial statements, accounting and financial policies and internal controls,
(ii) reviewing the scope of the independent auditors' activities and the fees of
the independent auditors and (iii) maintaining good communications among the
Audit Committee, the Company's independent auditors and the Company's management
on accounting matters. Two meetings of the Audit Committee were held during the
fiscal year ended June 30, 1999, and no meetings of the Audit Committee have
been held since June 30, 1999.
The Compensation Committee currently consists of Michael Iscove and
Ivan Berkowitz. The Compensation Committee is responsible for considering and
making recommendations to the Board regarding executive compensation. Two
meetings of the Compensation Committee were held during the fiscal year ended
June 30, 1999, and no meetings of the Compensation Committee have been held
since June 30, 1999.
The Board held ___ meetings and acted by written consent on ___
occasions during the fiscal year ended June 30, 1999. No director attended less
than 75% of all the meetings of the Board and those committees on which he
served in 1999.
The Company does not have a standing Nominating Committee; the full
Board performs the functions of the Nominating Committee.
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive any compensation for
attending Board or Committee meetings. Non-employee directors of the Company
each receive an annual grant of stock options to purchase 25,000 shares of the
Common Stock of the Company. When requested by the Company to attend Board
meetings in person, it is the policy of the Company to reimburse directors for
reasonable travel and lodging expenses incurred in attending these Board
meetings.
EXECUTIVE COMPENSATION
The attached Annual Report on Form 10-KSB (Exhibit F) includes the
Summary Compensation Table and other information on compensation paid to
executive officers, stock option grants and employment agreements.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The attached Annual Report on Form 10-KSB (Exhibit F) includes a
detailed list relating to the ownership of IATR Common Stock by (i) each person
known by us to be the beneficial owner of more than five percent of the
outstanding shares of our Common Stock, (ii) each of our directors, (iii) each
of the Named Executive Officers, and (iv) all of our executive officers and
directors as a group.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board approved the engagement of Singer
Lewak Greenbaum & Goldstein LLP as its independent auditors for the year ending
June 30, 1998 to replace Kellogg & Andelson Accountancy Corporation ("Kellogg &
Andelson"), who resigned as auditors of the Company effective June 22, 1998.
Kellogg & Andelson advised the Company that Kellogg & Andelson could no longer
provide services as independent accountants for publicly held companies. The
change in independent public accountants was filed with the SEC on Form 8-K on
June 29, 1998.
Kellogg & Andelson audited the financial statements of the Company as
of June 30, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years ended June 30, 1996 and 1997
(collectively, the "Financial Statements"). Kellogg & Andelson's reports on the
Financial Statements for the past two years did not contain an adverse opinion
or disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles.
In connection with the audits of the Company's financial statements for
the years ended June 30, 1996 and 1997, and in the subsequent interim period
through June 22, 1998, there were no disagreements with Kellogg & Andelson on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which disagreements, if not
resolved to the satisfaction of Kellogg & Andelson would have caused Kellogg &
Andelson to make reference to the subject matter of the disagreements in their
reports.
Representatives of Singer Lewak Greenbaum & Goldstein LLP are not
expected to be present at the Special Meeting of Stockholders.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than ten percent stockholders are required by the SEC regulations to
furnish the Company with copies of Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended June 30, 1999, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were satisfied, except Ivan Berkowitz filed a Form
3 late and Arthur Bernstein filed a Form 4 late.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholder who intends to present a proposal at the next Annual
Meeting of Stockholders for inclusion in the Company's Proxy Statement and Proxy
form relating to such Annual Meeting must submit such proposal to the Company at
its principal executive offices by December 14, 1999.
SOLICITATION OF PROXIES
It is expected that the solicitation of proxies will be primarily by
mail. The Company has retained MacKenzie Partners to assist it in soliciting
proxies and estimates that it will pay $_______ for its services in connection
with such solicitations. The cost of solicitation by management will be borne by
the Company. The Company will
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<PAGE>
reimburse brokerage firms and other persons representing beneficial owners of
shares for their reasonable disbursements in forwarding solicitation material
to such beneficial owners. Proxies may also be solicited by certain of the
Company's directors and officers, without additional compensation, personally
or by mail, telephone, telegram or otherwise for the purpose of soliciting such
proxies.
ANNUAL REPORT ON FORM 10-K
THE COMPANY INCORPORATES HEREIN BY REFERENCE INFORMATION SET FORTH IN
THE ANNUAL REPORT ON FORM 10-KSB, WHICH HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED JUNE 30, 1999. THE COMPANY IS
PROVIDING TO STOCKHOLDERS ALONG WITH THIS PROXY STATEMENT THE ANNUAL REPORT ON
FORM 10-KSB.
ON BEHALF OF THE BOARD OF DIRECTORS
ARTHUR H. BERNSTEIN
SECRETARY
LOS ANGELES, CALIFORNIA 90036
[___________], 1999
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<PAGE>
Exhibit A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"AGREEMENT") is made and entered into as of November 1, 1999 by and among IAT
Resources Corporation, a Delaware corporation (the "PARENT"), Infolocity Merger
Sub, Inc., a Delaware corporation ("MERGER SUB"), Infolocity, Inc., a California
corporation (the "COMPANY"), James J. Cerna, Jr., an individual ("CERNA"), and
Victor Alonso Holtorf, an individual ("HOLTORF" and, together with Cerna, the
"PRINCIPAL SHAREHOLDERS").
RECITALS
A. The Boards of Directors of the Parent, Merger Sub and the Company
have determined that the merger of Merger Sub with and into the Company on the
terms set forth herein, with the Company surviving as a wholly-owned subsidiary
of the Parent, is advisable and in the best interests of their respective
corporations and stockholders and have approved this Agreement.
B. The parties hereto desire to adopt a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions contained herein, the parties to this Agreement
hereby agree as follows:
1. DEFINITIONS; INTERPRETATION.
1.1 CERTAIN DEFINITIONS. As used in this Agreement, terms defined in the
preamble and recitals hereto shall have the respective meanings specified
therein and the following terms shall have the following meanings:
1.1.1 "ACTION" means any litigation, action, suit, proceeding,
arbitration or claim before any court or Governmental Authority, or any
investigation by any Governmental Authority.
1.1.2 "AFFILIATE" shall mean, with respect to any specified Person,
(i) any other Person who, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such specified
Person, (ii) any other Person who is a director, officer, manager, member,
partner or trustee of the specified Person or a Person described in clause (i)
of this definition or any spouse or non-adult child (including by adoption) of
the specified Person or any such other Person, (iii) any relative (other than a
spouse or non-adult child (including by adoption)) of the specified Person or
any other Person described in clause (ii) of this definition who has the same
principal address as such person, (iv) any trust of which the specified Person
and/or any one or more of the Persons specified in clause (i), (ii) or (iii) of
this definition has a beneficial interest, or (v) any Person of which the
specified Person and/or any one or more of the Persons specified in clause
(i),(ii) or (iii) of this definition, individually or in the aggregate,
beneficially own
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<PAGE>
10% or more of any class of voting securities or otherwise have a substantial
beneficial interest. For purposes of this definition, "control" shall have the
meaning for such term set forth in Rule 405 under the Securities Act.
1.1.3 "ANNUAL FINANCIAL STATEMENTS" shall mean the audited
consolidated balance sheet of the Company as at June 30, 1999 and the related
audited consolidated statements of operations, changes in shareholders' equity
and cash flows for the six months then ended, including, without limitation, the
notes and schedules to such financial statements.
1.1.4 "BEST EFFORTS" shall mean the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to ensure that
the result is achieved as expeditiously as practicable under the circumstances;
PROVIDED, HOWEVER, that an obligation to use Best Efforts under this Agreement
does not require the Person subject to that obligation to (i) take actions that
would result in a material adverse change in the benefits to such Person under
this Agreement or the transactions contemplated by this Agreement, (ii) make any
significant cash payments or (iii) incur any significant liability or
obligation.
1.1.5 "BEST KNOWLEDGE" (i) with respect to the Company shall mean the
actual knowledge of each of the Principal Shareholders and Carlos Gonzalez, and
(ii) with respect to the Parent shall mean the actual knowledge of each of Irwin
Meyer and Arthur Bernstein.
1.1.6 "BRIDGE LOAN PROMISSORY NOTE" shall mean the Bridge Loan
Promissory Note of the Company made to the Parent as holder dated August 26,
1999, which provides for loans by the Parent to the Company in the aggregate
amount of $2,000,000 on the terms and subject to the conditions contained
therein.
1.1.7 "BUSINESS CONDITION" of any Person shall mean the business,
properties, assets, revenues, operations, financial condition, results of
operations, or prospects of such Person.
1.1.8 "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in Los
Angeles, California are authorized or obligated by Law or executive order to
close.
1.1.9 "CERNA EMPLOYMENT AGREEMENT" shall mean that certain employment
agreement between the Company and Cerna in the form of EXHIBIT 1.1.9 attached
hereto.
1.1.10 "CGCL" shall mean the General Corporation Law of the State of
California.
1.1.11 "CHARTER DOCUMENTS" shall mean with respect to any Person, the
Articles or Certificate of Incorporation, By-Laws, Articles of Organization,
Operating Agreement or other organizational documents, as applicable, of such
Person.
1.1.12 "CLOSING VALUE OF THE PARENT COMMON STOCK" shall mean the
average per share closing sale price of the Parent Common Stock on the Nasdaq
SmallCap Market for the ten consecutive trading days immediately prior to the
Business Day prior to the Closing Date.
1.1.13 "COMMISSION" shall mean the Securities and Exchange Commission.
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1.1.14 "COMPANY COMMON STOCK" shall mean the common stock, no par
value per share, of the Company.
1.1.15 "COMPANY SERIES A PREFERRED STOCK" shall mean the Series A
Preferred Stock, no par value per share, of the Company.
1.1.16 "COMPANY STOCK" shall mean the Company Common Stock and the
Company Series A Preferred Stock.
1.1.17 "CONDITIONAL GUARANTY" shall mean the Conditional Guaranty
dated as of August ___, 1999 by the Principal Shareholders to the Parent.
1.1.18 "CONTRACT" shall mean any written or oral note, bond,
debenture, mortgage, license, agreement, commitment, contract or understanding.
1.1.19 "DGCL" shall mean the General Corporation Law of the State of
Delaware.
1.1.20 "EQUITY SECURITIES" shall mean (i) with respect to any Person
that is a corporation, the capital stock and/or any Stock Equivalents of such
Person, and (ii) with respect to any Person that is not a corporation, any and
all partnership, limited liability company or other equity interests and/or any
Stock Equivalents of such Person.
1.1.21 "EMPLOYEE PLANS" with respect to any Person shall mean any
plan, arrangement or Contract providing compensation or benefits to, for or on
behalf of employees and/or directors of such Person, including, without
limitation, employment, deferred compensation, retirement or severance
Contracts; plans pursuant to which Equity Securities are issued, including,
without limitation, stock purchase, stock option and stock appreciation rights
plans; bonus, thrift, pension, savings, insurance, profit sharing, severance,
loan guaranty, employee loan or incentive compensation plans or arrangements;
and unemployment benefit, hospitalization or other medical, life, dental,
vision, health care or other insurance plans and policies.
1.1.22 "EXPLOIT" shall mean manufacture, advertise, license, market,
merchandise, promote, publicize, sell, use, supply or distribute, and
"EXPLOITATION" and "EXPLOITED" shall have correlative meanings.
1.1.23 "GAAP" shall mean generally accepted accounting principles,
consistently applied.
1.1.24 "GONZALEZ EMPLOYMENT AGREEMENT" shall mean that certain
employment agreement between the Company and Carlos Gonzalez in the form of
EXHIBIT 1.1.24 attached hereto.
1.1.25 "GOVERNMENTAL AUTHORITY" shall mean any nation or government,
any state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
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<PAGE>
1.1.26 "HOLTORF EMPLOYMENT AGREEMENT" shall mean that certain
employment agreement between the Company and Holtorf in the form of EXHIBIT
1.1.26 attached hereto.
1.1.27 "MERGER SHARES" shall mean 7,375,000 shares of Parent Common
Stock, subject to adjustment as provided in SECTION 2.10.
1.1.28 "LAW" shall mean any federal, state or local statute, law,
rule, regulation, ordinance, order, code, policy or rule of common law, now or
hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority, including,
without limitation, any judicial or administrative order, consent, decree or
judgment; PROVIDED that for purposes of SECTION 4.15 and 4.17, "Laws" shall be
limited to federal and California Laws.
1.1.29 "LIEN" shall mean any liens, options, security interests,
pledges or other encumbrances, proxies, voting trusts, voting agreements,
judgments, charges, escrows, rights of first refusal or first offer, indentures,
claims or transfer restrictions, whether arising by Contract or operation of
law.
1.1.30 "NON-DISCLOSURE AGREEMENTS" shall mean those certain
non-disclosure agreements entered into by the employees of the Company and the
Parent, each in the form of EXHIBIT 1.1.30 attached hereto.
1.1.31 "ORDER" shall mean any Law, rule, regulation, judgment, decree,
injunction or other order (whether temporary, preliminary or permanent).
1.1.32 "OUTSTANDING COMPANY SHARES" shall mean the sum of the total
number of shares of Company Common Stock and the total number of shares of
Company Series A Preferred Stock issued and outstanding immediately prior to the
Closing.
1.1.33 "PARENT COMMON STOCK" shall mean the common stock, par value
$0.001 per share, of the Parent.
1.1.34 "PARENT SEC REPORTS" shall mean each form, report, schedule,
registration statement and definitive proxy statement filed by the Parent with
the Commission since January 1, 1998.
1.1.35 "PERSON" shall mean an individual or a partnership,
corporation, trust, association, limited liability company, Governmental
Authority or other entity.
1.1.36 "PROXY STATEMENT" shall mean the proxy statement to be filed by
the Parent with the Commission in connection with the Parent Stockholders
Meeting.
1.1.37 "PARENT STOCKHOLDERS MEETING" mean the Parent's special meeting
of stockholders to be held after the mailing of the definitive Proxy Statement
in accordance with SECTION 7.5.2, at which meeting, among other things, the
Parent will seek the Parent Stockholders Approval.
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1.1.38 "PARENT STOCKHOLDERS APPROVAL" shall mean the approval by the
stockholders of the Parent, in accordance with the DGCL and the rules of the
Nasdaq Stock Market, of all matters which are required to be approved by the
Parent's stockholders in connection with the issuance of the Merger Shares in
the Merger and the other transactions contemplated hereby.
1.1.39 "SOFTWARE" shall mean the Company's Maximillian software.
1.1.40 "STOCK EQUIVALENTS" of any Person shall mean options, warrants,
calls, rights, commitments, convertible securities and other securities or
interests pursuant to which the holder, directly or indirectly, has the right to
acquire (with or without additional consideration) capital stock, partnership
interests, membership interests or other equity interests of such Person.
1.1.41 "SUBSIDIARY" of any Person shall mean any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are owned directly or indirectly by such Person.
1.1.42 "TAX" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including, without
limitation, any interest, penalty, or addition thereto, whether disputed or not.
1.1.43 "TAX LIABILITIES" shall mean all Liabilities related to Taxes.
1.1.44 "TAX RETURN" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
1.1.45 "TRANSACTION CONTRACTS" shall mean this Agreement, the Bridge
Loan Promissory Note, the Cerna Employment Agreement, the Gonzalez Employment
Agreement, the Holtorf Employment Agreement, the Conditional Guaranty, the
Non-Competition Agreements, the Non-Disclosure Agreements, the Rule 145
Affiliate Letters and each other Contract or instrument executed and delivered
by any party hereto in connection with the transactions contemplated by this
Agreement.
1.1.46 "TRANSACTION EXPENSES" of a party hereto shall mean all costs
and expenses incurred by or on behalf of such party in connection with, arising
out of or relating to this Agreement and the transactions contemplated hereby,
including, without limitation, all legal fees and costs, all broker, finder,
investment banker, appraiser and similar fees and costs, and all costs and
expenses of other experts and advisors.
1.1.47 "TRANSFER" shall mean sell, assign, transfer, pledge, grant a
security interest in, or otherwise dispose of, with or without consideration,
and "TRANSFERRED" shall have a correlative meaning.
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<PAGE>
1.2 OTHER DEFINITIONS. The following terms shall have the meanings given
the terms in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
"Acquisition Proposal" 7.4
"Affiliate Letter" 7.7
"California Secretary of State" 2.2
"Certificate" 2.5.4
"Certificate of Merger" 2.2
"Claim" 11.5
"Claim Notice" 11.5
"Closing" 3
"Common Merger Consideration" 2.5.2
"Company Disclosure Schedule" 4
"Company Financial Schedule" 4.6
"Company Indemnified Party" 11.4
"Damages" 11.2
"Delaware Secretary of State" 2.2
"Direct Claim" 11.5
"Effective Time" 2.2
"Executive Committee" 10.2.3
"Indemnified Party" 11.5
"Indemnifying Party" 11.5
"Investor Letter" 7.11
"Letter of Transmittal" 2.6.1
"Liabilities" 4.7
"Listed Securities" 6.15
[provisions intentionally deleted]
"Material Contracts" 4.11.2
"Merger" 2.1
"Merger Consideration" 2.5.2
"Merger Share Transfer Agreement" 7.12
"NonCompetition Agreements" 8.7
"Parent Disclosure Schedule" 6
"Notices" 14.1
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"Parent Financial Statements" 6.9
"Parent Indemnified Party" 11.2
"Permits" 4.16
"Rule 145 Affiliates" 7.7
"Surviving Corporation" 2.1
"Third Party Claim" 11.5
</TABLE>
1.3 CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context otherwise
requires, (a) words of any gender include each other gender; (b) words using the
singular or plural number also include the plural or singular number,
respectively; (c) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement; (d) the term "Section" refers to
the specified Section of this Agreement; (e) the terms "and" and "or" include
the term "and/or" when the context is appropriate; and (f) the phrase "ordinary
course of business" refers to the business and practice of the Person specified.
Whenever this Agreement refers to a number of days, such number shall refer to
calendar days unless Business Days are specified. All accounting terms used
herein and not expressly defined herein shall have the meanings given to them
under GAAP. Whenever this Agreement refers to an Exhibit or Schedule attached
hereto, the Exhibit or Schedule shall be deemed to be incorporated by reference
herein.
2. THE MERGER.
2.1 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time and in accordance with the DGCL and the
CGCL, Merger Sub shall be merged with and into the Company in accordance with
this Agreement (the "MERGER") and the separate existence of Merger Sub shall
cease. The Company shall be the surviving corporation in the Merger (hereinafter
sometimes referred to as the "SURVIVING CORPORATION").
2.2 FILINGS; EFFECTIVE TIME OF THE MERGER. On the Closing Date, Merger Sub
and the Company shall cause the Merger to be consummated by executing,
delivering and filing a certificate of merger with the Secretary of State of the
State of Delaware (the "DELAWARE SECRETARY OF STATE") in accordance with Section
252 of the DGCL and an agreement of merger with the Secretary of State of the
State of California (the "CALIFORNIA SECRETARY OF STATE") in accordance with
Section 1108 of the CGCL. The parties shall on the Closing Date file such other
documents with the Delaware Secretary of State and the California Secretary of
State as may be required by the provisions of the DGCL and the CGCL and as are
necessary to cause the Merger to become effective. The Merger shall become
effective when the certificate of merger, the agreement of merger and such other
necessary documents are so filed with the Delaware Secretary of State and the
California Secretary of State, as applicable, or at such other time thereafter
as provided in the certificate of merger and the agreement of merger. The time
at which the Merger becomes effective is herein referred to as the "EFFECTIVE
TIME."
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
the DGCL and the CGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective
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Time, all of the properties, rights, privileges, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
2.4 THE SURVIVING CORPORATION.
2.4.1 ARTICLES OF INCORPORATION. At the Effective Time, the Articles
of Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation.
2.4.2 BYLAWS. At the Effective Time, the Bylaws of the Company, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation.
2.4.3 DIRECTORS AND OFFICERS. At and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable Law or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws, Cerna, Holtorf, two individuals to be designated by the Parent not later
than two Business Days prior to the Effective Time, and one individual to be
mutually designated by the Parent, Cerna and Holtorf not later than two Business
Days prior to the Effective Time shall be the directors of the Surviving
Corporation. At and after the Effective Time, until successors are duly elected
or appointed and qualified in accordance with applicable Law or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws, the officers of the
Company in office immediately prior to the Effective Time shall be the officers
of the Surviving Corporation.
2.5 CONVERSION OF CAPITAL STOCK OF THE MERGER SUB AND THE COMPANY.
2.5.1 At the Effective Time, each issued and outstanding share of
common stock, par value $0.001 per share, of Merger Sub shall be converted into
and become one fully paid and nonassessable share of common stock, par value
$0.001 per share, of the Surviving Corporation.
2.5.2 At the Effective Time, each issued and outstanding share of
Company Common Stock and each issued and outstanding share of Company Series A
Preferred Stock shall be converted into the right to receive that number of
validly issued, fully paid and non-assessable shares of Parent Common Stock
(including any fractional share, subject to SECTION 2.5.3) as is equal to the
Merger Shares divided by the Outstanding Company Shares (the "MERGER
CONSIDERATION").
2.5.3 No fractional shares of Parent Common Stock will be issued in
the Merger, but in lieu thereof, any holder of Company Stock who would otherwise
be issued a fractional share of Parent Common Stock after aggregating all of the
shares of the Parent Common Stock otherwise issuable to such holder of Company
Stock in the Merger, shall be paid cash equal to the value of such fractional
share, based on a per share value of the Parent Common Stock of $2.05.
2.5.4 As a result of the Merger and without any action on the part of
the holders thereof, at the Effective Time, all shares of Company Common Stock
and Company Series A Preferred Stock shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of shares of Company Common Stock and Company Series A Preferred Stock shall
thereafter cease to have any rights with respect to such shares of Company
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Common Stock and Company Series A Preferred Stock, except the right to receive,
without interest, the Common Merger Consideration or the Preferred Merger
Consideration, as applicable, and cash for fractional shares of Parent Common
Stock in accordance with SECTION 2.5.3 upon the surrender of a certificate that,
immediately prior to the Effective Time, represented an outstanding share or
shares of Company Common Stock or Company Series A Preferred Stock (in each such
case, a "CERTIFICATE").
2.5.5 Notwithstanding anything contained in this SECTION 2.5 to the
contrary, each share of Company Stock issued and held in the Company's treasury
immediately prior to the Effective Time, and each share of Company Stock owned
by the Parent or Merger Sub immediately prior to the Effective Time, shall, by
virtue of the Merger, cease to be outstanding and shall be cancelled and retired
and shall cease to exist without payment of any consideration therefor.
2.6 DELIVERY OF CONSIDERATION.
2.6.1 As soon as reasonably practicable after the Effective Time, the
Parent shall mail to each holder of record of Company Stock immediately prior to
the Effective Time (i) a letter of transmittal (a "LETTER OF TRANSMITTAL")
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Parent and shall be in such form and have such other customary provisions as the
Parent may reasonably specify), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration with
respect to the shares of Company Stock formerly represented thereby.
2.6.2 Upon surrender of a Certificate for cancellation to the Parent
or to any agent or agents as may be appointed by the Parent, together with a
Letter of Transmittal, duly completed and executed, and such other documents as
the Parent or any such agent may reasonably request, the holder of such
Certificate shall be entitled to receive in exchange therefor, (i) a certificate
representing the number of Merger Shares which such holder has the right to
receive pursuant to the provisions of this SECTION 2, and (ii) a check of the
Parent in an amount equal to the cash, if any, which such holder has the right
to receive pursuant to SECTION 2.5.3 (in each case, less the amount of any
required withholding taxes), and the Certificate so surrendered shall forthwith
be cancelled. Until surrendered as contemplated by this SECTION 2.6.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration with respect to the shares of
Company Stock formerly represented thereby.
2.7 TERMINATION OF COMPANY STOCK EQUIVALENTS. All Stock Equivalents of the
Company outstanding immediately prior to the Closing shall be terminated in
accordance with their terms and shall be of no further force or effect as of the
Closing Date.
2.8 CLOSING OF TRANSFER BOOKS. At and after the Effective Time, transfers
of the shares of Company Stock outstanding immediately prior to the Effective
Time shall not be made on the stock transfer books of the Company.
2.9 LOST CERTIFICATES. Notwithstanding the provisions of SECTION 2.6, in
the event any Certificate representing Company Stock has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and an agreement to indemnify
the Parent against any claim that may be made against it with respect to
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such Certificate, the Parent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration into which such Company Stock
would have been converted and any fractional payment due in connection therewith
pursuant to SECTION 2.5.3.
2.10 ADJUSTMENTS TO MERGER SHARES.
2.10.1 If the Closing Value of the Parent Common Stock is less than
$1.75 per share, then, and in such event, that number of shares of Parent Common
Stock (rounded up to the nearest whole share) as is equal to the amount
determined by (i) subtracting the Closing Value of the Parent Common Stock from
$1.93, (ii) multiplying the difference by 7,250,000, and (iii) dividing the
result by the Closing Value of the Parent Common Stock shall be added to the
Merger Shares.
2.10.2 If the Parent purchases any shares of the Company Series A
Preferred Stock pursuant to SECTION 7.13, that number of shares of Parent Common
Stock (rounded up to the nearest whole share) as is equal to the amount
determined by dividing the total cash amount paid by the Parent in purchasing
such shares of Company Series A Preferred Stock by $1.93 shall be subtracted
from the Merger Shares.
3. CLOSING. The Closing of the Merger (the "CLOSING") shall, unless another date
or place is agreed to in writing by the parties, take place at the offices of
Troop Steuber Pasich Reddick & Tobey, LLP, 2029 Century Park East, 24th Floor,
Los Angeles, California 90067 on October 31, 1999 or such later date as is the
fifth Business Day after the satisfaction or waiver of all conditions precedent
to the Merger. The date and time of the Closing is referred to in this Agreement
as the "CLOSING DATE."
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS.
Except as set forth in the amended disclosure schedule delivered by the Company
to the Parent concurrently with the execution and delivery of this Agreement,
which schedule shall refer to the relevant Sections of this Agreement (the
"COMPANY DISCLOSURE SCHEDULE"), the Company and the Principal Shareholders,
jointly and severally, represent and warrant to the Parent and Merger Sub as
follows (the representations and warranties contained in this SECTION 4 being
the only representations and warranties of the Company contained in this
Agreement):
4.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and corporate authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted. True and correct copies of the Charter Documents of the Company
have been delivered to the Parent.
4.2 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
4.2.1 The Company has full corporate power and corporate authority to
enter into, execute and deliver each Transaction Contract to which it is a party
and perform its obligations thereunder. Subject to the approval of the Company's
shareholders, each Transaction Contract to which the Company is a party has been
duly authorized by all necessary corporate action of the Company. This Agreement
has been, and at the Closing each other Transaction Contract to which the
Company is a party will be, duly executed and delivered by the Company. Assuming
each
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Transaction Contract to which the Parent or Merger Sub is a party is duly
executed and delivered by Parent and Merger Sub, respectively, this Agreement
constitutes and, at the Closing, each other Transaction Contract to which the
Company is a party will constitute, a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally, or the availability of equitable remedies.
4.2.2 The execution and delivery by the Company of each Transaction
Contract to which it is a party do not, and compliance by the Company with the
provisions of each such Transaction Contract will not, (A) conflict with or
result in a breach or default under the Charter Documents of the Company or any
of the terms, conditions or provisions of any Contract to which the Company is a
party or otherwise bound, or to which any property or asset of the Company is
subject; (B) violate any Law applicable to the Company; or (C) result in the
creation or imposition of any Lien on any asset of the Company.
4.3 CAPITALIZATION. The authorized capital stock of the Company consists of
20,000,000 shares of Company Common Stock and 4,000,000 shares of Company Series
A Preferred Stock. The Company Disclosure Schedule lists the name and the place
of residence of each of the holders of the Company's outstanding Equity
Securities and the class, number and material terms of such Equity Securities
held by each such holder (including, without limitation, all Stock Equivalents)
and the consideration provided to the Company by the holder for such securities.
Other than as set forth in the Company Disclosure Schedule, there are no issued
or outstanding Equity Securities of the Company or any subscription rights
(including preemptive rights), calls or Contracts obligating the Company now or
at any time in the future to issue Equity Securities. All of the outstanding
shares of Company Stock have been duly authorized and validly issued and are
fully paid and non-assessable and were not issued in violation of any preemptive
rights or any Federal or state securities laws.
4.4 SUBSIDIARIES. The Company does not have any direct or indirect
Subsidiaries and does not own of record or beneficially any Equity Securities of
any Person.
4.5 NO CONSENTS REQUIRED. There are no approvals, authorizations, consents,
orders or other actions of, or filings or registrations with, any Person that
are required to be obtained or made by the Company in connection with the
execution of, and the consummation of the transactions contemplated under, this
Agreement, other than the approval of the Company's shareholders of this
Agreement and the transactions contemplated hereby and the filings with the
Delaware Secretary of State and the California Secretary of State set forth in
SECTION 2.2.
4.6 FINANCIAL SCHEDULE. SECTION 4.6 of the Company Disclosure Schedule (the
"COMPANY FINANCIAL SCHEDULE") accurately sets forth the accounts receivable and
the liabilities of the Company as of August 31, 1999.
4.7 LIABILITIES. The Company does not have any obligations or liabilities
(direct or indirect, matured or unmatured, absolute, accrued, contingent or
otherwise) whether or not required by GAAP to be reflected or reserved against
on a balance sheet ("LIABILITIES") other than (a) Liabilities set forth on the
Company Financial Schedule, or (b) Liabilities incurred in the ordinary
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course of business consistent with past practice since August 31, 1999. None of
the Liabilities described above relates to or has arisen out of a breach of
Contract, breach of warranty, tort or infringement by or against the Company or
any claim or Action involving the Company.
4.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since June 30, 1999, the Company
has conducted its business only in the ordinary course of business consistent
with past practice and there has not been any:
4.8.1 material adverse change in the Business Condition of the
Company;
4.8.2 purchase, redemption, retirement or other acquisition by the
Company of any Equity Securities of the Company;
4.8.3 declaration or payment of any dividend or other distribution by
the Company on any of its Equity Securities;
4.8.4 increase by the Company in the compensation payable or to become
payable by the Company to any director, officer or employee of the Company in
excess of $5,000 individually or $15,000 in the aggregate;
4.8.5 payments or distributions to employees, officers or directors of
the Company except such amounts as constitute currently effective compensation
for services rendered, or reimbursement for reasonable, ordinary and necessary
out-of-pocket business expenses;
4.8.6 hiring or termination of any employee who has an annual salary
in excess of $40,000;
4.8.7 discharge of any Liability except in the usual and ordinary
course of business in accordance with past practices, or prepayment of any
Liability or Liabilities which, in the aggregate, exceed $50,000;
4.8.8 Transfer or lease of any assets to, or entry into any Contract
with, any shareholder of the Company or any officer or director of the Company
(other than payment of salaries to officers in the ordinary course of business
and consistent with past practice) or any of their respective Affiliates;
4.8.9 revaluation of any assets of the Company, including, without
limitation, any write off of any material asset as unusable or obsolete or for
any other reason;
4.8.10 change in accounting methods, principles and practices employed
by the Company;
4.8.11 material change in the conduct or nature of any aspect of the
business of the Company;
4.8.12 casualty, damage, destruction or loss, or interruption of use
of any assets or property (whether covered by insurance or not) in excess of
$50,000 individually or in the
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aggregate or which otherwise has had a material adverse effect on the Business
Condition of the Company;
4.8.13 Transfer or lease of any assets, except for Transfers of cash
applied in the payment of the Company's Liabilities in the ordinary course of
business consistent with past practice;
4.8.14 research and development or capital expenditures by the Company
in an amount which exceeds $50,000 in the aggregate;
4.8.15 borrowing of money other than in the ordinary course of
business consistent with past practice or issuance or sale of any bonds,
debentures, notes or other corporate securities of any class, including without
limitation, those evidencing borrowed money, or prepayment or acceleration of
any payments under any of the foregoing, or otherwise making of any payments in
respect thereof other than in accordance with regularly scheduled payments;
4.8.16 cancellation, without full payment, of any note, loan or other
obligation owing to the Company;
4.8.17 any amendment or termination of any Contract which would be a
Material Contract if such Contract were in effect as of the date of this
Agreement, other than in the ordinary course of business consistent with past
practice;
4.8.18 issuance or sale of any Equity Securities of the Company; or
4.8.19 without limitation by the enumeration of the foregoing, entry
into any Contract with respect to any of the foregoing or entry into any
material transactions other than in the ordinary course of business consistent
with past practice.
4.9 TITLE TO PROPERTIES; ABSENCE OF ENCUMBRANCES.
4.9.1 The Company Disclosure Schedule contains a correct and complete
list of the real properties leased or occupied by the Company as of the date
hereof. The Company owns no real properties.
4.9.2 The Company enjoys peaceful and undisturbed possession to the
real property covered by all of the leases under which it is operating. All of
such leases are valid, subsisting and in full force and effect, and the Company
is not in breach or default of any such lease.
4.9.3 All material items of tangible personal property owned or leased
by the Company in the ordinary course of its business are in good operating
condition, ordinary wear and tear excepted.
4.9.4 The Company has good and marketable title to or a valid right to
use all its properties and assets, free and clear of any and all Liens.
4.10 ACCOUNTS RECEIVABLE. The Company Financial Schedule sets forth a
true and complete schedule and description of the accounts receivable of the
Company as of August 31,
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1999, including, without limitation, the names and addresses of the account
debtors, the balance amount and aging as of the date indicated therein. The
accounts receivable, whether reflected on the Company Financial Schedule or
subsequently created, and all books, records and documents relating to such
accounts receivable, are genuine and accurate. All accounts receivable of the
Company, whether reflected on the Company Financial Schedule or subsequently
created: (A) constitute bona fide and valid rights of the Company to collect
payments from other Persons; (B) represent credit extended in a manner
consistent with the Company's trade practices; (C) are not subject to any
defense, counterclaim or offset; and (D) except for reserves for bad debts set
forth in the Company Financial Schedule, are fully collectable within 60 days of
the respective dates on which such accounts receivable were billed. The Company
has not sold, assigned, subjected to Liens or otherwise disposed of any of its
accounts receivables.
4.11 MATERIAL CONTRACTS.
4.11.1 The Company Disclosure Schedule identifies each written
Material Contract and summarizes the material terms of each Material Contract
that is not in writing. True and correct copies of each Material Contract,
including, without limitation, all amendments and modifications thereof and
waivers thereunder, have been delivered to the Parent or its counsel. Each
Material Contract is in full force and effect, and is the valid and binding
obligation of each party thereto. The Company has performed all of its
obligations required to be performed by it to date under each Material Contract,
and the Company is not in breach of or default under any Material Contract, and
no event has occurred or circumstance exists which, with notice or lapse of time
or both, would constitute a breach of or default by the Company under any
Material Contract. To the Best Knowledge of the Company, each party to each
Material Contract other than the Company has performed all of the obligations
required to be performed by such party to date under the Material Contract and
is not in breach of or in default under the Material Contract, and no event has
occurred or circumstance exists which, with notice or lapse of time or both,
would constitute a breach of or default by such party under the Material
Contract.
4.11.2 For purposes of this Agreement, "MATERIAL CONTRACTS" shall mean
the following Contracts to which the Company is a party or otherwise bound:
4.11.2.1 each Contract pursuant to which the Company provides services
to any customer of the Company;
4.11.2.2 employment, management, consulting and other Contracts with
any current or former officer, director, employee or consultant or with any
entity in which any of the foregoing is an owner, officer, director, employee or
consultant;
4.11.2.3 Contracts for the purchase or sale of any materials,
products, services or supplies (i) calling (individually or together with any
related Contracts) for a purchase price or payment by the Company in any one
year of more than $50,000 or (ii) which are not one-time purchase orders and
cannot be canceled or terminated by the Company without liability, premium or
penalty on one month's or less notice;
4.11.2.4 leases, conditional sales Contracts, licenses and other
agreements under which the Company uses any tangible personal property
(including, without limitation, all
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computer and peripheral and other related equipment and devices) to which any
Company security holder or officer or director of the Company or their
respective Affiliates is a party or with respect to which there are remaining
payment obligations which exceed $50,000 in the aggregate;
4.11.2.5 each Contract (1) under which the benefits cannot be retained
upon the consummation of the transactions contemplated by this Agreement without
the written consent or approval of other Person(s), (2) under which there will
be a default as a result of the consummation of the transactions contemplated by
this Agreement unless any Person(s) provide written consent or approval or (3)
which would require the making of any payment, other than payments as
contemplated by this Agreement, to any employee of the Company or to any other
Person as a result of the consummation of the transactions contemplated herein;
4.11.2.6 Contracts with customers or suppliers for the sharing of
fees, the rebating of charges or other similar arrangements;
4.11.2.7 Contracts relating to either (i) the acquisition by the
Company of any operating business or substantially all of the assets of a third
party or (ii) the purchase or Transfer of any tangible or intangible assets of
the Company other than in the ordinary and usual course of business;
4.11.2.8 Contracts containing covenants or restrictions limiting in
any way the freedom of the Company to compete in any line of business or with
any Person in any geographical area or for any period of time;
4.11.2.9 Contracts requiring the payment to any Person of an override
or similar commission or royalty or fee;
4.11.2.10 guarantees, performance bid or completion bonds, or other
Contracts of suretyship or indemnification;
4.11.2.11 trade secret, confidentiality or similar Contracts;
4.11.2.12 joint venture, operating, shareholder and partnership
Contracts;
4.11.2.13 loan agreements, notes, security agreements, mortgages,
debentures, indentures, factoring agreements or letters of credit;
4.11.2.14 sales representative, distribution, franchise, advertising
and similar Contracts;
4.11.2.15 license Contracts;
4.11.2.16 each Contract providing the Company the right to use or
Exploit the intellectual property of any Person; and
4.11.2.17 service Contracts affecting the Company's assets where the
service charge is in excess of $50,000 in the aggregate or is not terminable on
30 days or less notice with a payment of no more than $5,000.
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4.12 SOFTWARE. The Company owns the Software free and clear of any claims
of Cerna, Anthony Cerna or Carlos Gonzalez. The Software is accurately described
in Attachment B and the files containing the complete source code to the
Software are listed in Attachment C to the Assignment of Rights to Software
executed by Anthony Cerna and Carlos Gonzalez on April 10, 1999. To the Best
Knowledge of the Company, the Company's Exploitation of the Software does not
infringe upon the rights of any Person.
4.13 ACTIONS. There is no Action pending or, to the Best Knowledge of the
Company, threatened, in law or in equity, against the Company or any of its
officers or directors with respect to or affecting the Business Condition of the
Company or related to the consummation of the transactions contemplated hereby.
To the Best Knowledge of the Company, there are no facts which, if known by a
potential claimant or Governmental Authority, would be reasonably likely to give
rise to a Claim which, if asserted or conducted with results unfavorable to the
Company, would have a material adverse effect on the Business Condition of the
Company or on the consummation of the transactions contemplated hereby. The
Company is not a party to, or bound by, any decree, order or arbitration award
(or Contract entered into in any administrative, judicial or arbitration
proceeding with any Governmental Authority) with respect to or affecting its
Business Condition.
4.14 BROKERS. The Company has not retained or otherwise engaged or employed
any broker, finder or any other Person, or paid or agreed to pay any fee or
commission to any agent, broker, finder or other Person, for or on account of
acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
4.15 COMPLIANCE WITH APPLICABLE LAW. To the Best Knowledge of the Company,
the Company has complied and is in compliance with all applicable Laws. No
investigation by any Governmental Authority of any alleged violation or
noncompliance with any Law is pending or, to the Best Knowledge of the Company,
threatened.
4.16 PERMITS. The Company Disclosure Schedule lists all federal, state,
local and foreign governmental franchises, licenses, approvals, authorizations
and permits ("PERMITS") issued by any Governmental Authority to the Company. To
the Best Knowledge of the Company, each of such Permits is in full force and
effect. The Company has all Permits and other rights that are required in order
to conduct its business as presently conducted. No violation of any of such
Permits has occurred and no Action is pending or, to the Best Knowledge of the
Company, threatened to revoke or restrict any of such Permits.
4.17 EMPLOYEES. With respect to employees of the Company:
4.17.1 To the Best Knowledge of the Company, the Company is and has
been in compliance with all applicable Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including,
without limitation, any such Laws respecting employment discrimination, sexual
harassment, occupational safety and health, immigration status, and unfair labor
practices. There are no pending or, to the Best Knowledge of the Company,
threatened unfair labor practice charges or employee grievance charges.
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4.17.2 There is no request for union representation, labor strike,
dispute, slowdown or stoppage pending or, to the Best Knowledge of the Company,
threatened against or directly affecting the Company.
4.17.3 At the Closing Date, the Company shall have no Liabilities to
any of its past or current employees or any Persons who have provided
consulting, advisory or similar services to the Company, other than liabilities
reflected, reserved against or otherwise disclosed in the Company Financial
Schedule.
4.17.4 No grievance or arbitration proceeding arising out of or under
collective bargaining agreements to which the Company is a party or otherwise
bound is pending and no claims therefor exist before any Governmental Authority.
4.17.5 The employment of each employee of the Company is terminable at
will without cost to the Company except for payment of accrued salaries or wages
and vacation pay.
4.17.6 There is no collective bargaining agreement or other Contract
that is binding on the Company with respect to collective bargaining with any
union or group of employees.
4.17.7 The Company has not experienced any work stoppage.
4.17.8 The Company Disclosure Schedule contains a true and complete
list of all employees who were employed by the Company as of September 13, 1999,
and such list correctly reflects their salaries, wages, other compensation,
dates of employment and positions. To the Best Knowledge of the Company, no
employee of the Company presently intends to terminate his or her employment
with the Company.
4.18 EMPLOYEE BENEFITS. The Company Disclosure Schedule sets forth a
list of all Employee Plans of the Company. All Employee Plans of any kind or
nature maintained by or on behalf of the Company comply with and are and have
been operated in material compliance with all applicable Laws. None of such
plans are subject to regulation under the Employment Retirement Income Security
Act of 1974, as amended.
4.19 TAX MATTERS.
4.19.1 The Company has filed all Tax Returns that it has been required
to file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have been
paid. No claim has ever been made by a Governmental Authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Liens on any of the assets of the
Company that arose in connection with any failure (or alleged failure) to pay
any Tax.
4.19.2 The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other Person.
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4.19.3 To the Best Knowledge of the Company, no Governmental Authority
is expected to assess any additional Taxes for any period for which Tax Returns
have been filed. There is no pending or, to the Best Knowledge of the Company,
threatened dispute or claim of any Governmental Authority relating to any Tax
Liability of the Company.
4.19.4 The unpaid Taxes of the Company (A) did not, as of August 31,
1999, exceed the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth in the Company Financial Schedule and (B) do not exceed that reserve as
adjusted for the passage of time from August 31, 1999 through the Closing Date
in accordance with prudent business practice.
4.20 OTHER RELATIONSHIPS. None of the shareholders of the Company or any of
their respective Affiliates has any interest (other than as a noncontrolling
holder of securities of a publicly traded company), either directly or
indirectly, in any Person (whether as an employee, officer, director,
shareholder, partner, member, agent, independent contractor, security holder,
creditor, consultant, or otherwise) that presently (i) provides any services or
designs, produces and/or sells any products or product lines, or engages in any
activity which is the same, similar to or competitive with any activity or
business in which the Company is now engaged; (ii) is a supplier of, customer
of, creditor of, or has an existing contractual relationship with the Company;
or (iii) has any direct or indirect interest in any asset or property used by
the Company or any property, real or personal, tangible or intangible, that is
necessary or desirable for the conduct of the business of the Company. No
current or former stockholder, director, officer or employee of the Company nor
any Affiliate of any such Person is at present or at any prior time has been,
directly or indirectly through his affiliation with any other Person, a party to
any transaction (other than as an employee) with the Company providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring cash payments to, any such Person.
4.21 CONFLICTS OF INTEREST. No shareholder of the Company nor any officer,
employee, agent or any other Person acting on behalf of the Company or any
shareholder of the Company has, directly or indirectly, given or agreed to give
or receive any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to or from any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any Governmental Authority or other Person who was, is, or may be in
a position to help or hinder the business of the Company (or assist in
connection with any actual or proposed transaction therewith) which (i) might
subject the Company to any Damages in any Action, (ii) if not given in the past,
might have had a material adverse effect on the Business Condition of the
Company or (iii) if not continued in the future, might have a material adverse
effect on the Business Condition of the Company.
4.22 INSURANCE. The Company has in full force and effect insurance with
respect to its assets and businesses against such casualties and contingencies
and of such types and forms and to such extent as is customary in the case of
Persons engaged in its businesses and in its areas. The Company Disclosure
Letter contains a true and correct list of all insurance policies maintained by
the Company and a general description of such policies.
4.23 SEVERANCE PAYMENTS. The Company is not a party to any Contract and has
no policy providing for severance or termination payments to any officer,
director, consultant or employee.
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4.24 MATERIAL MISSTATEMENTS AND OMISSIONS; PROXY STATEMENT. No
representations and warranties by the Company in this Agreement, or any exhibit,
schedule or certificate furnished by the Company to the Parent pursuant to this
Agreement, contains or will contain any untrue statement of material fact or
omits or will omit to state any material fact necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The information supplied or to be supplied by the Company for
inclusion in the Parent Proxy Statement, including any amendments and
supplements thereto, will not, at the date mailed to the Parent's stockholders
or at the time of the Parent Meeting or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
supplied or to be supplied by the Company for inclusion in the Parent Proxy
Statement, including any amendments and supplements thereto, will not, at the
date mailed to the Parent's stockholders or at the time of the Parent Meeting or
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
5. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS. Each
Principal Shareholder, severally and not jointly, represents and warrants to the
Parent and Merger Sub as follows (the representations and warranties contained
in SECTION 4 and this SECTION 5 being the only representations and warranties of
the Principal Shareholders contained in this Agreement):
5.1 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
5.1.1 Such Principal Shareholder has full power and authority to enter
into, execute and deliver each Transaction Contract to which he is a party and
perform his obligations thereunder. Each Transaction Contract to which such
Principal Shareholder is a party has been duly authorized by all necessary
action of such Principal Shareholder. This Agreement has been, and at the
Closing each other Transaction Contract to which such Principal Shareholder is a
party will be, duly executed and delivered by such Principal Shareholder.
Assuming each Transaction Contract to which the Parent or Merger Sub is a party
is duly executed and delivered by the Parent or Merger Sub, this Agreement
constitutes and, at the Closing, each other Transaction Contract to which such
Principal Shareholder is a party will constitute, a valid and legally binding
obligation of such Principal Shareholder, enforceable against such Principal
Shareholder in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally, or the availability
of equitable remedies.
5.1.2 The execution and delivery by such Principal Shareholder of each
Transaction Contract to which such Principal Shareholder is a party do not, and
compliance by such Principal Shareholder with the provisions of each such
Transaction Contract will not, (A) conflict with or result in a breach or
default under any of the terms, conditions or provisions of any Contract to
which such Principal Shareholder is a party or otherwise bound, or to which any
property or asset of such Principal Shareholder is subject; (B) violate any Law
applicable to such Principal Shareholder; or (C) result in the creation or
imposition of any Lien on any asset of such Principal Shareholder.
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5.2 THE COMPANY STOCK. Such Principal Shareholder owns the shares of
Company Stock set forth opposite his name in the Company Disclosure Letter, free
and clear of all Liens. Such Principal Shareholder is not the beneficial owner
(as determined pursuant to Rule 13d-3 of the Exchange Act) of any Company Stock
except as set forth in SECTION 4.3 of the Company Disclosure Schedule. Such
Principal Shareholder has not Transferred any shares of Company Stock.
5.3 BROKERS. Such Principal Shareholder has not retained or otherwise
engaged or employed any broker, finder or any other Person, or paid or agreed to
pay any fee or commission to any agent, broker, finder or other Person, for or
on account of acting as a finder or broker in connection with this Agreement or
the transactions contemplated hereby.
5.4 NO CONSENTS REQUIRED. There are no approvals, authorizations, consents,
orders or other actions of, or filings with, any Person that are required to be
obtained or made by such Principal Shareholder in connection with the execution
of, and the consummation of the transactions contemplated under, this Agreement.
5.5 ENTIRELY FOR OWN ACCOUNT. The Merger Shares to be received by such
Principal Shareholder pursuant to the Merger will be acquired for investment for
such Principal Shareholder's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and such
Principal Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing the same. Such Principal Shareholder
has no Contract with any Person to sell, transfer or grant participations to
such Person or to any third Person with respect to any of the Merger Shares that
such Principal Shareholder will acquire pursuant to the Merger.
5.6 DISCLOSURE OF INFORMATION. Such Principal Shareholder believes he has
received all the information he considers necessary or appropriate for deciding
whether to acquire the Merger Shares that he is acquiring pursuant to this
Agreement. Such Principal Shareholder has had an opportunity to ask questions
and receive answers from the Parent regarding the Merger Shares that such
Principal Shareholder is acquiring pursuant to the Merger and the Business
Condition of the Parent.
5.7 INVESTMENT EXPERIENCE. Such Principal Shareholder can bear the economic
risk of his investment in the Merger Shares that he is acquiring pursuant to the
Merger, and has such knowledge and experience in financial or business matters
that he is capable of evaluating the merits and risks of the investment in the
Merger Shares that he is acquiring pursuant to this Agreement.
5.8 RESTRICTED SECURITIES. Such Principal Shareholder understands that the
Merger Shares that he is acquiring pursuant to this Agreement are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Parent in a transaction not involving a public
offering and that under such laws and applicable regulations such Merger Shares
may be resold without registration under the Securities Act only in certain
limited circumstances. Such Principal Shareholder represents that he is familiar
with Rule 144 under the Securities Act, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF THE PARENT. Except as set forth in the
amended disclosure schedule delivered by the Parent to the Company and the
Principal Shareholders
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concurrently with the execution and delivery of this Agreement, which schedule
shall refer to the relevant Sections of this Agreement (the "Parent Disclosure
Schedule"), the Parent hereby represents and warrants to the Company and the
Principal Shareholders as follows (the representations and warranties contained
in this SECTION 6 and, as of the Closing Date, those made expressly in SECTIONS
9.3 and 9.10, being the only representations and warranties of the Parent and
Merger Sub contained in this Agreement):
6.1 ORGANIZATION, STANDING AND POWER. Each of the Parent and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as now being conducted. Each of the
Parent and its Subsidiaries is duly qualified or licensed as a foreign
corporation and is in good standing in each jurisdiction where the nature of its
properties owned or held under lease or the nature of the business conducted by
it make such qualification necessary.
6.2 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
6.2.1 Each of the Parent and Merger Sub has full corporate power and
corporate authority to enter into, execute and deliver each Transaction Contract
to which it is a party and perform its obligations thereunder. Subject to the
Parent Stockholders Approval, each Transaction Contract to which the Parent or
Merger Sub is a party has been duly authorized by all necessary corporate action
of the Parent or Merger Sub, respectively. This Agreement has been, and at the
Closing each other Transaction Contract to which the Parent or Merger Sub is a
party will be, duly executed and delivered by the Parent or Merger Sub,
respectively. Assuming each Transaction Contract to which the Company or any
Principal Shareholder is a party is duly executed and delivered by the Company
or such Principal Shareholder to the extent they are parties thereto, this
Agreement constitutes and, at the Closing, each other Transaction Contract to
which the Parent or Merger Sub is a party will constitute, a valid and legally
binding obligation of the Parent or Merger Sub, respectively, enforceable
against the Parent and Merger Sub, respectively, in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally, or the availability of equitable remedies.
6.2.2 The execution and delivery by each of the Parent and Merger Sub
of each Transaction Contract to which it is a party do not, and compliance by
each of the Parent and Merger Sub with the provisions of each such Transaction
Contract will not, (A) conflict with or result in a breach or default under the
Charter Documents of the Parent or Merger Sub or any of the terms, conditions or
provisions of any Contract to which the Parent or Merger Sub is a party or
otherwise bound, or to which any property or asset of the Parent or Merger Sub
is subject; (B) violate any Law applicable to the Parent or Merger Sub; or (C)
result in the creation or imposition of any Lien on any asset of the Parent or
Merger Sub.
6.3 CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Parent as of October 28, 1999 is set forth in SECTION 6.3 of the
Parent Disclosure Schedule. Other than as set forth in SECTION 6.3 of the Parent
Disclosure Schedule, as of October 28, 1999 there were no issued or outstanding
shares of the Equity Securities of the Parent or any subscription rights
(including preemptive rights), calls or Contracts obligating the Parent now or
at any time in the
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future to issue shares of its Equity Securities. All of the outstanding shares
of Parent Stock have been duly authorized, validly issued, fully paid and
non-assessable and not issued in violation of any preemptive rights or any
Federal or state securities laws. On January 19, 1999, Parent entered into an
agreement (the "Grosso/Jacobson Agreement") with Salvatore A. Grosso ("Grosso"),
Lawrence Jacobson ("Jacobson"), SAG Productions, Inc., Lawrence Jacobson
Associates, Inc. and Grosso/Jacobson Communications, Inc. pursuant to which
Grosso and Jacobson agreed to return to Parent certain shares of Parent Common
Stock to Parent. As of October 28, 1999, Parent has received an aggregate of
333,333 shares of Parent Common Stock from Grosso and Jacobson, all of which
have been retired as treasury stock and none of which have been reissued.
Pursuant to the terms of the Grosso/Jacobson Agreement, Parent expects to
receive an additional 666,667 shares of Parent Common Stock from Grosso and
Jacobson.
6.4 DIRECTORS. The Charter Documents of the Parent authorize a Board of
Directors of the Parent consisting of up to nine members and provide that each
Parent director is elected by the stockholders at each annual meeting of the
stockholders.
6.5 NO CONSENTS REQUIRED. There are no approvals, authorizations, consents,
orders or other actions of, or filings with, any Person that are required to be
obtained or made by either of the Parent or Merger Sub in connection with the
execution of, and the consummation of the transactions contemplated under, this
Agreement.
6.6 VALIDITY OF MERGER SHARES. Upon delivery of the certificates for the
Merger Shares pursuant to the terms of this Agreement, due countersignature of
the certificates by the Parent's transfer agent and delivery to the Company
Shareholders receiving Merger Shares pursuant to this Agreement, the Merger
Shares to be issued by the Parent represented thereby will be duly authorized
and validly issued, fully paid and nonassessable.
6.7 BROKERS. Other than Jeffrey Marcus (whose fee in connection with the
Merger will not exceed $280,000, payable in cash or shares of Parent Common
Stock at the Parent's election), neither the Parent nor Merger Sub has retained
or otherwise engaged or employed any broker, finder or any other person for or
on account of acting as a finder or broker in connection with this Agreement or
the transactions contemplated hereby for which either of the Parent or Merger
Sub could be responsible.
6.8 SEC REPORTS. As of their respective dates, each of the Parent SEC
Reports complied as to form in all material respects with the requirements
applicable thereto and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Except as disclosed in the Parent SEC Reports, since March
31, 1999 there has not occurred any change or event which has resulted in a
material adverse effect on the Business Condition of the Parent and its
Subsidiaries taken as a whole.
6.9 FINANCIAL STATEMENTS. The books, accounts and records of the Parent and
its Subsidiaries are and have been maintained at all times in the Parent's
usual, regular and ordinary manner in accordance with GAAP, consistently
applied. The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Parent included in the Parent
SEC Reports (collectively, the "PARENT FINANCIAL STATEMENTS"), including any
appended notes which are an integral part of such statements, have been prepared
in conformity with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly in all material respects the consolidated
financial position of the Parent as at their respective dates and the
consolidated results of operations and cash flows of the Parent for the periods
covered thereby, subject in the case of the unaudited interim financial
statements to normal recurring year-end adjustments.
6.10 LIABILITIES. The Parent and its Subsidiaries do not have any
liabilities other than (a)
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Liabilities provided for or reserved against in the Parent Financial Statements,
(b) Liabilities disclosed in the Parent SEC Reports, or (c) Liabilities incurred
in the ordinary course of business consistent with past practice since March 31,
1999. None of the Liabilities described above relates to or has arisen out of a
breach of Contract, breach of warranty, tort or infringement by or against the
Company or any claim or Action involving the Company.
6.11 ACTIONS. There is no Action pending or, to the Best Knowledge of the
Parent, threatened, in law or in equity, against the Parent, any of its
Subsidiaries or any of their respective officers or directors with respect to or
affecting the Business Condition of the Parent or its Subsidiaries or related to
the consummation of the transactions contemplated hereby. To the Best Knowledge
of the Parent, there are no facts which, if known by a potential claimant or
Governmental Authority, would be reasonably likely to give rise to a Claim
which, if asserted or conducted with results unfavorable to the Parent or its
Subsidiaries, would have a material adverse effect on the Business Condition of
the Parent or its Subsidiaries, taken as a whole, or on the consummation of the
transactions contemplated hereby. None of the Parent and its Subsidiaries is a
party to, or bound by, any decree, order or arbitration award (or Contract
entered into in any administrative, judicial or arbitration proceeding with any
Governmental Authority) with respect to or affecting its Business Condition.
6.12 COMPLIANCE WITH APPLICABLE LAW. To the Best Knowledge of the Parent,
the Parent and each of its Subsidiaries has complied and is in compliance with
all applicable Laws. No investigation by any Governmental Authority of any
alleged violation or noncompliance with any Law is pending or, to the Best
Knowledge of the Parent, threatened against the Parent or any of its
Subsidiaries.
6.13 PERMITS. To the Best Knowledge of the Parent, each Permit issued by
any Governmental Authority to the Parent or any of its Subsidiaries is in full
force and effect. The Parent and its Subsidiaries have all Permits and other
rights that are required in order to conduct their business as presently
conducted. No violation of any of such Permits has occurred and no Action is
pending or, to the Best Knowledge of the Parent, threatened to revoke or
restrict any of such Permits.
6.14 TAX MATTERS.
6.14.1 The Parent and its Subsidiaries have filed all Tax Returns that
each of them has been required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Parent and its Subsidiaries
(whether or not shown on any Tax Return) have been paid. No claim has ever been
made by a Governmental Authority in a jurisdiction where the Parent or its
Subsidiaries do not file Tax Returns that any of them is or may be subject to
taxation by that jurisdiction. There are no Liens on any of the assets of the
Parent or any of its Subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax.
6.14.2 Each of the Parent and its Subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other Person.
6.14.3 To the Best Knowledge of the Parent, no Governmental Authority
is
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expected to assess any additional Taxes for any period for which Tax Returns
have been filed. There is no pending or, to the Best Knowledge of the Parent,
threatened dispute or claim of any Governmental Authority relating to any Tax
Liability of the Parent or any of its Subsidiaries.
6.14.4 The unpaid Taxes of the Parent and its Subsidiaries (A) did
not, as of the most recent fiscal month end, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth in the Parent
Financial Statements (rather than in any notes thereto) and (B) do not exceed
that reserve as adjusted for the passage of time from March 31, 1999 through the
Closing Date in accordance with the past custom and practice of the Parent in
filing its Tax Returns.
6.15 LISTING ON THE NASDAQ SMALLCAP MARKET. The Parent Common Stock, the
Parent's Series A Convertible Preferred Stock and the Parent's Warrants
exercisable for an aggregate of 5,100,000 shares of Parent Common Stock
(collectively, the "LISTED SECURITIES") are listed for trading on the Nasdaq
SmallCap Market. To the Best Knowledge of the Parent, there are no pending or
threatened proceedings by the Nasdaq Stock Market with respect to the delisting
of the Listed Securities from the Nasdaq SmallCap Market.
6.16 MATERIAL MISSTATEMENTS AND OMISSIONS. No representations and
warranties by the Parent or Merger Sub in this Agreement, or any exhibit,
schedule or certificate furnished by the Parent or Merger Sub to the Company
pursuant to this Agreement, contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
7. COVENANTS PRIOR TO THE CLOSING DATE.
7.1 CONDUCT OF BUSINESS BY THE COMPANY. Prior to the Closing, except as
contemplated by this Agreement or with the prior written consent of the Parent,
the Company agrees, and the Principal Shareholders agree to cause the Company:
7.1.1 to conduct its operations according to its ordinary and usual
course of business;
7.1.2 not to Transfer any assets, other than asset Transfers according
to its ordinary and usual course of business; 7.1.3 not to propose, adopt or
authorize any amendment to the Charter Documents of the Company except as
provided for in this Agreement (except that the Company shall expand promptly
the Company's Board of Directors to five members to allow for the inclusion on
the Company's Board of Directors of two designees of Parent);
7.1.4 to promptly notify the Parent of any material change in the
Company's business, properties, assets or liabilities or in the operation of its
properties and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or the breach in
any material respect of any representation or warranty of the Company contained
herein;
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7.1.5 not to adopt, or amend to increase compensation or benefits
payable under, any Benefit Plan, Contract or arrangement for the benefit of
employees;
7.1.6 not to (A) except pursuant to the exercise of Stock Equivalents
of the Company existing on the date hereof and disclosed in this Agreement,
authorize, issue, sell, pledge, encumber or agree to authorize, issue, sell,
pledge or encumber any Equity Securities of the Company, (B) effect any stock
split, combination, recapitalization or otherwise change its capitalization as
it existed on the date hereof, (C) grant, confer or award any Stock Equivalents,
or alter any terms of or accelerate the vesting or exercise date of any
outstanding Stock Equivalents, (D) redeem or otherwise acquire any of its
outstanding Equity Securities or make any commitment to take such action, or (E)
declare, set aside or pay any dividend or distribution payable in cash, Equity
Securities or other property with respect to the Company's Equity Securities;
7.1.7 not to enter into any Material Contract;
7.1.8 not to amend, modify or terminate, or grant any waiver of any
right under, any Material Contract, and not to make any payment under any
Material Contract which is not required to be made strictly in accordance with
the terms of the Material Contract;
7.1.9 to comply with all of its obligations and duties under any
Material Contract and not to create or permit to exist any default or event of
default on behalf of the Company under any Material Contract, or any event or
circumstance which, with lapse of time or notice, or both, would constitute a
default under a Material Contract;
7.1.10 not to commence or settle any Action;
7.1.11 to use its Best Efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those Persons having
business relationships with the Company;
7.1.12 to duly comply in all material aspects with all applicable
Laws;
7.1.13 not to (A) acquire any assets, other than in the ordinary
course of business consistent with past practice, (B) dispose of or encumber any
assets other than in the ordinary course of business consistent with past
practice or relinquish, forfeit or waive any right under any Contract, Permit or
other instrument that is material to its business or operations as presently
conducted or proposed to be conducted, (C) incur any indebtedness for borrowed
money, or assume, guarantee or otherwise as an accommodation become responsible
for, the obligations of any other Person, (D) acquire any Equity Securities of
any Person, or (E) enter into any other transaction other than in the ordinary
course of business consistent with past practice,
7.1.14 to maintain all properties necessary for the conduct of the
business of the Company, whether owned or leased, in substantially the same
condition as they now are;
7.1.15 to maintain its books, records and accounts in the usual,
regular and ordinary manner, on a basis consistent with prior periods;
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7.1.16 not to enter into any Contract of any kind or nature with any
Affiliate, or make any payment or other asset Transfer to or for the benefit of
any Affiliate (other than employment compensation in the ordinary course of
business consistent with past practice);
7.1.17 not to enter into any transaction or perform any act which
would make any of the representations, warranties or agreements of the Company
and the Principal Shareholders contained in this Agreement false or misleading
in any material respect if made again immediately after such transaction or act;
and
7.1.18 not to take any affirmative action (including, without
limitation, entering into any Contract) or fail to take any action within its
control that is likely to cause any of the changes or events listed in this
SECTION 7.1 to occur.
7.2 CONDUCT OF BUSINESS BY THE PARENT. Prior to the Closing, except as
contemplated by this Agreement or with the prior written consent of the Company,
the Parent agrees, and agrees to cause each of its Subsidiaries:
7.2.1 to conduct its operations according to its ordinary and usual
course of business;
7.2.2 not to Transfer any assets, other than asset Transfers according
to its ordinary and usual course of business;
7.2.3 to promptly notify the Company of any material change in the
business, properties, assets or liabilities of the Parent and its Subsidiaries
or in the operation of their properties and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) or the breach in any material respect of any representation or
warranty of the Parent contained herein;
7.2.4 not to adopt, or amend to increase compensation or benefits
payable under, any Benefit Plan, Contract or arrangement for the benefit of
existing employees;
7.2.5 not to (A) except pursuant to (1) the exercise or conversion of
Stock Equivalents of the Company existing on the date hereof and disclosed in
this Agreement or (2) issuances of Parent capital stock at a price per share not
less than eighty percent of the closing price per share of the Parent Common
Stock on the Nasdaq SmallCap Market on the trading day prior to the issuance,
which issuances shall be approved by the Parent's Board of Directors and the
proceeds of such issuances shall be used for working capital and other valid
business purposes of the Parent and its Subsidiaries as determined in good faith
by the Parent's Board of Directors, authorize, issue, sell, pledge, encumber or
agree to authorize, issue, sell, pledge or encumber any Equity Securities of the
Company, (B) effect any stock split, combination or recapitalization of its
capital stock as it existed on the date hereof, (C) redeem or otherwise acquire
for cash any of its outstanding Equity Securities or make any commitment to take
such action, or (D) declare, set aside or pay any dividend or distribution
payable in cash, Equity Securities or other property with respect to the
Parent's Equity Securities, other than regularly scheduled dividend payments on
the Parent's preferred stock;
7.2.6 to comply with all of its obligations and duties under any
Contract and not to create or permit to exist any default or event of default on
behalf of the Parent or any of its
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Subsidiaries under any Contract, or any event or circumstance which, with lapse
of time or notice, or both, would constitute a default under a Contract, in each
case which would have a material adverse effect on the Business Condition of the
Parent and its Subsidiaries taken as a whole;
7.2.7 to use its Best Efforts to preserve intact its business
organization and goodwill, keep available (except for terminations for cause)
the services of its officers and employees and maintain satisfactory
relationships with those Persons having business relationships with the Parent
or any of its subsidiaries;
7.2.8 to duly comply in all material aspects with all applicable Laws;
7.2.9 to maintain all properties necessary for the conduct of the
business of the Parent and its Subsidiaries, whether owned or leased, in
substantially the same condition as they now are;
7.2.10 to maintain its books, records and accounts in the usual,
regular and ordinary manner, on a basis consistent with prior periods;
7.2.11 not to make any payment or other asset Transfer to or for the
benefit of any Affiliate (other than employment compensation in the ordinary
course of business consistent with past practice);
7.2.12 not to enter into any transaction or perform any act which
would make any of the representations, warranties or agreements of the Parent
contained in this Agreement false or misleading in any material respect if made
again immediately after such transaction or act; and
7.2.13 not to take any affirmative action (including, without
limitation, entering into any Contract) or fail to take any action within its
control that is likely to cause any of the changes or events listed in this
SECTION 7.2 to occur.
7.3 INSPECTION OF RECORDS. Between the date of this Agreement and the
Closing, the Company shall allow the duly authorized officers, attorneys,
accountants and other representatives of the Parent access at all reasonable
times to the records and files, correspondence, audits and properties, as well
as to all information in each case relating to the business and affairs of the
Company.
7.4 ACQUISITION PROPOSALS. From the date hereof through the Effective Time,
the Company agrees and each of the Principal Shareholders severally, and not
jointly, agree (a) that each of them shall, and they shall direct and use their
respective Best Efforts to cause the officers, directors, employees, agents and
representatives of the Company (including, without limitation, any investment
banker, attorney or accountant retained by the Company) not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to the shareholders of the Company) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of
all or any significant portion of the assets or any Equity Securities of, the
Company (any such proposal or offer being hereinafter referred to as a
"ACQUISITION PROPOSAL") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or
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implement an Acquisition Proposal; (b) that each of them will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
SECTION 7.4; and (c) that each of them will notify the Parent immediately if any
such inquiries or proposals are received by, any such information is received
from, or any such negotiations or discussions are sought to be initiated or
continued with, the Company.
7.5 SHAREHOLDER MEETINGS.
7.5.1 As promptly as practicable after the date hereof, the Principal
Shareholders shall use their respective Best Efforts to obtain the written
approval of each other holder of Company Stock to this Agreement and the
transactions contemplated hereby.
7.5.2 As promptly as practicable after the date hereof, the Parent
shall prepare and file with the Commission the Proxy Statement. The Proxy
Statement shall contain, among other things, the proposals of the Parent's Board
of Directors to (i) elect Cerna and Holtorf as directors of the Parent , (ii)
issue the Merger Shares in connection with the Merger and (iii) increase the
number of shares of Parent Common Stock available for issuance under the
Parent's 1998 Stock Incentive Plan from 3,000,000 to 5,000,000 shares. The
Parent shall use its Best Efforts to file a definitive Proxy Statement with the
Commission as promptly as practicable after such initial filing, and promptly
thereafter the Parent shall mail the definitive Proxy Statement to the holders
of Parent Common Stock. The Company and the Parent shall, upon request by the
other, furnish the other with all information concerning itself, its
Subsidiaries, directors, executive officers and stockholders and such other
matters as may be reasonably necessary or advisable in connection with the Proxy
Statement, or any other statement, filing, notice or application made by or on
behalf of the Company or the Parent to any third party and/or any Government
Authority in connection with the transactions contemplated by this Agreement.
The Parent shall take all necessary or appropriate action under the DGCL and the
Charter Documents of the Parent to call the Parent Stockholders Meeting, to be
held at the earliest practicable date for the purpose of seeking the Parent
Stockholder Approval. The Board of Directors of the Parent shall recommend that
the stockholders of the Parent vote in favor of the matters that are the subject
of the Parent Stockholder Approval.
7.6 COMPANY EMPLOYMENT OFFERS. As promptly as practicable after the date
hereof, Cerna and Holtorf shall submit to the Parent a written schedule of
proposed salaries, benefits and new stock option terms for each of the Company's
current employees. Upon the approval of such schedule by the Parent, the Company
shall extend new employment offers to all of its current employees on an "at
will" basis at the respective salaries, benefits and new stock option terms for
such employees set forth in the schedule as approved by the Parent.
7.7 RULE 145 AFFILIATES. Prior to the Effective Time, the Company shall
deliver to the Parent a letter identifying all persons who were, in the
Company's reasonable judgment, at the record date for its shareholders meeting
(or the record date for receipt of a written consent) to approve this Agreement
and the Merger, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act ("RULE 145 AFFILIATES"). Each of such Rule 145 Affiliates will
deliver to the Parent on or prior to the Effective Time a written agreement (the
"AFFILIATE LETTER") substantially in the form attached as EXHIBIT 7.7 hereto to
the effect that such person will not offer to sell, sell or
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otherwise dispose of any Merger Shares except pursuant to an effective
registration statement or in compliance with Rule 145, as amended from time to
time, or in a transaction which, in the opinion of legal counsel reasonably
satisfactory to the Parent, is exempt from the registration requirements of the
Securities Act. The Parent shall be entitled to place legends as specified in
such Affiliate Letters on the certificate evidencing any Merger Shares to be
received by such Rule 145 Affiliates pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer agent for
the Parent Common Stock, consistent with the terms of such Affiliate Letters.
7.8 REORGANIZATION. From and after the date hereof and until the Effective
Time, none of the Parent, the Company, Merger Sub, the Principal Shareholders or
any of their respective Subsidiaries or other Affiliates shall knowingly take
any action, or knowingly fail to take any action, that would jeopardize
qualification of the Merger as a reorganization with the meaning of Section
368(a) of the Code. Following the Effective Time, the Parent shall use its Best
Efforts to conduct its business in a manner that would not jeopardize the
characterization of the Merger as a reorganization within the meaning of Section
368(a) of the Code. Each of the Parent and the Company shall reflect the Merger
on their respective federal income tax returns as a Section 368(a)(2)(E)
reorganization.
7.9 NO TRANSFER OF EQUITY SECURITIES. Each Principal Shareholder agrees
that, prior to the consummation of the Merger, such Principal Shareholder will
not transfer in any way any of the Equity Securities of the Company held by such
Principal Shareholder or any interest therein.
7.10 MERGER TAX MATTERS. The parties hereto agree that none of the Parent,
Merger Sub nor any of their respective Affiliates, nor their officers,
directors, agents, or representatives have made any representation or warranty
with respect to the tax consequences of the Merger for the shareholders of the
Company.
7.11 INVESTOR LETTER. The Company shall use its Best Efforts to obtain from
each of its shareholders an investor letter in a form acceptable to the Parent
and its counsel (an "INVESTOR LETTER") containing representations and warranties
of such shareholders substantially similar to those of the Principal
Shareholders contained in SECTIONS 5.5 through 5.8 inclusive.
7.12 MERGER SHARE TRANSFER AGREEMENTS. The Company shall use its Best
Efforts to obtain from each of its shareholders other than the Principal
Shareholders a Merger Share Transfer Agreement in the form attached as EXHIBIT
7.12 hereto (a "MERGER SHARE TRANSFER AGREEMENT").
7.13 PURCHASE OF COMPANY SERIES A PREFERRED STOCK. No later than November
11, 1999, the Principal Shareholders shall deliver to the Parent a list of the
holders of Company Series A Preferred Stock who desire to receive cash from the
Parent for their shares of such stock. The Parent shall offer to purchase the
shares of Company Series A Preferred Stock from the holders identified in such
list for cash equal to $3.60 per share. The closing of the Parent's purchase of
such shares shall occur immediately prior to the Effective Time of the Merger
and shall be subject to the consummation of the Merger and the execution by the
selling shareholders of documentation containing representations and warranties
and other provisions reasonably acceptable to the Parent.
7.14 PUBLIC ANNOUNCEMENTS. No public announcements or other disclosures of
this Agreement or the transactions contemplated hereby shall be made by any
party without the prior
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written consent of the other parties until the Closing Date; PROVIDED, HOWEVER,
that upon prior notice to the Company, the Parent may make public disclosures of
such information regarding this Agreement and the transactions contemplated
hereby as it deems appropriate under applicable securities Laws or in connection
with obtaining financing contemplated by this Agreement.
7.15 FILINGS; OTHER ACTIONS. Subject to the terms and conditions herein
provided, the Parent, the Company, the Principal Shareholders and Merger Sub
shall: (a) use their respective Best Efforts to cooperate with one another in
(i) determining which filings are required to be made, and which consents,
approvals, permits or authorizations are required to be obtained, prior to the
Effective Time in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; and (b) use their respective Best Efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the purpose of
this Agreement, the proper officers and directors of the Parent and the
Principal Shareholders shall take all such necessary action. 7.16 TERMINATION OF
LIENS. The Principal Shareholders shall cause all Liens for the benefit of Cerna
encumbering any shares of Company Common Stock to be terminated prior to the
Closing Date.
8. CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND MERGER SUB. The obligation of
the Parent and Merger Sub to consummate the Merger and to take the other actions
required to be taken by the Parent and Merger Sub at the Closing pursuant to the
Transaction Contracts is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by the
Parent in writing, in whole or in part):
8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each of the Company and the Principal Shareholders set forth in this Agreement
subject to materiality or material adverse effect qualifications shall be true
and correct, and those not so qualified shall be true and correct in all
material respects, as of the Closing Date with the same effect as though such
representations and warranties had been made at and as of the Closing Date,
except to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties subject to
materiality or material adverse effect qualifications shall be true and correct,
and those not so qualified shall be true and correct in all material respects,
on and as of such earlier date).
8.2 PERFORMANCE. Each of the Company and the Principal Shareholders shall
have performed in all material respects all obligations and complied in all
material respects with all covenants required by any Transaction Contract to be
performed or complied with by any of them on or prior to the Closing Date.
8.3 CONSENTS. All consents, Permits and approvals required, in the
reasonable opinion of counsel for the Parent, as a condition to the lawful
consummation of the Merger and of the transactions contemplated in this
Agreement, or as necessary to avoid a breach of or default or an
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acceleration of a contractual right or payment under any material Contract to
which the Company, the Parent or any of its Subsidiaries is a party, shall have
been obtained.
8.4 CERTIFICATE. The Company and the Principal Shareholders shall have
delivered to the Parent a certificate, dated the Closing Date and executed by
the Company and each Principal Shareholder, certifying that the conditions
specified in SECTIONS 8.1, 8.2 and 8.3 have been satisfied.
8.5 AUDITED FINANCIAL STATEMENTS. The Company shall have delivered to the
Parent the Annual Financial Statements, with the report of the independent
auditors subject to no qualifications and which otherwise shall be in form and
substance satisfactory to the Parent.
8.6 GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be made
prior to the Effective Time by the Company or the Parent with, and all consents,
approvals, orders, registrations and authorizations required to be obtained
prior to the Effective Time by the Company or the Parent from Governmental
Authorities in connection with the execution and delivery of this Agreement by
the parties hereto and the consummation of the transactions contemplated hereby
by the parties hereto shall have been made or obtained (as the case may be),
except where the failure to have obtained or made such consent, filing,
authorization, order, approval or registration would not have a material adverse
effect on the Business Condition of the Company or the Business Condition of the
Parent and its Subsidiaries taken as a whole.
8.7 NON-COMPETITION AGREEMENTS. At or before the Effective Time, each of
the Principal Shareholders shall have executed and delivered to the Parent a
Non-Competition Agreement (the "NON-COMPETITION AGREEMENTS") substantially in
the form attached hereto as EXHIBIT 8.7.
8.8 NON-DISCLOSURE AGREEMENTS. Each of the Non-Disclosure Agreements shall
have been executed and delivered to the Parent by the employees of the Company.
8.9 [provisions intentionally deleted]
8.10 COMPANY SHAREHOLDERS APPROVAL. Prior to the Effective Time, the
shareholders of the Company shall have approved the Merger in accordance with
SECTION 7.5.1 and the CGCL.
8.11 PARENT STOCKHOLDERS APPROVAL. Prior to the Effective Time, the Parent
Stockholders Approval shall have been obtained.
8.12 INVESTOR LETTERS. The Parent shall have received Investor Letters
executed by each shareholder of the Company.
8.13 RULE 145 AFFILIATE LETTERS. Each of the Rule 145 Affiliates shall have
executed and delivered to the Parent a Rule 145 Affiliate Letter.
8.14 EMPLOYMENT AGREEMENTS. Prior to the Effective Time, each of Cerna,
Holtorf and Carlos Gonzalez shall have executed and delivered to the Parent the
Cerna Employment Agreement, the Holtorf Employment Agreement and the Gonzalez
Employment Agreement, respectively.
8.15 SHAREHOLDERS AGREEMENTS. All shareholder, voting, registration rights
or other
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agreements with respect to the Company Stock shall have been terminated.
8.16 MERGER SHARE TRANSFER AGREEMENTS. The Parent shall have received
Merger Share Transfer Agreements executed by each shareholder of the Company
other than the Principal Shareholders.
8.17 TERMINATION OF LIENS. All Liens for the benefit of Cerna encumbering
any shares of Company Common Stock shall have been terminated.
8.18 AMENDMENT TO ASSIGNMENT OF RIGHTS TO SOFTWARE. Cerna, Anthony Cerna
and Carlos Gonzalez each shall have executed and delivered to the Parent an
Amendment to Assignment of Rights to Software in the form of EXHIBIT 8.18
attached hereto.
8.19 NO ACTIONS. No Action pertaining to the transactions contemplated by
this Agreement or to their consummation shall have been instituted or threatened
on or prior to the Closing Date.
8.20 NO MATERIAL ADVERSE CHANGES. There shall not exist any circumstance
and there shall not have occurred any event which has had or reasonably could
have a material adverse effect on the Business Condition of the Company.
8.21 OPINION LETTER. The Parent shall have received from Capstone Law Group
LLP, counsel to the Company, an opinion letter, dated as of the Closing Date and
addressed to the Parent, in form and substance satisfactory to the Parent.
9. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS.
The obligation of the Company to consummate the Merger and to take the other
actions required to be taken by the Company and the Principal Shareholders at
the Closing pursuant to the Transaction Contracts is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Company in writing, in whole or in part):
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each of the Parent and Merger Sub set forth in this Agreement subject to
materiality or material adverse effect qualifications shall be true and correct,
and those not so qualified shall be true and correct in all material respects,
as of the Closing Date with the same effect as though such representations and
warranties had been made at and as of the Closing Date, except to the extent
such representations and warranties expressly relate to an earlier date (in
which case such representations and warranties subject to materiality or
material adverse effect qualifications shall be true and correct, and those not
so qualified shall be true and correct in all material respects, on and as of
such earlier date).
9.2 PERFORMANCE. Each of the Parent and Merger Sub shall have performed in
all material respects all obligations and complied in all material respects with
all covenants required by any Transaction Contract to be performed or complied
with by any of them on or prior to the Closing Date.
9.3 CERTIFICATE. The Parent and Merger Sub each shall have delivered to the
Company and the Principal Shareholders a certificate, dated the Closing Date and
executed by each of the Parent and Merger Sub, certifying that the conditions
specified in SECTIONS 9.1 and 9.2 have been
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satisfied and representing and warranting to the Company and the Principal
Shareholders that (i) as of the Closing Date the Parent is in full compliance
with all of the published requirements of the Nasdaq SmallCap Market for the
continued listing of the Listed Securities on the Nasdaq SmallCap Market; and
(ii) if the Parent's Quarterly Report on Form 10-Q for the three months ended
September 30, 1999 (the "10-Q") has not been filed with the Commission prior to
the Closing Date, the unaudited consolidated financial statements of the Parent
as of and for the three months ended September 30, 1999 included in the draft
10-Q as of the Closing Date, including any appended notes which are an integral
part of such statements, have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly in all
material respects the consolidated financial position of the Parent as at their
respective dates and the consolidated results of operations and cash flows of
the Parent for the periods covered thereby, subject to normal recurring year-end
adjustments.
9.4 GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be made
prior to the Effective Time by the Parent or Merger Sub with, and all consents,
approvals, orders, registrations and authorizations required to be obtained
prior to the Effective Time by the Parent or Merger Sub from Governmental
Authorities in connection with the execution and delivery of this Agreement by
the Parent and Merger Sub and the consummation of the transactions contemplated
hereby by the Parent and Merger Sub shall have been made or obtained (as the
case may be), except where the failure to have obtained or made such consent,
filing, authorization, order, approval or registration would not have a material
adverse effect on the Business Condition of the Parent and its Subsidiaries
taken as a whole.
9.5 PARENT STOCKHOLDERS APPROVAL. Prior to the Effective Time, the Parent
Stockholders Approval shall have been obtained.
9.6 ELECTION OF CERNA AND HOLTORF AS PARENT DIRECTORS. Each of Cerna and
Holtorf shall have been elected as directors of the Parent, subject to the
consummation of the Merger and effective as of the Effective Time.
9.7 NO ACTIONS. No Action pertaining to the transactions contemplated by
this Agreement or to their consummation shall have been instituted or threatened
on or prior to the Closing Date.
9.8 NO MATERIAL ADVERSE CHANGES. There shall not exist any circumstance and
there shall not have occurred any event which has had or reasonably could have a
material adverse effect on the Business Condition of the Parent and its
Subsidiaries taken as a whole.
9.9 EMPLOYMENT AGREEMENTS. Prior to the Effective Time, the Parent and
Merger Sub shall have executed and delivered to Cerna, Holtorf and Carlos
Gonzalez the Cerna Employment Agreement, the Holtorf Employment Agreement and
the Gonzalez Employment Agreement, respectively.
9.10 NET TANGIBLE ASSETS. The Parent shall have been in compliance with the
published net tangible assets requirement for the continued listing of the
Listed Securities on the Nasdaq SmallCap Market as of a date prior to the
Closing Date at least as recent as September 30, 1999, as supported by the
financial statements of the Company included in the 10-Q, which financial
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statements shall have been prepared with the assistance of the accounting firm
of Parks Palmer Business Services Inc. and reviewed by the accounting firm of
Singer Lewak Greenbaum & Goldstein, LLP.
9.11 OPINION LETTER. The Company and the Principal Shareholders shall have
received from Troop Steuber Pasich Reddick & Tobey, LLP, counsel to the Parent,
an opinion letter, dated as of the Closing Date and addressed to the Company and
the Principal Shareholders, in form and substance satisfactory to the Company
and the Principal Shareholders.
10. FURTHER AGREEMENTS OF THE PARTIES.
10.1 CONFIDENTIALITY.
10.1.1 The parties hereto hereby acknowledge and agree that any and
all information which has been disclosed by one to the other, its directors,
partners, members, managers, employees, consultants, agents and shareholders
during the discussions and negotiations leading to the execution of this
Agreement, and all information to be disclosed by one to the other, its
directors, employees, consultants and agents and shareholders during the period
commencing on the date of execution of this Agreement through the Closing or
termination of this Agreement, shall constitute confidential information and
trade secrets of the disclosing party, and as such are secret, confidential and
unique and constitute the exclusive trade secrets and property of such party.
Such information has been made known and available to the other party and its
respective employees, consultants and agents strictly in connection with the
negotiation and execution of this Agreement and the consummation of the
transactions provided for herein. Each party hereby acknowledges and agrees that
any use or disclosure of any such confidential information or trade secrets,
other than pursuant to this Agreement, would be wrongful and would cause
irreparable injury to the other. Accordingly, each party hereby expressly
agrees, for itself and on behalf of its shareholders, partners, members and
directors, if any, and its principal officers, managers, employees, agents,
consultants and representatives, that it and they will not at any time prior to
the Closing or at any time thereafter, use or disclose, other than in accordance
with the terms and provisions of this Agreement, any of such confidential
information or trade secrets; PROVIDED that any of the parties hereto may use or
disclose such confidential information or secrets of another party without
restriction if such information or secrets (i) were or are available to such
party on a non-confidential basis from a source other than the other party, or
(ii) were or become generally available to the public (other than as a result of
an impermissible disclosure by such party or its Affiliates); and PROVIDED,
FURTHER, that if a party is required (by oral question, interrogatories,
requests for information or documents, subpoena or similar process) to disclose
any of such information or secrets of another party, such disclosure be made
without liability hereunder (although notice of such requirement shall be given
to the other party so that, if practicable, the other party may seek a
protective order against such disclosure). Each party acknowledges that, in the
event of a violation by the other of the terms and provisions of this SECTION
10.1, the remedies at law would not be adequate; and accordingly, in such event
(subject to SECTION 14.6) such party may proceed to protect and enforce its
rights under this SECTION 10.1 by a suit in equity for specific performance and
temporary, preliminary and permanent injunctive relief from violation of any of
the provisions of this SECTION 10.1 from any court of competent jurisdiction
without the necessity of proving the amount of any actual damages to the party
resulting from the breach.
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10.1.2 The Company and the Principal Shareholders acknowledge that the
Parent has public reporting obligations under the Exchange Act, and the Parent
intends to arrange for certain financing in connection with this Agreement.
Accordingly, notwithstanding the provisions of SECTION 10.1.1:
10.1.2.1 Upon prior notice to the Company and the Principal
Shareholders, the Parent may make public disclosures of such information
regarding the Company and the Principal Shareholders as it deems appropriate
under applicable securities Laws; and
10.1.2.2 Upon prior notice to the Company and the Principal
Shareholders, the Parent may disclose information regarding the Company and the
Principal Shareholders to Persons from whom the Purchaser seeks financing in
connection with this Agreement and to underwriters, finders and broker/dealers
who assist in locating such investors.
10.2 CORPORATE GOVERNANCE.
10.2.1 At the Effective Time, the Board of Directors of the Parent
shall consist of seven members. As part of the Proxy Statement, the Parent shall
nominate Cerna and Holtorf to the Parent's stockholders for election as
directors at the Parent Stockholders Meeting, subject to the consummation of the
Merger and effective as of the Effective Time. From the Effective Time up to but
not including the second anniversary thereof, the Parent shall nominate Cerna
and Holtorf for election as directors at each meeting or other action of
stockholders at which directors are elected and shall use its Best Efforts to
cause the election of Cerna and Holtorf, including soliciting proxies in favor
of the election of each of them. From the Effective Time up to but not including
the second anniversary thereof, Cerna and Holtorf each (severally and not
jointly) shall vote his shares of capital stock of the Parent to elect the
nominees of the Parent as directors of the Parent at each meeting or other
action of stockholders at which directors are elected.
10.2.2 From the Effective Time up to but not including the second
anniversary thereof, the Parent shall cause the Board of Directors of the
Surviving Corporation to consist of Cerna, Holtorf, two individuals to be
designated by the Parent and one individual to be designated by the Parent,
Cerna and Holtorf.
10.2.3 On the Closing Date and following each annual meeting of the
stockholders of the Parent during the period from the Effective Time up to but
not including the second anniversary thereof, the Board of Directors of the
Parent shall appoint an Executive Committee (the "EXECUTIVE COMMITTEE") which
shall report to the Board of Directors of the Parent. The responsibilities of
the Executive Committee shall include directing and administering the day to day
operations of both the Parent and the Surviving Corporation, reviewing and
making recommendations to the Parent's Board of Directors on all potential
acquisitions and investments and public and private financings, and such other
responsibilities as the Board of Directors may delegate consistent with the
DGCL. From the Effective Time up to but not including the second anniversary
thereof, the Executive Committee shall consist of Cerna, Holtorf and two
designees of the Parent, one of whom shall be Irwin Meyer.
10.2.4 Notwithstanding anything to the contrary contained in this
Agreement, each Principal Shareholder agrees that he shall resign from all
positions held as a member (or
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member of any committee) of the Board of Directors of the Parent or any of its
Subsidiaries if and when his employment with the Parent and/or the Surviving
Corporation under the Cerna Employment Agreement (with respect to Cerna) or the
Holtorf Employment Agreement (with respect to Holtorf) is terminated by the
Parent and/or the Surviving Corporation for Cause or Disability in accordance
with the applicable employment agreement or is voluntarily terminated by such
Principal Shareholder other than for Good Reason as defined in the employment
agreement.
10.3 KEY MAN INSURANCE. Cerna and Holtorf each agrees that the Company
and/or the Surviving Corporation may purchase key man insurance on him in such
amounts as the Board of Directors of the Company and the Parent deem
appropriate.
10.4 DIRECTORS AND OFFICERS LIABILITY INSURANCE. Following the Closing,
each Principal Shareholder shall be named as an insured in the directors and
officers liability insurance policies maintained by the Parent, in such a manner
as to provide the Principal Shareholder the same rights and benefits as are
accorded to the most favorably insured of the Parent's directors.
10.5 REGISTRATION STATEMENT. As soon as reasonably practicable after the
Effective Time, but in no event later than 30 days after the Effective Time, the
Parent shall prepare and file a Registration Statement on Form S-3 or such other
successor form as is then available (the "REGISTRATION Statement") with the
Commission and shall include in such Registration Statement all of the Merger
Shares issued pursuant to the Merger. The Parent shall promptly pay all
registration expenses incurred in connection with the preparation and filing of
the Registration Statement and the Parent shall use its Best Efforts to register
or qualify the shares of Merger Shares covered by the Registration Statement
under such securities or blue sky laws in such jurisdictions as the Principal
Shareholders may reasonably request. The Parent shall at all times until the
third anniversary of the Closing Date use its Best Efforts to continue to meet
the conditions required in order to use the Registration Statement and to
maintain its listing on the Nasdaq SmallCap Market or, alternatively, list on
another national securities exchange.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement or made in any document delivered pursuant to
this Agreement by or on behalf of any party shall survive the execution and
delivery of this Agreement and the Closing, regardless of notice of or any
investigation or right of investigation made prior to or after the date of this
Agreement by or on behalf of any party, and shall terminate and expire one year
following the Closing Date, after which date they shall be of no further force
or effect.
11.2 INDEMNIFICATION BY THE PRINCIPAL SHAREHOLDERS WITH RESPECT TO THE
COMPANY. The Principal Shareholders shall, jointly and severally, indemnify,
save and hold harmless the Parent, Merger Sub, and each of their respective
officers, directors, employees, agents and Affiliates, and each of their
successors and assigns (individually, a "PARENT INDEMNIFIED PARTY" and
collectively, the "PARENT INDEMNIFIED PARTIES") from and against any and all
costs, losses, claims, liabilities, fines, penalties, damages and expenses
(including, without limitation, interest which may be imposed in connection
therewith and court costs and reasonable fees and disbursements of counsel)
("DAMAGES") incurred in connection with, arising out of, resulting from or
incident to:
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11.2.1 any breach of, or any inaccuracy in any of, the representations
or warranties of the Company and the Principal Shareholders contained in SECTION
4, or any default in any agreements made by the Company in this Agreement, any
exhibit or schedule hereto or any certificate, instrument or writing delivered
in connection herewith;
11.2.2 any failure by the Company prior to the Effective Time to
obtain or maintain in effect any Permit relating to the Company and/or its
business, assets or operations; or
11.2.3 any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in this
SECTION 11.2.
11.3 INDEMNIFICATION BY EACH PRINCIPAL SHAREHOLDER WITH RESPECT TO SUCH
PRINCIPAL SHAREHOLDER. Each Principal Shareholder shall, severally and not
jointly, indemnify, save and hold harmless the Parent Indemnified Parties from
and against any and all Damages incurred in connection with, arising out of,
resulting from or incident to:
11.3.1 any breach of, or any inaccuracy in any of, the representations
or warranties of such Principal Shareholder contained in SECTION 5, or any
default in any agreements made by such Principal Shareholder in this Agreement,
any exhibit or schedule thereto or any certificate, instrument or writing
delivered in connection herewith; or
11.3.2 any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in this
SECTION 11.3.
11.4 INDEMNIFICATION BY THE PARENT. The Parent shall indemnify, save and
hold harmless the shareholders of the Company and each of their respective
officers, directors, employees, agents and Affiliates, and each of their
successors and assigns (individually, a "COMPANY INDEMNIFIED PARTY" and
collectively, the "COMPANY INDEMNIFIED PARTIES") from and against any and all
Damages incurred in connection with, arising out of, resulting from or incident
to:
11.4.1 any breach of, or any inaccuracy in any of, the representations
or warranties of the Parent or Merger Sub contained in SECTION 6, or any default
in any agreements made by the Parent or Merger Sub in this Agreement, any
exhibit or schedule hereto or any certificate, instrument or writing delivered
in connection herewith; or
11.4.2 any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in this
SECTION 11.4.
11.5 NOTICE OF CLAIM. If a claim for Damages (a "CLAIM") is to be made by a
party entitled to indemnification hereunder (an "INDEMNIFIED PARTY") against the
indemnifying party (the "INDEMNIFYING PARTY"), the Indemnified Party shall give
written notice (a "CLAIM NOTICE") to the Indemnifying Party, which notice shall
specify whether the Claim arises as a result of a claim by a person against the
Indemnified Party (a "THIRD PARTY CLAIM") or whether the Claim does not so arise
(a "DIRECT CLAIM"), and shall also specify (to the extent that the information
is available) the factual basis for the Claim and the amount of the Damages, if
known. If the Claim is a Third Party Claim, the Indemnified Party shall provide
the Claim Notice as soon as practicable after such party becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought hereunder. If any Action is filed against any
Indemnified Party,
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written notice thereof shall be given to the Indemnifying Party as promptly as
practicable (and in any event within 15 calendar days after the service of the
citation or summons). The failure of any Indemnified Party to give timely notice
hereunder shall not affect rights to indemnification hereunder, except to the
extent that the Indemnifying Party has been damaged by such failure.
11.6 DEFENSE OF CLAIMS. With respect to a Third Party Claim, if after
receipt of the Claim Notice the Indemnifying Party acknowledges in writing to
the Indemnified Party that the Indemnifying Party shall be obligated under the
terms of its indemnity hereunder in connection with such Third Party Claim, the
Indemnifying Party shall, at its own cost, risk and expense, (i) take control of
the defense and investigation of such Action, (ii) employ and engage attorneys
of its own choice, but, in any event, reasonably acceptable to the Indemnified
Party, to handle and defend the same unless the named parties to such action or
proceeding (including, without limitation, any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and the Indemnified Party has
been advised in writing by counsel that there may be one or more legal defenses
available to such Indemnified Party that are different from or additional to
those available to the Indemnifying Party, in which event the Indemnified Party
shall be entitled, at the Indemnifying Party's cost, risk and expense, to engage
one firm of counsel (in addition to appropriate local counsel) of its own
choosing, and (iii) compromise or settle such Action, which compromise or
settlement shall be made only with the written consent of the Indemnified Party,
such consent not to be unreasonably withheld or delayed.
11.6.1 If the Indemnifying Party fails to assume the defense of such
Claim within 15 calendar days after receipt of the Claim Notice, the Indemnified
Party against which such Claim has been asserted will (upon delivering notice to
such effect to the Indemnifying Party) have the right to undertake, at the
Indemnifying Party's cost and expense, the defense, compromise or settlement of
such Claim on behalf of and for the account and risk of the Indemnifying Party.
If the Indemnified Party assumes the defense of the Claim, the Indemnified Party
will keep the Indemnifying Party reasonably informed of the progress of any such
defense, compromise or settlement. The Indemnifying Party shall be liable for
any settlement of any action effected pursuant to and in accordance with this
SECTION 11.6.1 and for any final judgment (subject to any right of appeal) and
the Indemnifying Party agrees to indemnify and hold harmless the Indemnified
Party from and against any Damages by reason of such settlement or judgment.
11.7 NO RIGHT OF CONTRIBUTION. The Principal Shareholders shall have no
right of contribution against the Company or against the Parent or any of their
respective Subsidiaries by reason of or arising from any claim asserted by an
Indemnified Party hereunder.
11.8 LIMITATION ON INDEMNIFICATION OBLIGATIONS. The Parent Indemnified
Parties shall not be entitled to recover under SECTION 11.2 unless the aggregate
amount of indemnifiable Damages incurred by the Parent Indemnified Parties under
SECTION 11.2 exceeds $250,000, at which time any claim for indemnification may
be made only for the excess. The Company Indemnified Parties shall not be
entitled to recover under SECTION 11.4 unless the aggregate amount of
indemnifiable Damages incurred under SECTION 11.4 exceeds $250,000, at which
time any claim for the indemnification may be made only for the excess.
Notwithstanding anything to the contrary herein contained, the limitations
contained in this SECTION 11.8 shall not apply to indemnification for fraud by
an indemnifying party in connection with this Agreement and the transactions
contemplated hereby.
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12. TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between the Parent and the Principal Shareholders for certain
tax matters following the Closing Date:
12.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The Parent shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company for all periods ending on or prior to the Closing Date, which
are filed after the Closing Date. The Parent shall permit the Principal
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Principal Shareholders shall reimburse
the Parent for Taxes of the Company with respect to such periods within fifteen
(15) days after payment by the Parent or the Company of such Taxes to the extent
such Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the Current Balance Sheet.
12.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. The
Parent shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Company for Tax periods which begin before the Closing Date
and end after the Closing Date. The Parent shall permit the Principal
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Principal Shareholders shall pay to the
Parent within fifteen (15) days after the date on which Taxes are paid with
respect to such periods an amount equal to the portion of such Taxes which
relates to the portion of such Taxable period ending on the Closing Date to the
extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the Current Balance Sheet. For purposes of
this SECTION 12, in the case of any Taxes that are imposed on a periodic basis
and are payable for a Taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of such
Taxable period ending on the Closing Date shall, in the case of any Taxes other
than Taxes based upon or related to income or receipts, be deemed to be the
amount of such Tax for the entire Taxable period multiplied by a fraction the
numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period; and, in the case of any Tax based upon or related to income or
receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
12.3 COOPERATION ON TAX MATTERS. The Parent, the Company and the Principal
Shareholders shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns pursuant to this
SECTION 12 and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder.
12.4 CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this
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Agreement shall be paid by the Principal Shareholders when due, and the
Principal Shareholders shall, at their own expense, file all necessary Tax
Returns and other documentation with respect to all such transfer, documentary,
sales, use, stamp, registration and other Taxes and fees, and, if required by
applicable Law, the Parent shall, and shall cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
13. TERMINATION. This Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time:
13.1 TERMINATION BY MUTUAL CONSENT. By the mutual agreement, in writing, of
each of the parties to this Agreement.
13.2 TERMINATION BY THE PARENT. By the Parent on behalf of the Parent and
Merger Sub by giving written notice to the Company if:
13.2.1 there has been a material violation or breach by the Company or
any Principal Shareholder of any agreement, covenant, representation or warranty
contained in any Transaction Contract, which violation or breach shall not have
been cured or corrected within 30 days after receipt of notice thereof;
13.2.2 the Closing does not occur on or prior to December 31, 1999 or
such later date as may be agreed to in writing by the parties; or
13.2.3 if the Closing Value of the Parent Common Stock is less than
$1.75 per share, thereby triggering the increase in the number of Merger Shares
set forth in SECTION 2.10.1.
13.3 TERMINATION BY THE COMPANY. By the Company on behalf of the Company
and the Principal Shareholders by giving written notice to the Parent if:
13.3.1 there has been a material violation or breach by the Parent or
Merger Sub of any agreement, covenant, representation or warranty contained in
any Transaction Contract, which violation or breach shall not have been cured or
corrected within ten days after receipt of notice thereof; or
13.3.2 the Closing does not occur on or prior to December 31, 1999, or
such later date as may be agreed to in writing by the parties.
13.4 EFFECT OF TERMINATION. In the event of the termination of this
Agreement without the Closing occurring, no party shall have any obligation or
liability to any other party in respect to this Agreement, except for (i) any
material breach of any covenant contained in SECTION 7 occurring prior to such
termination, or (ii) any material breach of or material inaccuracy in any
representation or warranty occurring prior to such termination that is
intentional; and provided that SECTIONS 7.15, 10.1, 14.10 and 14.11 shall remain
in full force and effect.
14. MISCELLANEOUS.
14.1 NOTICES. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal
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service, courier, facsimile transmission (which must be confirmed) or by United
States first class, registered or certified mail, postage prepaid, to the
following addresses:
14.1.1 if to the Parent or Merger Sub, to:
IAT Resources Corporation
5757 Wilshire Boulevard, PH 1
Los Angeles, California 90036
Facsimile No.: (323) 634-2221
Attn: Mr. Irwin Meyer
with a copy to:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, California 90067
Facsimile No.: (310) 728-2316
Attn: Linda Giunta Michaelson, Esq.
14.1.2 if to the Company or Cerna, to:
Infolocity, Inc.
1350 Old Bayshore Highway, Suite 30
Burlingame, CA
Facsimile No.: (650) 873-0381
Attn: James J. Cerna, Jr.
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<PAGE>
with a copy to:
Capstone Law Group LLP
250A Twin Dolphin Drive
Redwood City, California 94065
Facsimile No.: (650) 551-0804
Attn: Andrew Won, Esq.
14.1.3 if to Holtorf, to:
Infolocity, Inc.
1350 Old Bayshore Highway, Suite 30
Burlingame, CA
Facsimile No.: (650) 873-0381
Attn: Victor Alonso Holtorf
with a copy to:
Capstone Law Group LLP
250A Twin Dolphin Drive
Redwood City, California 94065
Facsimile No.: (650) 551-0804
Attn: Andrew Won, Esq.
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other parties in the manner prescribed in this Section.
14.2 ENTIRE AGREEMENT. This Agreement, the other Transaction Contracts and
the exhibits and schedules thereto contain the sole and entire agreement and
understanding of the parties with respect to the entire subject matter of this
Agreement, and any and all prior discussions, negotiations, commitments and
understandings, whether oral or otherwise, related to the subject matter of this
Agreement are hereby merged herein. Nothing in this Agreement, express or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by way of this Agreement.
14.3 ASSIGNMENT. No party may assign its rights or obligations under this
Agreement, and any attempted or purported assignment or any delegation of any
party's duties or obligations arising under this Agreement to any Person shall
be deemed to be null and void, and shall constitute a material breach by such
party of its duties and obligations under this Agreement. This Agreement shall
inure to the benefit of and be binding upon any successors of each party by way
of merger or consolidation.
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14.4 WAIVER AND AMENDMENT.
14.4.1 At any time prior to the Effective Time, each of the parties
hereto (in the case of the Parent, the Company and Merger Sub, by action taken
or authorized by its Board of Directors) may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts of
the other party hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions of the other party contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party, but such extension or
waiver or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
14.4.2 Prior to the Effective Time, any provision of this Agreement
may be amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, PROVIDED that
after the Company Meeting, this Agreement may not be amended if it would violate
the CGCL or reduce the amount or change the form of the consideration to be
received by the Company shareholders in the Merger.
14.5 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of California without giving effect to the principles of
conflicts of law thereof.
14.6 DISPUTE RESOLUTION. In case of any dispute arising out of this
Agreement or any dealings between any of the parties hereto relating to the
subject matter of this Agreement, the parties shall use their respective Best
Efforts for a period of not less than 30 days to resolve such dispute by mutual
agreement. If the parties fail to resolve such dispute within such 30-day
period, the provisions set forth on EXHIBIT 14.6 attached hereto shall govern
the resolution of such dispute.
14.7 SEVERABILITY. Whenever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be or become prohibited or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
14.8 CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
14.10 TRANSACTION EXPENSES. If the Closing occurs, all Transaction Expenses
incurred by each of the parties hereto shall be paid by the Parent. If the
Closing does not occur, all Transaction Expenses incurred by each party hereto
shall be paid by such party.
14.11 COSTS AND ATTORNEYS' FEES. If any Action is instituted to remedy,
prevent or obtain relief from a default in the performance by any party to this
Agreement of its obligations under this
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Agreement, the prevailing party shall recover its reasonable attorneys' fees
incurred in each and every such Action, including, without limitation, any and
all appeals or petitions therefrom.
14.12 RIGHTS CUMULATIVE. No right granted to the parties under this
Agreement on default or breach is intended to be in full or complete
satisfaction of any Damages arising out of such default or breach, and each and
every right under this Agreement, or under any other document or instrument
delivered hereunder, or allowed by law or equity, shall be cumulative and may be
exercised from time to time.
14.13 PRIOR AGREEMENT AND PLAN OF MERGER. That certain Agreement and
Plan of Merger, Disclosure Schedule of the Company and Disclosure Schedule of
the Parent, each dated as of September 22, 1999, and the Amended Disclosure
Schedule of the Company dated as of September 27, 1999 by and between the
Parent, Merger Sub, the Company, Cerna and Holtorf, are hereby terminated and of
no further force or effect.
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IN WITNESS WHEREOF, this Amended and Restated Agreement and Plan of
Merger has been made and entered into as of the date and year first above
written.
IAT RESOURCES CORPORATION,
a Delaware corporation
By: /s/ Irwin Meyer
-----------------------------------
Name: Irwin Meyer
Title: CEO
INFOLOCITY MERGER SUB, INC.,
a Delaware corporation
By: /s/ Irwin Meyer
-----------------------------------
Name: Irwin Meyer
Title: CEO
INFOLOCITY, INC.,
a California corporation
By: /s/ James J. Cerna, Jr.
-----------------------------------
Name: James J. Cerna, Jr.
Title: CEO
JAMES J. CERNA, JR.
/s/ James J. Cerna, Jr.
-----------------------------------------
VICTOR ALONSO HOLTORF
/s/ Victor Alonso Holtorf
-----------------------------------------
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<PAGE>
LIST OF EXHIBITS
EXHIBIT NO. EXHIBIT NAME
1.1.9 Cerna Employment Agreement
1.1.24 Gonzalez Employment Agreement
1.1.25 Holtorf Employment Agreement
1.1.30 Non-Disclosure Agreement
7.7 Affiliate Letter
7.12 Merger Share Transfer Agreement
8.7 Non-Competition Agreement
8.18 Amendment to Assignment of Rights to Software
14.6 Dispute Resolution
<PAGE>
EXHIBIT B
PLACEMENT AGREEMENT
IAT RESOURCES CORPORATION
UP TO $4,000,000 PRINCIPAL AMOUNT OF
6% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001
AND
COMMON STOCK PURCHASE WARRANTS
PLACEMENT AGREEMENT
AUGUST 25, 1999
<PAGE>
IAT RESOURCES CORPORATION
PLACEMENT AGREEMENT
UP TO $4,000,000 PRINCIPAL AMOUNT OF
6% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001
AND COMMON STOCK PURCHASE WARRANTS
TO PURCHASE UP TO 600,000 SHARES OF COMMON STOCK
This Placement Agreement (the "Agreement") is made and entered into
effective as of the 25th day of August, 1999 by and among IAT Resources
Corporation, a Delaware corporation formerly known as The Producers
Entertainment Group Ltd. ("the Company"), and Astor Capital, Inc., a California
corporation ("Astor"), as follows:
1. AUTHORIZATION AND ISSUANCE OF SECURITIES. The Company has authorized
the issuance and sale of up to Four Million Dollars ($4,000,000) principal
amount of the Company's 6% Subordinated Convertible Debentures Due 2001 (the
"Debentures") convertible into shares of the Company's Common Stock ("Common
Stock"); Series A Stock Purchase Warrants (the "Series A Warrants") to purchase
up to four hundred thousand (400,000) shares of Common Stock at an exercise
price equal to one hundred twenty percent (120%) of Market Price (as hereinafter
defined) on the date Series A Warrants are first issued; and Series B Stock
Purchase Warrants (the "Series B Warrants", collectively with the Series A
Warrants, the "Warrants", and collectively with the Series A Warrants and the
Debentures, the "Securities") to purchase up to (300,000) shares of Common Stock
at an exercise price equal to one hundred thirty percent (130%) of Market Price
(as hereinafter defined) on the date Series B Warrants are first issued, as
contemplated by this Agreement. The Debentures, Series A Warrants and Series B
Warrants shall be substantially in the form of instruments attached hereto as
Exhibits A, B and C, respectively. For purposes of this Agreement, "Market
Price" shall be the average of the two lowest closing bid prices for a share of
Common Stock in the principal market in which it then trades during the ten (10)
trading days preceding, but not including, the date as of which Market Price is
being determined.
The Company has also authorized the issuance, sale and delivery of, and
has reserved for issuance from the authorized but unissued shares of Common
Stock, up to eight million six hundred fifty thousand (8,650,000) shares of
Common Stock upon conversion of the Debentures and up to seven hundred thousand
(700,000) shares of Common Stock upon exercise of the Warrants.
In addition, the Company has obligated itself to issue and sell a
number of additional shares of Common Stock (i) in connection with conversion of
Debentures in the event the number of shares previously authorized and reserved
for issuance upon conversion of the Debentures is inadequate to provide for the
Company's conversion obligations pursuant to the Debentures as hereinafter set
forth and (ii) under certain circumstances relating to the filing and
effectiveness of a registration statement to be
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filed under the Securities Act of 1933, as amended (the "Securities Act"), as
set forth in Section 3(j) hereof and described in a subscription agreement (the
"Subscription Agreement"), substantially in the form of Exhibit D attached
hereto, to be entered into with each purchaser of Debentures.
As the number of shares of Common Stock then reserved for issuance upon
conversion of the Debentures from time to time falls below one hundred fifteen
percent (115%) of the number of shares that would be required for conversion of
all Debentures then outstanding at the then Market Price of Common Stock, the
Company shall immediately authorize the issuance and sale of, and shall reserve
from the authorized but unissued shares of Common Stock, sufficient additional
shares so that the number of shares of Common Stock then authorized and reserved
for issuance and sale upon conversion of the Debentures equals or exceeds one
hundred thirty percent (130%) of the number of shares that would be required for
conversion of all Debentures then outstanding at the then Market Price of Common
Stock. As the number of shares of Common Stock then reserved for issuance upon
conversion of the Debentures from time to time exceeds one hundred fifty percent
(150%) of the number of shares that would be required for conversion of all
Debentures then outstanding at the then Market Price of Common Stock, the
Company may in its discretion reduce the number of shares reserved from the
authorized but unissued shares of Common Stock for issuance and sale upon
conversion of the Debentures to a number of shares of Common Stock no less than
the number that equals one hundred thirty percent (130%) of the number of shares
that would be required for conversion of all Debentures then outstanding at the
then Market Price of Common Stock. As the number of shares of Common Stock to be
issued under certain circumstances relating to the filing and effectiveness of a
registration statement to be filed under the Securities Act becomes known, the
Company shall immediately authorize the issuance and sale of the shares of
Company Common Stock so to be issued.
The Company proposes to issue and sell to purchasers designated by
Astor (collectively, the "Purchasers") an aggregate of up to Four Million
Dollars ($4,000,000) principal amount of the Debentures, three hundred thousand
(300,000) Series A Warrants and three hundred thousand (300,000) Series B
Warrants in units (the "Units") each consisting of Ten Thousand Dollars
($10,000) principal amount of Debentures, seven hundred fifty (750) Series A
Warrants and seven hundred fifty (750) Series B Warrants.
The Units will be offered and sold only to Purchasers, each of whom
shall be an "accredited investor" as that term in defined in Regulation D
promulgated under the Securities Act.
2. AGREEMENTS TO SELL AND PURCHASE; DELIVERY AND PAYMENT; PLACEMENT
AGENCY AND FEES. On the basis of the representations and warranties contained in
this Placement Agreement (this "Agreement"), and subject to its terms and
conditions, the Company agrees to issue and sell the Securities to the
Purchasers in Units at a price of
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Ten Thousand Dollars ($10,000) per Unit (the "Purchase Price"). The delivery and
payment for Securities shall be made at up to four (4) closings (each a
"Closing" and collectively the "Closings") to be held on such dates (each a
"Closing Date" and collectively the "Closing Dates") and at such places as
hereinafter specified.
The initial delivery of and payment for Securities (the "First
Closing") shall be made at such place in Los Angeles County, California as shall
be reasonably proposed by Astor, at 10:00 a.m. on the business day following the
date on which Astor notifies the Company that Purchasers are ready to purchase
at least thirty-seven (37) Units but not later than five (5) business days after
the date of this Agreement, unless that date is extended by the Company and
Astor for a period not to exceed thirty (30) days (the "First Closing Date").
The time and date of the First Closing Date may be varied by mutual agreement
between Astor and the Company. The Company shall not issue and sell any of the
Securities unless it shall have Purchasers for at least thirty-seven (37) Units.
If fewer than four hundred (400) Units are issued and sold by the
Company to Purchasers at the First Closing, the Company shall continue the
offering of the Securities until 400 Units are issued and sold hereunder but not
later than December 31, 1999, unless that date is extended by the Company and
Astor for a period not to exceed sixty (60) days.
Subject to the terms and conditions of this Agreement, the Company
shall issue and sell Securities at Closings on Closing Dates scheduled so that
no less than an aggregate of seventy-five (75) Units are issued and sold by
September 3, 1999; no less than an aggregate of one hundred seventy-five (175)
Units are issued and sold by September 30, 1999; no less than an aggregate of
two hundred fifty (250) Units are issued and sold by the later of (a) five (5)
business days following the closing of a business combination in which the
Company acquires Infolocity Inc. and (b) October 31, 1999; and an aggregate of
four hundred (400) Units are issued and sold by the later of (x) five (5)
business days following the declaration by the Securities and Exchange
Commission (the "Commission") of the effectiveness of one or more registration
statements filed under the Securities Act that include within the coverage
thereof the resale of all Securities issued by the Company as contemplated by
this Agreement and (y) November 30, 1999; provided, however, that each Closing
Date may be extended by the mutual written agreement of the Company and Astor
for a period not to exceed thirty (30) days.
Closings hereunder subsequent to the First Closing shall be made at the
place of the First Closing on the second business day following the date or
dates on which Astor notifies the Company that Purchasers are ready to purchase
at least the minimum number of additional Units to be sold at such Closing as
hereinabove contemplated.
At least one business day before the First Closing Date and at least
two business days before each subsequent Closing Date, Astor shall provide to
the
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Company the names and addresses of the Purchasers, the number of Units to be
purchased by each Purchaser at a Closing on such Closing Date, and the
subscription agreements and investor questionnaires completed and executed by
such Purchasers, respectively.
The Company shall deliver the Securities purchased by each Purchaser to
or for the account of such Purchaser at a Closing on each Closing Date,
respectively, against payment of the Purchase Price therefor.
Astor shall act as the exclusive placement agent for the Company in
connection with the issuance and sale of the Securities. In connection
therewith, Astor shall use its best efforts to identify and introduce to the
Company accredited investors who are ready, willing and able to purchase the
Securities as promptly as possible in accordance with the schedule set forth
above.
On each Closing Date, as a placement fee the Company shall (i) pay to
Astor in cash an amount equal to seven percent (7%) of the aggregate gross
Purchase Price received on such date by the Company from the Purchasers of the
Securities and (iii) issue and deliver Series A Warrants to Astor at the rate of
two hundred fifty (250) Series A Warrants for each Unit sold on such Closing
Date; provided, however, that if and to the extent that Astor or any direct or
indirect majority-owned subsidiary or subsidiaries of Astor shall be Purchasers
of Units at any Closing or Closings, Astor shall not be entitled to receive and
the Company shall not be obligated to pay the cash part of the placement fee
with respect to that portion of the aggregate gross Purchase Price received by
the Company at such Closing or Closings attributable to Units purchased by Astor
and any direct or indirect majority-owned subsidiaries of Astor.
3. AGREEMENTS OF THE COMPANY. The Company agrees with Astor that the
Company shall:
(a) Advise Astor promptly if it receives notice of the
issuance by any regulatory authority having jurisdiction over the Company, to
the knowledge of the Company over the Purchasers, or over the transactions
contemplated hereby of any stop order or order preventing or suspending the
offer or sale of the Securities, of the suspension of any qualification of the
Securities for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by any
regulatory authority for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the offer or
sale of the Securities or suspending any such qualification or exemption from
qualification, to use promptly its best efforts to obtain the withdrawal of such
stop order or order.
(b) Advise Astor promptly in writing of the happening of any
event or the existence of any state of facts of which it becomes aware, prior to
completion of the issuance and sale of the Securities contemplated, that makes
any statement of a material fact appearing in the SEC Reports (as hereinafter
defined), in light of the
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circumstances under which it was made, untrue or that requires the making of any
additions to or changes in the SEC Reports in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading to a reasonable investor as of the date of any Closing.
(c) If any event shall occur prior to completion of the
issuance and sale of the Securities contemplated hereby or any state of facts
shall exist as a result of which, in the reasonable opinion of Astor or the
Company, it becomes necessary to amend or supplement the SEC Reports in order to
make the statements therein not misleading to a Purchaser, prepare an
appropriate amendment to the SEC Reports or a supplement to the SEC Reports, as
contemplated in the Subscription Agreement, and deliver such amended SEC Reports
or supplement to each prospective Purchaser so that the statements in the SEC
Reports as so amended or supplemented will not, in the light of the
circumstances when they are so delivered, be misleading.
(d) During the two years after the date of this Agreement,
furnish without charge to Astor, as soon as generally available, a copy of each
report of the Company, notice or other communication that the Company shall mail
or otherwise make available to holders of its Common Stock or shall file with
the Commission or with any securities exchange or the National Association of
Securities Dealers.
(e) Whether or not the transactions contemplated by this
Agreement are consummated, pay all costs, expenses and fees incident to or in
connection with: (i) the preparation, reproduction, issuance and delivery of
this Agreement, the Debentures, the Warrants, any "blue sky" memoranda and all
other agreements, memoranda, correspondence and other documents prepared and
delivered in connection herewith; and (iii) the reasonable legal fees and
expenses of Astor's counsel in connection with this Agreement, the issuance and
delivery of the Securities and all other matters contemplated hereby or
associated therewith. The Company shall also be responsible for all costs,
expenses and fees incident to or in connection with (x) the performance by the
Company of its other obligations under this Agreement, (y) the services of
counsel and accountants for the Company, and (z) travel costs and expenses of
the Company.
(f) Retain Astor as a financial advisor for a period of
twenty-four (24) months commencing upon the completion of the Offering (the
"Financial Advisory Period") and, during the Financial Advisory Period, provide
Astor with the first opportunity to negotiate and the right of first refusal
with respect to any debt or equity financings the Company may undertake during
such period, except that Astor have neither the first opportunity to negotiate
nor the right of first refusal with regard to any public offering of the
Company's securities through Sands Brothers or J.P. Morgan resulting from a
letter of intent or similar instrument executed prior to December 31, 1999. The
right of first refusal shall be implemented by the Company providing Astor with
a period of ten (10) business days in which to match a financing proposal or
commitment from another investment banker on the terms specified by such
investment
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banker, and in the absence of such an undertaking from Astor the Company shall
be free to proceed with such investment banker on terms no less favorable to the
Company than those set forth in the proposal presented to Astor.
In the absence of an agreement between the Company and Astor
governing a specific transaction, the Company shall compensate Astor with
respect to transactions during the Financial Advisory Period as follows:
(i) at a rate comparable to the placement fee specified in
Section 2 hereof with respect to an issuance and sale of equity or debt
securities by the Company with respect to which Astor acts as an
underwriter, placement agent, investment banker or in a similar
capacity pursuant to which Astor provides substantive services with
respect to the sale of the equity or debt securities;
(ii) at a rate comparable to the placement fee specified in
Section 2 hereof with respect to an issuance and sale of equity or debt
securities by the Company with respect to which Astor does not act as
underwriter, placement agent, investment banker or in a similar
capacity to any Purchaser or to any other person that Astor introduced
to the Company during the performance of this Agreement, who shall be
listed on a schedule to be delivered by Astor to the Company within
thirty (30) days after each Closing hereunder;
(iii) at a rate in accordance with the following schedule in
the event Astor introduces (an "Astor Introduction") or otherwise
provides substantive services in connection with the acquisition,
directly or indirectly, by the Company of all, substantially all, or a
controlling interest in the stock or assets of another corporation or
business or the acquisition, directly or indirectly, by another
corporation, business or person with the approval of the Company's
Board of Directors of all, substantially all, or a controlling interest
in the stock or assets of the Company or if any such transaction
involving an Astor Introduction is completed within twelve (12) months
after the Financial Advisory Period including any extension thereof is
concluded:
ACQUISITION CONSIDERATION PERCENTAGE FEE
First $5,000,000 5%
$5,000,001- $10,000,000 4%
$10,000,001 - $15,000,000 3%
Over $15,000,000 2%
(g) To use commercially reasonable efforts to do and perform
all things required to be done and performed by the Company under this Agreement
to permit consummation of the transactions contemplated by this Agreement.
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(h) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities
Act) that would be integrated with the sale of the Securities in a manner that
would require the registration of the Securities under the Act in connection
with the sale to the Purchasers.
(i) To apply the net proceeds from the sale of the Securities
substantially as represented in the Subscription Agreement.
(j) Within thirty (30) days following the First Closing Date
and within thirty (30) days following each subsequent Closing Date to the extent
further action is then required, prepare and file and thereafter prosecute
diligently to effectiveness, all at the expense of the Company a registration
statement (or an amendment to a registration statement previously filed) under
the Securities Act, which registration statement shall provide for the resale by
the Purchasers and by Astor of the shares of Common Stock issuable upon
conversion of the Debentures and exercise of the Warrants acquired on such
Closing Date. The Company also undertakes to use its best efforts to cause such
registration statement to be declared effective by the Securities and Exchange
Commission within one hundred twenty (120) days of such Closing Date. The
Company shall also, at its own expense, prepare and file such amendments and
supplements to such registration statement and the prospectus contained therein
and take such further actions as may be necessary to make available a prospectus
meeting the requirements of the Securities Act on as continuous a basis as
practicable for such period as any Debentures and Warrants issued pursuant
hereto remain outstanding and until the later of (i) the second anniversary of
the issuance of the Debentures to Purchaser hereunder and (ii) the second
anniversary of the final exercise of Warrants issued to Purchaser hereunder or
until such earlier date as counsel for both the Purchaser and the Company concur
that all such shares which have not previously been sold or otherwise
transferred by Purchaser may be immediately sold pursuant to Rule 144
promulgated under the Securities Act or some other exemption from the
registration requirements of the Securities Act. In connection with such
registration statement and prospectus, the Company and Purchaser shall enter
into standard cross-indemnification agreements.
Astor agrees to notify the Company promptly upon any sale or other
transfer of any shares of Common Stock acquired through exercise of Warrants
issued to Astor hereunder.
(k) In the event (i) the Company refuses or otherwise fails in
the absence of legal or other prohibitions to complete the issuance and sale of
the Securities as contemplated hereunder despite performance by Astor that would
permit the timely sale of Securities at a Closing as contemplated hereby and
(ii) no previous Closing contemplated by Section 2 hereof has failed to occur in
a timely manner and for at least the minimum amount of Securities as
contemplated hereby for a reason other than non-performance by the Company, then
the Company shall pay to Astor a "breakup" fee as liquidated damages, in lieu of
any and all other damages, in the amount of
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Fifty Thousand Dollars ($50,000) less any cash fees previously paid to Astor
hereunder, together with Astor's documented expenses and amounts to be paid by
the Company pursuant to Section 3(e) above, which amount the parties view as a
reasonable estimate of Astor's damages which might otherwise be difficult to
ascertain.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Astor that:
(a) The Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1999, its Current Report on Form 8-K dated April 29,
1999, and its Proxy Statement on Schedule 14A for the Company's Annual Meeting
of Stockholders held May 26, 1999,in each case as filed with the Securities and
Exchange Commission and as amended to date (collectively the "SEC Reports"), did
not when filed or, if appropriate, when declared effective and, taken as a
whole, do not as of the date of this Agreement contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) This Agreement has been duly authorized and validly
executed and delivered by the Company.
(c) The authorized, issued and outstanding Common Stock and
other securities of the Company conform in all material respects to the
descriptions thereof in the SEC Reports. The shares of outstanding Common Stock
of the Company have been duly authorized and validly issued and are fully paid,
non-assessable and free of preemptive or similar rights.
(d) The Debentures, Series A Warrants and Series B Warrants to
be issued by the Company pursuant hereto have been duly authorized and, when
issued and delivered for consideration in accordance with the terms of this
Agreement, will constitute valid and binding obligations of the Company
enforceable against the Company in accordance with the terms thereof, except (A)
as limited by the effect of bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors and (B) as limited by the effect of general
principles of equity, including the possible unavailability of specific
performance or the enforceability of waivers of certain rights or defenses,
whether enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought
(items (A) and (B) are sometimes collectively referred to hereafter as the
"Exceptions"). The Common Stock to be issued by the Company upon conversion of
the Debentures or upon exercise of the Warrants has been or prior to issuance
will be duly authorized and when issued and delivered for consideration in
accordance with the terms of the Debentures and the Warrants, as applicable,
will be validly issued and outstanding, fully paid and non-assessable.
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(e) The Company does not have any subsidiaries or similar
affiliates other than those listed in the SEC Reports (collectively the
"Subsidiaries").
(f) All tax returns required to be filed by the Company and
the Subsidiaries (the "Consolidated Company") in all jurisdictions have been so
filed. Except as described in the Company's financial statements included in the
SEC Reports, all taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such entities
or that are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided or those currently
payable without penalty or interest. The Company does not know of any material
proposed additional tax assessment against the Consolidated Company.
(g) The Company and the Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective states of incorporation. The Consolidated Company has
the power and authority necessary to own, lease and operate its properties and
to conduct business as currently conducted and as described in the SEC Reports.
The Company has the corporate power and authority necessary to enter into and
perform its obligations under this Agreement and to issue, sell and deliver the
Securities to be issued, sold and delivered by it pursuant hereto. The
Consolidated Company is duly registered or qualified as a foreign entity to
conduct its business, and is in good standing, in each jurisdiction where such
qualification is required and in which the failure to be so qualified could have
a material adverse effect on the Consolidated Company. The Consolidated Company
is in compliance with all local, state and federal laws, ordinances and
regulations (including environmental laws) applicable to its properties (whether
owned or leased) and its businesses, with the exception of violations of such
laws, ordinances and regulations which would not individually or in the
aggregate have a material adverse effect on the Consolidated Company.
(h) The Consolidated Company has good and marketable title in
fee simple to, or a valid leasehold interest in, each of the real properties
reflected on the Company's consolidated financial statements included in the SEC
Reports or which have been acquired by or used by the Consolidated Company after
the March 31, 1999, in each case free and clear of all liens, charges and
encumbrances (collectively "Liens"), other than (i) Liens described in the SEC
Reports, (ii) the rights of landlords under applicable leases, and (iii) Liens
which in the aggregate do not have a material adverse effect on the Consolidated
Company. The Consolidated Company owns good and marketable title to or a valid
right to use all items of personal property owned or used it which are material
to the business of the Consolidated Company, free and clear of all Liens other
than (i) Liens described in the SEC Reports and (ii) Liens which in the
aggregate do not have a material adverse effect on the Consolidated Company. The
properties of the Consolidated Company are in good repair (reasonable wear and
tear excepted), are insured in accordance with industry practice (to the extent
industry practice is to insure such property) and are suitable for their uses.
Each of the material
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agreements to which either the Company or any of the Subsidiaries is a party,
including all agreements referred to in the SEC Reports, is a valid and binding
agreement, enforceable against the parties in accordance with their respective
terms, except as limited by the Exceptions, and no defaults are existing under
such agreements which defaults would, singly or in the aggregate, have a
material adverse effect on the Consolidated Company.
(i) There is no material action, suit or proceeding before or
by any court, arbitrator or governmental agency, body or official, domestic or
foreign, which has been served on the Company or any of the Subsidiaries and is
now pending or which, to the knowledge of the Company, is threatened against or
affects the Company or any of the Subsidiaries or the assets of the Company or
any of the Subsidiaries which is not disclosed in the SEC Reports. No Federal or
state statute, rule, regulation or order has been enacted, adopted or issued by
any such governmental agency or, to the knowledge of the Company, has been
proposed by any such governmental body that is not disclosed in the SEC Reports
and could reasonably be expected to have a material adverse effect on the
Consolidated Company, the issuance of the Securities or the consummation of any
of the transactions contemplated by this Agreement. There are not pending any
governmental proceedings to which the Company or any of the Subsidiaries is a
party or, to the knowledge of the Company, to which any of their property is
subject, except as set forth in the SEC Reports. No injunction, restraining
order or order of any nature by a federal or state court of competent
jurisdiction has been issued to the Company and remains in effect that would
prevent the issuance of the Securities.
(j) The Consolidated Company possesses such certificates,
authorizations, licenses or permits issued by the appropriate local, state,
federal or foreign regulatory agencies or bodies as are material to, or legally
required for, the operation of its business, except for those certificates,
authorities, licenses or permits which if not possessed by the Consolidated
Company would not singly, or in the aggregate, have a material adverse effect on
the Consolidated Company. Neither the Company nor any of the Subsidiaries has
received any notice of proceedings relating to, or has reason to believe that
any governmental body or agency is considering, limiting, suspending, modifying
or revoking, any such certificate, authority, license or permit which, singly or
in the aggregate, if the subject of an unfavorable opinion, ruling or finding,
would have a material adverse effect on the Consolidated Company.
(k) Other than as set forth in the SEC Reports, neither the
Company nor the Subsidiaries is in violation of its charter or bylaws, or is in
default in any respect in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any indenture, mortgage, deed of trust or other material
agreement or instrument to which the Company or any of the Subsidiaries is a
party or to which any of them or their respective properties or assets is
subject, except such violations or defaults which, singly or in the aggregate,
would not have a material adverse effect on the Company and the Subsidiaries. To
the knowledge of the Company, there exists no condition that, with notice, the
passage of
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time or both, would constitute a material default under any such document,
instrument or agreement.
(l) The execution, delivery and performance of, and the
consummation of the transactions contemplated by, this Agreement will not
conflict in any material manner with or constitute a material breach of any of
the terms or provisions of, or constitute a default (with notice, the passage of
time or both) under, or result in the imposition of a lien or encumbrance on any
properties of the Consolidated Company or an acceleration of the maturity of any
indebtedness under (i) the charter or bylaws of the Company and the
Subsidiaries, (ii) any bond, debenture, note or other evidence of indebtedness
or any indenture, mortgage, deed of trust or other material agreement or
instrument to which the Company or any of the Subsidiaries is a party or to
which any of them or their respective properties or assets are subject, (iii)
any law, regulation or order of any court or governmental agency or authority
applicable to the Consolidated Company or any of its properties or assets, or
(iv) any rule or regulation of, or agreement of the Company with, any national
securities exchange or automated inter-dealer quotation system.
(m) No consent, approval, authorization, license or other
order of any regulatory body, administrative agency, or other governmental body
having jurisdiction over the Company or any of its properties or assets is
legally required for the valid issuance and sale of the Securities and the
consummation of the transactions contemplated by this Agreement, other than such
approvals and authorizations as have been obtained. No consents or waivers from
any person are required for the Company to consummate the transactions
contemplated by this Agreement, other than such consents and waivers as have
been obtained.
(n) The accountants who have certified the consolidated
financial statements of the Company included in the SEC Reports are independent
accountants with respect to the Company, within the meaning of the Securities
Act.
(o) The consolidated financial statements of the Company and
the related notes and schedules included in the SEC Reports present fairly the
financial position of the Consolidated Company as of the dates indicated and the
results of operations and the changes in financial position for the periods
therein specified and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
specified, subject in the case of interim statements to normal year-end
adjustments and such other adjustments, if any, as are described in the SEC
Reports.
(p) Subsequent to March 31, 1999, the last date as of which
financial information is given in the SEC Reports, except as disclosed therein:
(i) neither the Company nor any of the Subsidiaries has incurred any liabilities
or obligations, direct or contingent, or entered into any transactions, not in
the ordinary course of business, that are material, individually or in the
aggregate, to the business of the Consolidated Company; (ii) there has not been
any material decrease in the capital stock of the
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Company or any increase in long-term indebtedness or any material increase in
short-term indebtedness of the Company or any payment of or declaration to pay
any dividends or any other distribution with respect to the capital stock or
equity of the Company or any of the Subsidiaries and (iii) there has not been
any material adverse change in the condition (financial or other), business,
properties, net worth or results of operations of the Consolidated Company.
(q) The Consolidated Company is not involved in any material
labor dispute nor, to the knowledge of the Company, is any such dispute
threatened.
(r) Since March 31, 1999, the Consolidated Company has not
suffered any casualty losses, whether insured or uninsured, that are material,
individually or in the aggregate, to the business of the Consolidated Company.
(s) Except as contemplated by this Agreement, disclosed in the
SEC Reports or set forth on Schedule 4(s) hereto, no person or entity is
entitled, through contract or otherwise, directly or indirectly to acquire any
shares of the capital stock of the Company from the Company.
(t) The Consolidated Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets and (iii) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) Except for this Agreement, there are no contracts,
agreements or understandings between the Company and any other person that would
give rise to a valid claim against the Company, Astor or the Purchasers for a
brokerage commission, finder's fee or like payment in respect of the
transactions contemplated herein.
(v) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(w) The offer and sale of the Securities pursuant hereto are
exempt from the registration requirements of the Securities Act. No form of
general solicitation or general advertising was used by the Company or any of
its representatives (other than Astor, as to which the Company makes no
representation) in connection with the offer and sale of the Securities,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising.
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(x) The Purchasers of the Units and Astor, when they receive
Securities hereunder for consideration paid and delivered as contemplated
herein, will obtain valid and marketable title to such Securities, free and
clear of any adverse claims, other than those adverse claims, if any, created by
such Purchasers or Astor, as applicable. The holders of Debentures upon
converting of the Debentures holders of the Series A Warrants and Series B
Warrants, upon exercising the Warrants and paying the exercise price specified
with respect thereto, will receive valid and marketable title to the shares of
Common Stock issuable upon such conversion and exercise, free and clear of any
adverse claims, other than those adverse claims, if any, created by such holders
respectively.
5. INDEMNIFICATION
(a) The Company (as the "Indemnifying Party") agrees to
indemnify and hold harmless Astor and each person that controls Astor within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the respective
agents, employees, attorneys, officers and directors of each of the foregoing
(in such capacity individually, an "Indemnified Party" and collectively, the
"Indemnified Parties") from and against any and all losses, claims, damages,
judgments, liabilities and expenses (including the reasonable fees and expenses
of counsel and other expenses in connection with investigating, defending,
preparing to defend or testify with respect to or settling any such action or
claim) as they are incurred arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the Company contained in
the SEC Reports or arising out of or based upon any omission or alleged omission
to state therein a material fact relating to the Company required to be stated
therein or necessary to make the statements therein not misleading or otherwise
arising out of or based upon the transactions contemplated hereby, except the
Indemnifying Party shall not be liable to an Indemnified Party under the
indemnity agreement in this Section 5(a) with respect to any such loss, claim,
damage, judgment, liability or expense to the extent it results from or is
attributable to the willful misconduct or gross negligence of Astor.
(b) Astor (as the "Indemnifying Party") agrees to indemnify
and hold harmless the Company and each person that controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act and the respective agents, employees, attorneys, officers and directors of
each of the foregoing (in such capacity individually, an "Indemnified Party" and
collectively, the "Indemnified Parties") from and against any and all losses,
claims, damages, judgments, liabilities and expenses (including the reasonable
fees and expenses of counsel and other expenses in connection with
investigating, defending, preparing to defend or testify with respect to or
settling any such action or claim) as they are incurred to the extent they arise
out of or are based upon the willful misconduct or gross negligence of Astor.
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(c) If any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against or
shall relate to any Indemnified Party with respect to which indemnity may be
sought against the Indemnifying Party pursuant to this Section 5, such
Indemnified Party shall promptly notify the Indemnifying Party in writing and
the Indemnifying Party shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party and payment of all fees and expenses; PROVIDED that the omission so to
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability that it may have to any Indemnified Party (except to the extent that
the Indemnifying Party is actually prejudiced or otherwise forfeits substantive
rights or defenses by reason of such failure). An Indemnified Party shall have
the right to employ separate counsel in any such action or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the employment of
such counsel has been specifically authorized in writing by the Indemnifying
Party, which authorization shall not be unreasonably withheld, (ii) the
Indemnifying Party has failed promptly to assume the defense and employ counsel
reasonably satisfactory to the Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and such Indemnified Party shall
have been advised in writing by counsel that there may be one or more legal
defenses available to it that are different from or additional to those
available to the Indemnifying Party (in which case the Indemnifying Party shall
not have the right to assume the defense of such action on behalf of such
Indemnified Party). It is understood that the Indemnifying Party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for such Indemnified Parties, which firm shall be designated in writing by Astor
or the Company, as applicable, and that all such fees and expenses shall be
reimbursed as they are incurred. The Indemnifying Party shall not be liable for
any settlement of any such action effected without the written consent of the
Indemnifying Party, but if settled with the written consent of the Indemnifying
Party, or if there is a final judgment with respect thereto, the Indemnifying
Party agrees to indemnify and hold harmless each Indemnified Party from and
against any loss or liability by reason of such settlement or judgment. The
Indemnifying Party shall not, without the prior written consent of each
Indemnified Party affected thereby, effect any settlement of any pending or
threatened proceeding in which such Indemnified Party has sought indemnity
hereunder, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such action, claim,
litigation or proceeding.
(d) If the indemnification provided for in this Section 5 is
unavailable to any party entitled to indemnification pursuant to Section 5(a) or
(b), then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims,
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damages, judgments, liabilities and expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and Astor
from the offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and Astor in connection with
the statements or omissions or other activities which resulted in such losses,
claims, damages, judgments, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and Astor on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total compensation received by
Astor. The relative fault of the Company on the one hand and Astor on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or by Astor on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) the Company and Astor agree that it would not be just and
equitable if contribution pursuant to Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 5(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to in Section 5(d) shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 5 are in addition to any liability that any indemnifying party may
otherwise have to any indemnified party.
6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS. The obligations of the
Purchasers to purchase the Securities pursuant to the Subscription Agreements
between such Purchasers and the Company are subject to the satisfaction of each
of following conditions as of the appropriate Closing Date:
(a) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct on such Closing Date with
the same force and effect as if made on and as of such Closing Date. The Company
shall, in all material respects, have performed or complied with the agreements
and satisfied all conditions on its part to be performed, complied with or
satisfied at or prior to such Closing Date.
B-15
<PAGE>
(b) On such Closing Date, no stop order or other similar
decree preventing the offer or sale of the Securities or any order asserting
that the transactions contemplated by this Agreement are subject to the
registration requirements of the Securities Act shall have been issued and
remain in effect, and no proceedings for that purpose shall have been commenced
or shall be pending or, to the knowledge of the Company, be contemplated. No
stop order suspending the sale of the Securities in any jurisdiction shall have
been issued and remain in effect, and no proceeding for that purpose shall have
been commenced or shall be pending or, to the knowledge of the Company, shall be
contemplated. No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental agency
and remain in effect as of such Closing Date that would make the issuance of the
Securities unlawful. No injunction, restraining order or order of any nature by
a court of competent jurisdiction shall have been issued and remain in effect as
of such Closing Date that would prevent the issuance of the Securities.
(c) On such Closing Date, no action, suit or proceeding shall
be pending against or affecting or, to the knowledge of the Company, threatened
against, the Company before any court, arbitrator or governmental body, agency
or official that would interfere with or adversely affect the issuance of the
Securities or would, individually or in the aggregate, have a material adverse
effect on the Company or in any manner draw into question the validity of this
Agreement or the Securities.
(d) Since March 31, 1999 and except as disclosed in the SEC
Reports, (i) neither the Company nor any of the Subsidiaries shall have incurred
any liabilities or obligations, direct or contingent, or entered into any
transactions not in the ordinary course of business that are material,
individually or in the aggregate, to the business of the Consolidated Company,
(ii) there shall not have been any material change in the capital stock or debt
of the Company from that set forth or contemplated in the SEC Reports, and (iii)
there shall not have been any material adverse change, or any development
involving a prospective material adverse change, in the condition (financial or
other), business, properties, net worth or results of operations of the
Consolidated Company.
(e) On each Closing Date, Astor shall have received a
certificate, dated such Closing Date and signed by two executive officers of the
Company, confirming the matters set forth in Section 6(a)-(d) above.
(f) On each Closing Date other than the First Closing Date,
Astor on behalf of itself and the Purchasers shall have received an opinion
(satisfactory in form and substance to Astor and its counsel), dated as of such
Closing Date, of Troop Steuber Panich Reddick & Tobey LLP, counsel for the
Company, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation and is in good standing under the
laws of Delaware, with full
B-16
<PAGE>
corporate power and corporate authority to own, lease and operate its
properties and to conduct its business as then conducted.
(ii) the Company's authorized equity capitalization
is as set forth in the SEC Reports; the outstanding shares of capital
stock of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable, and the holders of such outstanding
shares of capital stock of the Company are not entitled to preemptive
or other rights to subscribe for such capital stock; the Debentures and
Warrants issued by the Company on such Closing Date represent the valid
and binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, subject to the Exceptions;
there has been reserved from the authorized but unissued common stock
of the Company shares for issuance upon the conversion of such
Debentures and the exercise of such Warrants, as contemplated by this
Agreement, and when issued following conversion of the Debentures or
exercise of the Warrants and payment of the exercise price specified in
such Warrants, the shares of Common Stock issued upon such conversion
or exercise will have been duly and validly authorized and issued and
will be fully paid and non-assessable; to the knowledge of such
counsel, except as otherwise set forth in the SEC Reports, there are no
outstanding subscriptions, warrants, options, calls or commitments of
any character related to or entitling any person to purchase or
otherwise acquire from the Company any shares of the Company's capital
stock or any securities convertible into or exercisable for the
purchase of such capital stock; all of the outstanding shares of
capital stock of the Subsidiaries are owned by the Company; and to the
knowledge of such counsel, no other person has any rights to acquire
any shares of common stock of, or other equity interests in, the
Subsidiaries.
(iii) Except as set forth in the SEC Reports, to the
knowledge of such counsel, there is no pending or threatened action,
suit or proceeding before any Federal, state or foreign court or
governmental agency, authority or body or any arbitrator against or
involving the Company or any of the Subsidiaries which, if adversely
determined, individually or in the aggregate with all such other
actions, suits and proceedings, would have a material adverse effect on
the business or financial condition of the Consolidated Company.
(iv) No consent, approval, authorization or order of,
or registration or filing with, any Federal, state or foreign court or
governmental agency or body is required in connection with the
execution, delivery and performance by the Company of this Agreement.
(v) to the knowledge of such counsel: the Company is
not in violation of its Articles of Incorporation or bylaws; the
Consolidated Company is not in default (including any condition that,
with notice, the passage of time or otherwise, would constitute a
default) in the performance of any obligation,
B-17
<PAGE>
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any indenture, mortgage, deed of
trust or other material agreement or instrument of the Consolidated
Company, where such default would have a material adverse effect on the
business or financial condition of the Consolidated Company; the
execution, delivery and performance of this Agreement and the
Securities, the fulfillment of the terms therein set forth and the
consummation of the transactions therein contemplated, including the
offer, issuance, and sale of the Securities, will not violate, or
conflict with or result in a breach of any of the terms or provisions
of, or constitute a default (including any condition that, with notice,
the passage of time or otherwise, would constitute a default) under (A)
the Articles of Incorporation or by-laws of the Company, (B) the terms
of any indenture, mortgage, deed of trust or other material agreement
or instrument known to such counsel, including without limitation any
of the documents referred to above in this subparagraph (vi) and to
which the Consolidated Company is a party or to which it or its
properties or assets is subject, or (C) any decree or order known to
such counsel to be applicable to the Consolidated Company of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over the Consolidated Company or any law or
regulation applicable to the Consolidated Company which defaults, in
the cases of clauses (B) and (C), would individually or in the
aggregate have a material adverse effect on the business or financial
condition of the Consolidated Company.
(vi) The offer and sale of the Securities on such
Closing Date is exempt from the registration requirements of the
Securities Act and is either exempt from or registered or qualified
under all applicable state securities or "blue sky" laws.
In their opinions referred to above, such counsel shall also state
that, although with the concurrence of Astor they have assumed no obligation of
inquiry and have not verified and are not passing upon and do not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the SEC Reports, no facts have come to such counsel's attention
which have caused such counsel to believe that (i) at the time each of the SEC
Reports (as presently amended) was filed in definitive form, it contained any
untrue statement of material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading or (ii) as
of the date of such opinion, the SEC Reports, taken as a whole, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading (except, in each case, for the financial statements,
together with the related schedules and notes, and other financial and
statistical data contained in or omitted from the SEC Reports, as to which such
counsel need not express any opinion).
B-18
<PAGE>
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws of states other than the states in which they
are licensed to practice and of foreign countries, to the extent deemed
appropriate by such counsel and indicated in such opinion, upon the opinions of
other counsel of good standing in such jurisdictions, whom they believe to be
reliable and who are reasonably satisfactory to counsel for Astor and (B) as to
matters of fact to the extent they deem proper, on certificates of responsible
officers of the Company and the Subsidiaries involved and public officials.
(g) On the First Closing Date, Astor on behalf of itself and
the Purchasers shall have received an opinion (satisfactory in form and
substance to Astor and its counsel), dated as of such Closing Date, of Troop
Steuber Panich Reddick & Tobey LLP, counsel for the Company, on such matters
described in item (f) above as shall be specified by Astor.
(h) On such Closing Date, Astor shall not, in its sole and
unfettered judgment, be dissatisfied based on its examination of the
Consolidated Company through such Closing Date with the condition, financial and
otherwise, results of operations, cash flow or prospects of the Consolidated
Company.
All opinions, certificates, letters and other documents
required by this Section 6 to be delivered to Astor will be in compliance with
the provisions hereof only if they are reasonably satisfactory in form and
substance to Astor and its counsel. The Company will furnish to Astor, without
charge, such conformed copies of such opinions, certificates, letters and other
documents as Astor shall reasonably request.
7. TERMINATION. In addition to the rights of the parties to terminate
this Agreement for a material breach of the terms hereof, this Agreement may be
terminated at any time by written notice from Astor to the Company if any of the
following has occurred: (i) after March 31, 1999, any material adverse change or
any development involving a prospective material adverse change in or affecting
the business, affairs, condition (financial or otherwise) or prospects of the
Consolidated Company, whether or not arising in the ordinary course of business;
(ii) any outbreak or escalation of hostilities or other national or
international calamity or crises if the effect of such outbreak, escalation,
calamity or crises would, in Astor's reasonable judgment, make the offering,
sale or delivery of the Securities impracticable; (iii) any decrease in the
NASDAQ Composite Index or the MicroCap 1000 Index measured from the date hereof
which exceeds thirty percent (30%) in the aggregate; (iv) any suspension of
trading in securities generally on the New York Stock Exchange or the NASDAQ
Stock Market or limitation on prices for securities generally on any such
exchange or market; or (v) any declaration of a banking moratorium by federal,
New York or California authorities.
All rights and obligations of the parties that accrued prior
to the termination of this Agreement shall survive such termination. The
representations and warranties of the Company shall not be affected by any
inquiry or investigation made by
B-19
<PAGE>
or on behalf of Astor or any other person and shall survive the Closings of the
transactions contemplated hereby through December 31, 2001, on which date such
representations and warranties shall expire.
8. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows:
(i) if to the Company, to: IAT Resources Corporation
5757 Wilshire Boulevard - Penthouse 1
Los Angeles, California 90036
Attention: Irwin Meyer, Chief Executive Officer
with a copy to: Troop Steuber Pasich Reddick & Tobey LLP
2029 Century Park East - Suite 2400
Los Angeles, California 90067
Attention: Julie M. Kaufer, Esq.
(ii) if to Astor, to: Astor Capital, Inc.
9300 Wilshire Boulevard - Suite 308
Beverly Hills, California 90212
Attention: Jacques Tizabi
with a copy to: Kelly Lytton Mintz & Vann LLP
1900 Avenue of the Stars - Suite 1450
Los Angeles, California 90067
Attention: Alan D. Jacobson, Esq.
Any party may change the address at which it is to receive notices by giving
notice of such change in the manner aforesaid. Notices shall be deemed given
when actually delivered or three (3) days after being deposited in the United
States Mail, registered or certified with return receipt requested, postage
prepaid.
The indemnity and contribution agreements and the
representations, warranties and other statements of the Company and Astor set
forth or made pursuant to this Agreement and all other rights and obligations
which had accrued at or prior to the termination of this Agreement (i) shall
remain operative and in full force and effect regardless of (a) any termination
of this Agreement, (b) any investigation, or statement as to the results
thereof, made by or on behalf of Astor, the Company or any Indemnified Party and
(c) delivery of the Securities and payment of consideration therefor and (ii)
shall be binding upon and inure to the benefit of the successors, assigns, heirs
and personal representatives of Astor, each Indemnified Party and the Company.
Except as otherwise specifically provided herein, this
Agreement has been and is made solely for the benefit of and shall be binding
upon the Company, Astor, any controlling persons and other Indemnified Parties
referred to herein, and their respective
B-20
<PAGE>
successors and assigns, all as and to the extent provided in this Agreement, and
no other persons shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Securities merely because of such purchase. The Purchasers, however,
shall be third party beneficiaries of the provisions of Sections 1, 4 and 6
hereof.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT
OF LAWS PROVISIONS THEREOF.
This Agreement may be signed in various counterparts, which
together shall constitute one and the same instrument.
In Witness Whereof, the undersigned have executed this
Placement Agreement effective as of the 25th day of August, 1999.
IAT Resources Corporation
By: /s/ Irwin Meyer
-------------------------
President
Astor Capital, Inc.
By: /s/ Jacques Tizabi
-------------------------
Title:________________________
B-21
<PAGE>
EXHIBIT C
AMENDMENT
TO
1998 STOCK INCENTIVE PLAN
OF
IAT RESOURCES CORPORATION
WHEREAS, IAT Resources Corporation, a Delaware corporation (the
"Company"), maintains the 1998 Stock Incentive Plan of the Company, effective as
of April 28, 1998 (the "Stock Incentive Plan"); and
WHEREAS, pursuant to Section 9 of the Stock Incentive Plan, the Board
of Directors of the Company (the "Board") may amend the Stock Incentive Plan
from time to time;
NOW THEREFORE, BE IT RESOLVED, that effective as of [___________],
1999, the Stock Incentive Plan be, and it hereby is, amended as follows.
1. The first sentence of Section 5 will be amended and restated in its
entirety as follows:
The aggregate number of shares of Common Stock that may be
issued or issuable pursuant to all Awards under the 1998 Plan
(including Awards in the form of Incentive Stock Options and
Non-Statutory Stock Options) will not exceed an aggregate of 5,000,000
shares of Common Stock, subject to adjustment as provided in Section 7
of the 1998 Plan.
RESOLVED FURTHER, that this Amendment to the Stock Incentive Plan will
be presented to the stockholders of the Company for approval at the Special
Meeting to be held on [___________], 1999.
<PAGE>
EXHIBIT D
AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
IAT RESOURCES CORPORATION
Effective as of [___________], 1999, the Restated Certificate of Incorporation
is hereby amended as follows:
1. Article Second shall be amended so that such Article, as amended,
shall be and read as follows:
2. The name of the corporation is [__________________________].
<PAGE>
EXHIBIT E
INFOLOCITY, INC.
CONTENTS
JUNE 30, 1999
- ---------------------------------------------------------------------------
PAGE
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
INFOLOCITY, INC.
BALANCE SHEET 2
STATEMENT OF OPERATIONS 3
STATEMENT OF SHAREHOLDERS' EQUITY 4
STATEMENT OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
IAT RESOURCES CORPORATION
PRO-FORMA BALANCE SHEET 7
PRO-FORMA STATEMENT OF OPERATIONS 8
</TABLE>
<PAGE>
[LETTERHEAD OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Infolocity, Inc.
We have audited the accompanying balance sheet of Infolocity, Inc. as of June
30, 1999, and the related statements of operations, shareholders' equity, and
cash flows for the period from January 22, 1998 (inception) to June 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Infolocity, Inc. as of June 30,
1999, and the results of its operations and its cash flows for the period from
January 22, 1996 (inception) to June 30, 1999 in conformity with generally
accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
September 21, 1999
E-2
<PAGE>
INFOLOCITY, INC.
BALANCE SHEET
JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
ASSETS
<CAPTION>
CURRENT ASSETS
<S> <C>
CASH $ 356,138
ACCOUNTS RECEIVABLE 43,235
PREPAID EXPENSES 3,600
------------------
TOTAL CURRENT ASSETS 402,973
FURNITURE AND EQUIPMENT, NET 11,003
------------------
TOTAL ASSETS $ 413,976
==================
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
CURRENT LIABILITIES
<S> <C>
ACCOUNTS PAYABLE $ 14,871
------------------
TOTAL CURRENT LIABILITIES 14,871
NOTES PAYABLE - RELATED PARTIES 37,212
------------------
TOTAL LIABILITIES 52,083
------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
PREFERRED STOCK, SERIES A, NO PAR VALUE
4,000,000 SHARES AUTHORIZED
77,739 SHARES ISSUED AND OUTSTANDING 280,040
COMMON STOCK, NO PAR VALUE
20,000,000 SHARES AUTHORIZED
2,073,370 SHARES ISSUED AND OUTSTANDING 276,009
SUBSCRIPTION RECEIVABLE (136,96_)
ACCUMULATED DEFICIT (57,187)
------------------
TOTAL SHAREHOLDERS' EQUITY 361,883
------------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 413,976
==================
</TABLE>
The accompanying notes are an integral part of these financial statements
E-3
<PAGE>
INFOLOCITY, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 22, 1999 (INCEPTION) TO JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Sales $ 55,235
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 113,578
------------------
LOSS FROM OPERATIONS (58,343)
OTHER INCOME
Interest income 1,956
------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (55,387)
PROVISION FOR INCOME TAXES 800
------------------
NET LOSS $ (57,187)
==================
BASIC LOSS PER SHARE $ (0.04)
==================
DILUTED LOSS PER SHARE $ (0.04)
==================
WEIGHTED-AVERAGE SHARES OUTSTANDING 1,3_4,162
==================
</TABLE>
The accompanying notes are an integral part of these financial statements
E-4
<PAGE>
INFOLOCITY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 22, 1999 (INCEPTION) TO JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock, Series A Common Stock
--------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 22, 1999 (INCEPTION) - $ - - $ -
ISSUANCE OF COMMON STOCK FOR CASH 1,820,000 133,200
ISSUANCE OF COMMON STOCK IN EXCHANGE
FOR SERVICES RENDERED 80,000 5,840
EXERCISE OF OPTIONS IN EXCHANGE FOR
SUBSCRIPTION RECEIVABLE 173,370 136,969
ISSUANCE OF PREFERRED STOCK FOR CASH 77,789 280,040
NET LOSS
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1999 77,789 $ 280,040 2,073,370 $ 276,009
============ ============ ============ ============
Subscription Accumulated
Receivable Deficit Total
-------------- ------------ ------------
BALANCE, JANUARY 22, 1999 (INCEPTION) $ - $ - $ -
ISSUANCE OF COMMON STOCK FOR CASH 133,200
ISSUANCE OF COMMON STOCK IN EXCHANGE
FOR SERVICES RENDERED 5,840
EXERCISE OF OPTIONS IN EXCHANGE FOR
SUBSCRIPTION RECEIVABLE (136,969) -
ISSUANCE OF PREFERRED STOCK FOR CASH 280,040
NET LOSS (57,187) (57,187)
-------------- -------------- ------------
BALANCE, JUNE 30, 1999 $ (136,969) $ (57,187) $ 361,893
============== ============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
E-5
<PAGE>
INFOLOCITY, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 22, 1999 (INCEPTION) TO JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net loss $ (57,187)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,628
Stock issued for services 5,840
(Increase) decrease in
Accounts receivable (43,23_)
Prepaid expenses (3,600)
Increase (decrease) in
Accounts payable 14,871
------------------
Net cash used in operating activities (81,685)
------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (12,629)
------------------
Net cash used in investing activities (12,629)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from related parties 37,212
Proceeds from issuance of common stock 133,200
Proceeds from issuance of preferred stock 280,040
------------------
Net cash provided by financing activities 450,452
------------------
Net increase in cash 356,138
CASH, BEGINNING OF PERIOD -
------------------
CASH, END OF PERIOD $ 356,138
==================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the period from January 22, 1999 (inception) to June 30, 1999, the
Company issued 173,370 shares of common stock in exchange for a subscription
receivable of $136,989.
The accompanying notes are an integral part of these financial statements
E-6
<PAGE>
INFOLOCITY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 1 - BUSINESS ACTIVITY
Infolocity, Inc. (the "Company") was incorporated in January 1999. The
Company provides internet-based business intelligence and information
management for private and publicly traded companies. Its proprietary
internet monitoring and search engines scour the internet for valuable
information for its clients. The Company's proprietary technology
provides real-time monitoring of internet message boards, chat forums,
news groups, and rumor sites.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
The Company maintains cash deposits at numerous banks in Northern
California. Deposits at each bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. As of June 30, 1999,
uninsured portions at those banks aggregated to $257,782.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from customers for
the sale of services. Management believes amounts are fully
collectible, and as such, no allowance for uncollectible amounts is
deemed necessary.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. The cost of maintenance and
repairs is charged to operations as incurred, and significant additions
and betterments are capitalized. The Company provides for depreciation
and amortization using the straight-line method over the estimated
useful lives of the assets of one to three years.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognitions of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
E-7
<PAGE>
IAT RESOURCES CORPORATION
PRO-FORMA BALANCE SHEET
JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
ASSETS
<CAPTION>
<S> <C>
Cash $ 367,382
Accounts Receivable 1,681,719
Receivable from related parties 102,156
Prepaid assets 22,807
Total current assets 2,174,064
Film Costs 471,762
Fixed assets, as cost, net 111,846
Goodwill, less accumulated amortization of $99,282 886,913
Investments 800,000
Other Assets 10,035
------------------
TOTAL ASSETS $ 4,454,620
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,033,347
Dividends payable 278,750
Due to related parties 69,046
Capital lease obligation 33,258
------------------
Total current liabilities 1,414,401
Notes payable - related parties 37,212
------------------
Total liabilities 1,451,613
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, Series "A", $0.001 par value 1,000
Preferred Stock, Series "C", $0.001 par value 3,000
Preferred Stock, Series "D", $0.001 par value 50
Preferred Stock, Series "E", $0.001 par value 225
Preferred Stock, Series "F", $0.001 par value 275
Common Stock, $0.001 par value 431,056
Treasury Stock (1,010,192)
Additional paid-in capital 27,071,434
Accumulated deficit (23,493,841)
------------------
Total Shareholders' Equity 3,003,007
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,454,620
==================
</TABLE>
E-8
<PAGE>
IAT RESOURCES CORPORATION
PRO-FORMA STATEMENT OF OPERATIONS
JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 2,991,953
COSTS RELATED TO REVENUES
Cost of sales 926,295
------------------
NET REVENUES 2,065,658
WRITE-OFF OF PROJECTS IN DEVELOPMENT 301,037
GENERAL AND ADMINISTRATIVE EXPENSES 4,064,634
------------------
LOSS FROM OPERATIONS 2,300,013
OTHER INCOME (EXPENSE)
Merger expenses (6,696)
Interest and dividend income 1,140
Interest and financing expense (12,447)
Write-off of notes receivable and other assets (166,965)
Amortization of related party covenant not to (115,000)
Amortization of goodwill (99,282)
Other expense (22,176)
------------------
Total other income (expense) (421,426)
PROVISION FOR INCOME TAXES 800
NET LOSS $ (2,722,239)
==================
</TABLE>
E-9
<PAGE>
IAT Resources Corporation and Infolocity, Inc.
The following unaudited pro forma financial data and explanatory notes
give effect to the consummation of the IAT Resources Corporation ("IATR") merger
with Infolocity, Inc. The unaudited pro forma financial data should be read in
conjunction with the historical consolidated financial statements of IATR and
the historical financial statements of Infolocity, Inc. which are incorporated
by reference in this Proxy Statement.
The unaudited pro forma financial data has been prepared utilizing
IATR's audited consolidated financial statements for the year ended June 30,1999
and the audited financial statements of Infolocity, Inc. for the period ended
June 30,1999.
The unaudited pro forma combined statements of operations represent
the unaudited pro forma results of operations for IATR for the year ended June
30,1999 adjusted to reflect the Merger with Infolocity, Inc. as if it had
occurred on June 30, 1999. The unaudited pro forma combined balance sheet
represents the unaudited pro forma balance sheet of IATR adjusted to reflect the
Merger with Infolocity, Inc. as if it had occurred on June 30, 1999.
Unaudited pro forma financial data is provided for illustrative
purposes only and are not necessarily indicative of the results of operations or
financial position that would have occurred had the Merger with Infolocity, Inc.
been consummated at June 30,1999, nor are they necessarily indicative of
operating results or financial position.
IAT Resources Corporation and Infolocity, Inc.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The pro forma combined financial statements represent the pro forma results
of operations of IATR assuming that the Merger with Infolocity, Inc. had
occurred on June 30,1999.
(2) Reflects the issuance of 7,375,000 common shares of IATR, for all of the
outstanding securities of Infolocity,Inc.
(3) Represents the exchange of preferred stock as part of the Merger.
E-10
<PAGE>
IAT RESOURCES CORPORATION
PRO-FORMA BALANCE SHEET
JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 367,382
Accounts Receivable 1,681,719
Receivable from related parties 102,156
Prepaid assets 22,807
Total current assets 2,174,064
Film Costs 471,762
Fixed assets, as cost, net 111,846
Goodwill, less accumulated amortization of $99,282 886,913
Investments 800,000
Other Assets 10,035
------------------
TOTAL ASSETS $ 4,454,620
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,033,347
Dividends payable 278,750
Due to related parties 69,046
Capital lease obligation 33,258
------------------
Total current liabilities 1,414,401
Notes payable - related parties 37,212
------------------
Total liabilities 1,451,613
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, Series "A", $0.001 par value 1,000
Preferred Stock, Series "C", $0.001 par value 3,000
Preferred Stock, Series "D", $0.001 par value 50
Preferred Stock, Series "E", $0.001 par value 225
Preferred Stock, Series "F", $0.001 par value 275
Common Stock, $0.001 par value 431,056
Treasury Stock (1,010,192)
Additional paid-in capital 27,071,434
Accumulated deficit (23,493,841)
------------------
Total Shareholders' Equity 3,003,007
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,454,620
==================
</TABLE>
E-11
<PAGE>
IAT RESOURCES CORPORATION
PRO-FORMA STATEMENT OF OPERATIONS
JUNE 30, 1999
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 2,991,953
COSTS RELATED TO REVENUES
Cost of sales 926,295
------------------
NET REVENUES 2,065,658
WRITE-OFF OF PROJECTS IN DEVELOPMENT 301,037
GENERAL AND ADMINISTRATIVE EXPENSES 4,064,634
------------------
LOSS FROM OPERATIONS 2,300,013
OTHER INCOME (EXPENSE)
Merger expenses (6,696)
Interest and dividend income 1,140
Interest and financing expense (12,447)
Write-off of notes receivable and other assets (166,965)
Amortization of related party covenant not to (115,000)
Amortization of goodwill (99,282)
Other expense (22,176)
------------------
Total other income (expense) (421,426)
PROVISION FOR INCOME TAXES 800
NET LOSS (2,722,239)
==================
</TABLE>
E-12
<PAGE>
IAT RESOURCES CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
The undersigned, a stockholder of IAT RESOURCES CORPORATION, a Delaware
corporation, (the "Company") hereby appoints Irwin Meyer and Arthur Bernstein,
and each of them, the proxy of the undersigned, with full power of substitution,
to attend, vote and act for the undersigned at the Company's Special Meeting of
Stockholders (the "Special Meeting"), to be held on December 14 ,1999, and at
any of its postponements or adjournments, to vote and represent all of the
shares of the Company which the undersigned would be entitled to vote, as
follows:
The Board of Directors recommends a FOR vote on Proposal 1, a FOR vote
on Proposal 2, a FOR vote of Proposal 3, a FOR vote on Proposal 4, and for
Victor Alonso Holtorf and James J. Cerna, Jr. as directors under Proposal 5.
1. The approval of the issuance of shares of Common Stock
pursuant to the Merger Agreement with Infolocity, Inc., which
will be in excess of 20% of the number of shares of Common
Stock outstanding before the date of the Merger Agreement and
result in a change in control of the Company.
____ FOR ____ AGAINST ____ ABSTAIN
2. The approval of the issuance of shares of Common Stock,
issuable upon conversion and/or exercise, as the case may be,
of the Debentures and Warrants in connection with the
Placement Agreement with Astor Capital, Inc., which, together
with the Common Stock issuable upon conversion and/or
exercise, as the case may be, of the Debentures and Warrants
previously issued pursuant to the Placement Agreement, may be
in excess of 20% of the number of shares of Common Stock
outstanding before issuance.
___ FOR ____ AGAINST ____ ABSTAIN
3. The approval of the amendment to the Company's 1998 Stock
Incentive Plan to increase the number of shares available for
issuance under the 1998 Plan.
____ FOR ____ AGAINST ____ ABSTAIN
4. The approval of the amendment to the Company's Restated
Certificate of Incorporation to change the name of the
Company to [__________________].
____ FOR ____ AGAINST ____ ABSTAIN
5. The approval of the election of the following Directors of the
Company to hold office until the next Annual Meeting of
Stockholders and until their respective successors have been
elected.
Victor Alonso Holtorf ______FOR _____ WITHHOLD
James J. Cerna, Jr. _____ FOR _____ WITHHOLD
The undersigned hereby revokes any other proxy to vote at the
Special Meeting, and hereby ratifies and confirms all that the proxy
holder may lawfully do by virtue hereof. As to any other business that
may properly come before the Special Meeting and any of its
postponements or adjournments, the proxy holder is authorized to vote
in accordance with its best judgment.
This Proxy will be voted in accordance with the instructions
set forth above. This Proxy will be treated as a GRANT OF AUTHORITY TO
VOTE FOR the approval of the issuance of shares of Common Stock
pursuant to the Merger Agreement with Infolocity, Inc., the approval of
the issuance of shares of Common Stock, issuable upon conversion and/or
exercise, as the case may be, of the Debentures and Warrants issued in
connection with the Placement Agreement with Astor Capital, Inc., the
approval of the amendment to the Company's 1998 Stock Incentive Plan,
the approval of the amendment to the Company's Restated Certificate of
Incorporation, of the election of two (2) Directors of the Company, and
<PAGE>
as the proxy holder will deem advisable on such other business as may
come before the Special Meeting, unless otherwise directed.
The undersigned acknowledges receipt of a copy of the Notice
of Special Meeting and accompanying Proxy Statement dated [_________],
1999 relating to the Special Meeting.
Date: ______________________________, ____
----------------------------------------
----------------------------------------
Signature(s) of Stockholder(s)
(See Instructions Below)
The signature(s) hereon should correspond exactly with the name(s) of
the stockholder(s) appearing on the Stock Certificate. If stock is jointly held,
all joint owners should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If signer is a corporation,
please sign the full corporation name, and give title of signing officer.
THIS PROXY IS SOLICITED BY
THE BOARD OF DIRECTORS OF
IAT RESOURCES CORPORATION
<PAGE>
Exhibit F
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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 0-18410
IAT RESOURCES CORPORATION
(Name of Small Business Issuer in its Charter)
DELAWARE 95-4233050
State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
5757 WILSHIRE BOULEVARD, PENTHOUSE ONE,
LOS ANGELES, CALIFORNIA 90036
(Address of Principal Executive Offices) (Zip Code)
(323) 634-8634
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which registered
------------------- -------------------
Common Stock, Par Value $.001 NASDAQ SmallCap Market
Redeemable Warrants
Securities registered under Section 12(g) of the Exchange Act:
Series A Convertible Preferred Stock
Common Stock, par value $.001
Redeemable Warrants
Class B Warrants
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year - $2,936,718.
The aggregate market value of the voting stock held by non-affiliates
based upon the average of the closing bid and asked prices of such stock as of
September 29, 1999 as reported on the Nasdaq Small Cap Market was $18,632,821.
As of September 29, 1999, there were 13,613,657 shares of common stock
outstanding.
<PAGE>
IAT RESOURCES CORPORATION
FORM 10-KSB ANNUAL REPORT
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE NO.
PART I
<S> <C>
Item 1 Business.........................................................................................2
Item 2 Properties.......................................................................................3
Item 3 Legal Proceedings................................................................................3
Item 4 Submission of Matters to a Vote of Security Holders..............................................3
PART II
Item 5 Market for Common Equity and Related Stockholder Matters.........................................5
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................6
Item 7 Financial Statements............................................................................17
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................................................17
PART III
Item 9 Directors and Executive Officers; Compliance with
Section 16(a) of the Exchange Act...............................................................18
Item 10 Executive Compensation..........................................................................19
Item 11 Security Ownership of Certain Beneficial Owners and Management..................................21
Item 12 Certain Relationships and Related Transactions..................................................22
Item 13 Exhibits, and Reports on Form 8-K...............................................................23
</TABLE>
FORWARD-LOOKING STATEMENTS
This Report contains statements which constitute forward-looking
statements. These statements appear in a number of places in this Report and
include statements regarding the intent, belief or current expectations of the
Company with respect to (i) the Company's growth and expansion opportunities,
(ii) trends affecting the Company's financial condition or results of
operations, (iii) integration of acquisitions and (iv) the impact of competition
in the internet industry. Such forward-looking statements may be identified by
the use of words such as "believe," "anticipate," "intend," and "expect."
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors. The accompanying information
contained in this Report, including, without limitation, the information set
forth in Item 6, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors That Could Impact Future Results"
identifies important factors that could cause such differences. The Company does
not ordinarily make projections of its future operating results and undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Page 1
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
OUR COMPANY
For approximately eight years, we operated under the name The Producers
Entertainment Group Ltd. Historically, we acquired, developed, produced and
distributed dramatic, comedy, documentary and instructional television series
and movies and theatrical motion pictures. We distributed our projects in the
United States and in international markets for exhibition on standard broadcast
television (network and syndication), basic cable and pay cable and for video
distribution. We also provided producer and executive producer services in
exchange for fees and participations in future profits from these projects.
Although we continue to engage in certain entertainment related production and
distribution activities, during the past eight months we have reduced our
network and cable television activities and have begun to redirect our core
business toward the internet and technology industry.
While operating as The Producers Entertainment Group, in July 1998, we
acquired MWI Distribution, Inc., which does business under the name MediaWorks
International. MediaWorks International continues to distribute television and
video programming in the international market, concentrating on children's and
family programming and animation. MediaWorks also co-produces animated and live
action programming ventures and sells direct-to-video series and specials.
As part of our expansion into the internet and on line commerce
industries, we have identified and made small investments in early and expansion
stage companies which we believe have unique internet-based hardware and/or
software applications and which show promise as catalysts in the internet and
online commerce industries. In February 1999, we purchased 150,000 shares of
common stock of flowersandgifts.com, a portal on the internet for the sale of
flowers and other gifts, and 100,000 shares of common stock of Pacific
Softworks, Inc., a licensor of internet-related software and related software
development tools, which recently completed an initial public offering. We also
have warrants to purchase up to an additional 100,000 shares of Pacific
Softworks' common stock.
We are currently developing programs to integrate and deliver internet
services and online content in the education and entertainment segments.
Currently, we are in discussions to provide internet access and portal
development for a state university medical system and an educational content
provider to U.S. public schools. We are also looking to acquire software and
hardware companies that provide competitive advantages in the delivery of online
services and content to enterprise systems within these markets.
RECENT DEVELOPMENTS
On September 23, 1999, we announced that we had entered into a
definitive merger agreement to acquire Infolocity, Inc., a privately held
internet company. Through its proprietary search technology, Infolocity assists
publicly traded companies in minimizing the impact of negative or false
information posted on the internet. The terms of the merger include a tax-free
exchange of our common stock for 100% of the issued and outstanding stock of
Infolocity. As a result of the merger, Infolocity will be a wholly-owned
subsidiary of our company. Completion of the merger depends upon a number of
conditions. These conditions include approval of the merger by our shareholders
and the shareholders of Infolocity. The conditions also include our receipt of
non-competition agreements from Infolocity's principal shareholders and
non-disclosure agreements from the employees of Infolocity. Each of the
principal shareholders of Infolocity is required, prior to closing, to sign a
lock-up agreement preventing the principal shareholders from selling or
transferring shares of our Common Stock received as consideration in the merger
for a specified period of time. As part of the merger, we will enter into
employment agreements with key employees of Infolocity. Another condition to the
merger is that at the time of closing we continue to maintain our current
compliance with the published net tangible assets requirement of the Nasdaq
Small Cap Market.
Page 2
<PAGE>
OUR STRATEGY
Our current strategy is to divide IATR's operation into two separate
divisions. We will continue to operate our MediaWorks International subsidiary
which will distribute family and children's television programming throughout
the world, as well as represent the sale of movies in certain international
territories. On closing the merger with Infolocity, Inc., which is subject to
the conditions described above, we will conduct our internet and technology
business through our wholly-owned subsidiary, Infolocity. Infolocity's primary
business, Investorfacts, is a unique business to business internet service using
Infolocity's proprietary search engine FIRST (Fast Internet Real Time Search
Technology). FIRST searches 50,000 internet locations and 400 publications, 24
hours per day, 7 days per week, in 15 seconds and notifies Infolocity's clients
through detailed analytical reports, of critical information received in
accordance with the client's specific criteria. Infolocity has patents pending
for its technology as well as its business use. We will work to build new
services and products and to create new technologies with commercial and
business appeal using FIRST. We will also attempt to seek out other companies
which further the use of the FIRST technology, create meaningful synergies, or
are potential acquisition candidates.
CORPORATE INFORMATION
Our executive offices are located at 5757 Wilshire Boulevard, Penthouse
One, Los Angeles, California 90036. Our telephone number is (323) 634-8634.
Information on our web site does not constitute part of this Report.
ITEM 2. PROPERTIES
We lease approximately 13,725 square feet located at 5757 Wilshire
Boulevard, Los Angeles, California for our corporate offices pursuant to a lease
which expires on November 30, 1999. Our current annual rent expense is $150,000.
We plan to relocate our offices and we will not renew our current lease. We are
in negotiations to lease new corporate offices and we estimate the annual rent
expense to be approximately $100,000. We currently sublease to a third party
approximately 4,429 square feet located at 767 3rd Avenue in New York City
pursuant to a lease which expires on June 30, 2002. The current annual rent
expense is approximately $167,928, which is fully covered by the terms of the
sublease. We believe that our current facilities are sufficient for our current
needs and our needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of our business, we are subject to various claims
and legal actions. We believe that we will not be materially adversely affected
by the ultimate outcome of any of these matters either individually or in the
aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 26, 1999, we held an annual meeting of our
stockholders.
(b) The following directors were elected at the meeting: Ivan
Berkowitz, Arthur H. Bernstein, Thomas A. Daniels, Michael Iscove, and Irwin
Meyer.
(c) Stockholders voted to approve the Amendment to our Restated
Certificate of Incorporation to change our name to IAT Resources Corporation.
There were 8,184,052 votes cast in favor of the Amendment, 24,192 votes cast
against the amendment, and 8,121 abstentions.
(d) Stockholders voted to approve the issuance of additional shares of
common stock pursuant to the Securities Purchase Agreement with Augustine Fund,
L.P. There were 2,541,948 votes case in favor of the issuance of additional
shares of common stock pursuant to the Securities Purchase Agreement with
Augustine Fund, L.P., 241,126 votes cast against the issuance of additional
shares, and 16,930 abstentions.
Page 3
<PAGE>
(e) Stockholders voted to approve the Amendment to our 1998 Stock
Incentive Plan. There were 2,607,619 votes cast in favor of the Amendment to the
Stock Incentive Plan, 174,136 votes cast against the Amendment to the Stock
Incentive Plan, and 18,249 abstentions.
At the meeting, the votes cast in the election for directors were as
follows:
<TABLE>
<CAPTION>
Nominee Votes in Favor Votes Against Abstentions
------- -------------- ------------- -----------
<S> <C> <C> <C>
Arthur H. Bernstein 8,170,680 0 45,685
Ivan Berkowitz 8,170,680 0 45,685
Thomas A. Daniels 8,170,680 0 45,685
Michael Iscove 8,170,680 0 45,685
Irwin Meyer 8,170,680 0 45,685
</TABLE>
Page 4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND STOCKHOLDER MATTERS
Our Common Stock is currently traded on the Nasdaq Small Cap Market
("Nasdaq") under the symbol "IATR." The following table sets forth the high and
low bid prices on Nasdaq for the periods indicated, as reported by Nasdaq,
retroactively adjusted for the May 1996 one-for-four and the May 1998
one-for-three reverse stock splits. The quotations are inter-dealer prices
without adjustment for retail mark-ups, mark-downs or commissions, and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
------------------------------
High Bid Low Bid
------------- -------------
Fiscal Year -1999:
Quarter Ended
<S> <C> <C>
September 30, 1998..................... $2.00 $0.75
December 31, 1998...................... 0.88 0.19
March 31, 1999......................... 4.25 0.22
June 30, 1999.......................... 3.88 1.00
Fiscal Year - 1998:
Quarter Ended
September 30, 1997..................... $3.38 $2.25
December 31, 1997...................... 3.28 1.88
March 31, 1998......................... 2.72 1.50
June 30, 1998.......................... 2.38 1.44
</TABLE>
On September 29, 1999, the prices of the Common Stock as reported by
Nasdaq were $1.38 bid and $1.44 asked. On such date there were approximately 208
holders of record of the Common Stock. The number of shareholders does not take
into account shareholders for whom shares are being held in the name of
brokerage firms or clearing agencies.
As of September 22, 1999, we have outstanding 1,000,000 shares of
Series A Preferred Stock which is entitled to annual dividends aggregating
$425,000. We have outstanding 2,500,000 shares of Series C Preferred Stock.
Holders of our Series C Preferred Stock are entitled to dividends of 8%
annually, so long as we have net profits in excess of $1,000,000 in the
applicable fiscal year. No dividends are currently due on the Series C Preferred
Stock. No dividends may be paid on the Common Stock unless all dividends on the
Series A Preferred Stock and Series C Preferred Stock have been paid or
provision has been made for such payment. Pursuant to the terms of our
outstanding Series A Preferred Stock, which we issued in a public offering
consummated in December 1994, and pursuant to the terms of our outstanding
Series C Preferred Stock, at our option, we may pay dividends on the preferred
stock in cash or in shares of our Common Stock.
We have never paid a cash dividend on our Common Stock and presently
intend to retain any future earnings for investment and use in our business
operations. We cannot assure you that our operations will generate the revenues
and cash flow required to declare cash dividends on our outstanding Common Stock
in future fiscal periods or that we will have legally available funds to pay
dividends on our Common Stock. Consequently, we do not expect to pay cash
dividends in the foreseeable future except to the extent required to satisfy our
obligations with respect to our outstanding Series A Preferred Stock and Series
C Preferred Stock.
During the fiscal year ended June 30, 1999, we sold the following
equity securities which were not registered under the Securities Act;
- On January 14, 1999, we sold 3,000,000 shares of Series C
Preferred Stock, all of which were sold at $.001 per share.
This sale was exempt under Rule 506 of the Securities Act. The
Series C Preferred Stock converts on a one-for-one basis at a
conversion price of $.50 per share.
Page 5
<PAGE>
- On July 31, 1998, we sold 50,000 shares of Series D Preferred
Stock for $500,000 and issued 50,000 shares of Series F
Preferred Stock. This sale was exempt under Rule 506 of the
Securities Act. The Series D Preferred Stock converts
according to a formula based on a 20% discount to the market
price of the common stock. The Series F Preferred Stock
converts on a one-for-one basis at fair market value.
- On August 2, 1999, we sold an aggregate of 175,000 shares of
Series E Preferred Stock for $1,750,000 and 175,000 shares of
Series F Preferred Stock. This sale was exempt under Rule 506
of the Securities Act. The Series E Preferred Stock converts
at a 17.5% discount to the market price of the common stock.
The Series F Preferred Stock converts on a one-for-one basis
at fair market value.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis should be read in conjunction
with our Financial Statements and notes included elsewhere in this Form 10-KSB.
The Notes to the Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth herein
contain forward-looking statements with respect to us and our operations that
are subject to certain risks and factors which could cause our future actual
results of operations and future financial condition to differ materially from
that described herein. These risk factors include, but are not limited to, our
potential inability to realize the new business plan. Other risk factors include
the intensity of competition from other companies which focus on enabling
innovations in the converging telecommunications, entertainment and technology
industries, the status of our liquidity in future fiscal periods, factors that
affect the internet technology and online commerce industries such as network
performance, reliability, speed of access, ease of use and bandwidth
availability, and factors that generally affect the entertainment industry, such
as changes in management at the major studios, broadcast and distribution
companies, as well as economic, political, regulatory, technological and public
taste environments, as well as the factors discussed below in "-- Factors That
Could Impact Future Results".
Although we are in the process of transitioning our business, our
revenues are currently derived primarily from our MediaWorks subsidiary and the
licensing of our library product. The amount of revenues recognized in any
period are not necessarily indicative of revenues to be recognized by us in
future periods.
Revenue Recognition
Revenues received from license fees for distribution rights to
projects-in-process constitute deferred income until the project becomes
available for broadcast in accordance with the terms of its licensing agreements
and are recognized as revenue at such time. Revenues from completed projects
where distribution rights are owned by us are recognized when the project
becomes commercially available for broadcasting or exhibition in certain media
and geographical territories by the licensee. Revenues from the sale of projects
completed under straight producer arrangements are recognized during the
production phase. Additional licensing fees, distribution fees or profit
participations are recognized as earned in accordance with the terms of the
related agreements.
Amortization of film costs is charged to operations on a project by
project basis. Under the individual film forecast method of Statement of
Financial Accounting Standards No. 53, the cost charged per period is determined
by multiplying the remaining unamortized costs of the project by a fraction,
whose numerator is the income generated by the project during the period and
whose denominator is management's estimate of the total gross revenue to be
derived by the project over its useful life from all sources. The effect on the
amortization of completed projects resulting from revision of management's
estimates of total gross revenue on certain projects are reflected in the year
in which such revisions are made.
On October 20, 1997, we acquired 100% of the capital stock of the
Grosso-Jacobson Companies for 2,222,222 shares of our Common Stock. The
acquisition was accounted for as a pooling of interests and,
Page 6
<PAGE>
consequently, the accompanying historical financial information for all periods
presented has been restated to reflect the effects of the combination.
On July 15, 1998, we acquired 100% of the capital stock of MWI
Distribution, Inc., (doing business as MediaWorks International). The
acquisition was accounted for using the purchase accounting method and,
consequently, our historical financial statements will not reflect the results
of operations of MediaWorks International prior to the date of acquisition.
Page 7
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1999 ("FISCAL 1999") COMPARED WITH THE YEAR ENDED JUNE 30,
1998 ("FISCAL 1998")
Revenues for the year ended June 30, 1999 were $2,936,718 as compared
to $22,369,511 for the year ended June 30, 1998, a decrease of 87%. Revenues for
the year ended June 30, 1999 primarily consisted of sales made by our MediaWorks
subsidiary and licensing of programs made by us. Revenues for the year ended
June 30, 1998 primarily consisted of fees from the production and distribution
of one made-for-television movie for a broadcast network and four additional
made-for-television movies which were exhibited on The Family Channel and
Showtime Network, and are currently being distributed internationally. This
significant decrease from Fiscal 1998 was the result of a reduction in our
television development and production activities.
Amortization of film costs for the year ended June 30, 1999 was $0,
while the amortization of film costs for the year ended June 30, 1998 was
$9,384,311, and was computed using the Individual Film Forecast Method.
Amortization as a percentage of total revenues decreased from 42.0% for Fiscal
1998 to 0% for Fiscal 1999. In 1998, we had a mix of projects, some of which had
no expectation of additional revenues and were amortized at 100% of cost and
some of which projects we retained distribution rights for future sale and were
amortized according to the Individual Film Forecast Method. Write-offs of
projects in development were $301,037 for the year ended June 30, 1999 and
$199,450 for the year ended June 30, 1998.
Cost of sales for the year ended June 30, 1999 was $926,295 as compared
to $9,773,397 for the year ended June 30, 1998. Cost of sales as a percentage of
total revenues decreased from 43.7% for Fiscal 1998 to 31.5% for Fiscal 1999.
The difference results from the mix of product produced by us in Fiscal 1999 as
compared to Fiscal 1998.
General and administrative expenses increased to $3,953,012 in Fiscal
1999 from $3,592,772 in Fiscal 1998 or an increase of $360,240. This increase
was primarily attributable to the acquisition of MWI Distribution, Inc .
Interest income during the year ended June 30, 1999 was $1,140, and
primarily consisted of amortization of the imputed interest discount on notes
received from the sale of common stock by us to related parties and interest
related to a trade note receivable. On June 30, 1997 we and Mountaingate
Productions LLC ("Mountaingate") mutually agreed to terminate the purchase
agreement and promissory note. This termination resulted in our writing off the
non-recourse portion of the accrued interest on the note totaling $133,142.
Interest and financing expense in Fiscal 1999 was $12,447 as compared
to $4,225 in Fiscal 1998. The interest and financing expense in Fiscal 1999
primarily consisted of deferred financing charges which were expensed upon the
termination of certain promissory notes.
During the year ended June 30, 1999, we wrote off $166,965 as compared
to $196,105 during the year ended June 30, 1998, of notes receivable and other
assets relating to the sale by us of 175,000 shares of Common Stock to certain
related parties.
On November 4, 1996, we settled our litigation with a former officer
and director in a negotiated stipulated settlement filed with the Los Angeles
County Superior Court that required us to make aggregate payments of $575,000 in
exchange for an agreement by this individual not to compete with us through
December 31, 1998. Accordingly, amortization of the covenant not to compete was
$115,000 in Fiscal 1999 and $276,000 in Fiscal 1998. The covenant not to compete
is now fully amortized.
The net loss applicable to common shareholders was $3,156,302 for
Fiscal 1999 as compared to a net loss of $1,836,916 for Fiscal 1998. Of this
amount for Fiscal 1999, $416,037 represents non-recurring expenses and $425,000
represents the dividend paid in Common Stock to the holders of the Series A
Preferred Stock. Of the amount for Fiscal 1998, $889,089 represented
non-recurring expenses and $425,000 represented the dividend paid in Common
Stock to the holders of the Series A Preferred Stock.
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YEAR ENDED JUNE 30, 1998 ("FISCAL 1998") COMPARED WITH THE YEAR ENDED JUNE 30,
1997 ("FISCAL 1997")
Revenues for the year ended June 30, 1998 were $22,369,511 as compared
to $5,521,441 for the year ended June 30, 1997, an increase of 400%. Revenues
for the year ended June 30, 1998 primarily consisted of fees from the production
and distribution of one made-for-television movie for a broadcast network and
four additional made-for-television movies which were exhibited on The Family
Channel and Showtime Network, and are currently being distributed
internationally. Revenues for the year ended June 30, 1997 primarily consisted
of the continuing international distribution of completed projects and from
personal management fees, which business was discontinued in June 1998. This
significant increase from Fiscal 1997 was the result of a greater level of
production and distribution.
Amortization of film costs for the year ended June 30, 1998 was
$9,384,311, while the amortization of film costs for the year ended June 30,
1997 was $503,552, and was computed using the Individual Film Forecast Method.
Amortization as a percentage of total revenues increased from 9.1% for Fiscal
1997 to 42.0% for Fiscal 1998. The difference reflects the mix of projects for
which we had no expectation of additional revenues that are amortized at 100% of
cost and projects for which we had retained distribution rights for future sale
that are amortized according to the Individual Film Forecast Method. Write-offs
of projects in development were $199,450 for the year ended June 30, 1998 and
$212,920 for the year ended June 30, 1997.
Cost of sales for the year ended June 30, 1998 was $9,773,397 as
compared to $3,769,025 for the year ended June 30, 1997. Cost of sales as a
percentage of total revenues decreased from 68.2% for Fiscal 1997 to 43.7% for
Fiscal 1998. The difference results from the mix of product produced by us in
Fiscal 1998 as compared to Fiscal 1997.
General and administrative expenses decreased to $3,592,772 in Fiscal
1998 from $4,980,816 in Fiscal 1997 or a decrease of $1,388,044. This decrease
was primarily attributable to an increase in production activity which absorbed
more of the producer fees.
Interest income during the year ended June 30, 1998 was $61,817. During
the year ended June 30, 1997, interest income was $227,188 and primarily
consisted of amortization of the imputed interest discount on notes received
from the sale of common stock by us to related parties, interest related to a
trade note receivable and dividends earned on a portion of the cash proceeds
from our September 1996 public offering. On June 30, 1997 the Company and the
related parties mutually agreed to terminate the purchase agreement and
promissory note. This termination resulted in our writing off the non-recourse
portion of the accrued interest on the note totaling $133,142.
Interest and financing expense in Fiscal 1998 was $4,225 as compared to
$156,975 in Fiscal 1997. The interest and financing expense in Fiscal 1997
primarily consisted of deferred financing charges which were expensed upon
repayment of the $500,000 aggregate principal amount of 10% promissory notes.
During the year ended June 30, 1998, we wrote off $196,105 as compared
to $387,295 during the year ended June 30, 1997, of notes receivable and other
assets relating to the sale by us of 175,000 shares of Common Stock to certain
related parties.
On November 4, 1996, we settled our litigation with a former officer
and director in a negotiated stipulated settlement filed with the Los Angeles
County Superior Court that required us to make aggregate payments of $575,000 in
exchange for an agreement by this individual not to compete with us through
December 31, 1998. Accordingly, amortization of the covenant not to compete was
($276,000) in Fiscal 1998.
The net loss applicable to common shareholders was $1,836,916 for
Fiscal 1998 as compared to $5,017,145 for Fiscal 1997. Of this amount for Fiscal
1998, $889,089 represents non-recurring expenses and $425,000 represents the
dividend paid in Common Stock to the holders of the Series A Preferred Stock.
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LIQUIDITY AND CAPITAL RESOURCES
We need a significant amount of resources to develop our internet
technology plan and increase our presence in the internet industry. We have had,
and intend to continue to engage in, exploratory discussions concerning
acquisition opportunities, and any such acquisition could result in additional
capital requirements.
Our cash commitments for the year ending June 30, 2000 include payment
of our current liabilities of $1,399,530 and compensation to officers and key
independent contractors of $850,000 and office rent of $100,000, aggregating
approximately $2,349,530.
Net cash provided by (used in) operating activities of our company in
Fiscal 1999 was ($1,238,343) as compared to $2,593,520 in Fiscal 1998. Net cash
used in investing activities during the year ended June 30, 1999 was ($814,265)
and net cash used in investing activities during the year ended June 30, 1998
was ($3,630,449). Net cash provided by financing activities of our company
during the year ended June 30, 1999 was $1,990,101 and net cash used in
financing activities of our company during the year ended June 30, 1998 was
($234,190).
Our total cash and cash equivalent balance as of June 30, 1999 was
$11,244 as compared to our total cash and cash equivalent balance of $73,151 as
of June 30, 1998.
In July 1998, we secured access to a $5,500,000 equity-based line of
credit with an institutional investor, subject to certain minimum trading
qualifications. To date, we have sold $2,250,000 of convertible preferred stock
to the investor.
In August 1999, we entered into an agreement for a private placement of
up to $4,000,000 of 6 percent convertible debentures. We have closed on
$1,350,000 as of September 29, 1999.
We believe that cash flow from operations, cash on hand and
availability under our current equity-based line of credit, as well as other
available financing sources, should be sufficient to fund our operations and
service its debt in the foreseeable future. However, there are a number of
factors that could change our anticipated needs, and could require that we try
to raise additional financing.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. We do not expect adoption
of SFAS No. 130 to have a material effect, if any, on our financial position or
results of operations.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosure about Segments of an Enterprise and Related Information," is
effective for financial statements with fiscal years beginning after December
15, 1997. This statement establishes standards for the way that public entities
report selected information about operating segments, products and services,
geographic areas and major customers in interim and annual financial reports. We
do not expect adoption of SFAS No. 131 to have a material effect, if any, on our
financial position or results of operations.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits instead of four to define the applicable year. Any of our
computer programs that have time-sensitive software or facilities or equipment
containing embedded micro-controllers may recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations resulting in potential disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.
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We have assessed our hardware and software systems, which are comprised
solely of an internal personal computer network and commercially available
software products. Based on this assessment, we believe that our hardware and
software systems are year 2000 compliant.
In addition, we have received information from our key vendors and
customers regarding their Year 2000 exposures which would have a material effect
on us. The financial impact on us of such third parties not achieving high
levels of year 2000 readiness cannot be estimated with any degree of accuracy.
In the area of business continuity, technological operations dependent in some
way on one or more third parties, the situation is much less in our ability to
predict or control. In some cases, third party dependence is on vendors or
technology who are themselves working towards solutions to year 2000 problems.
In other cases, third party dependence is on suppliers of products and services
that are themselves computer-intensive. We are in various stages of attempting
to ascertain the state of year 2000 readiness of significant third parties. We
are taking steps to attempt to ensure that the third parties on which we are
heavily reliant are year 2000 ready, but cannot predict the likelihood of such
compliance nor the direct and indirect costs of non-readiness by those third
parties or of securing such services from alternate third parties. We are not
yet aware of any year 2000 issues relating to third parties with which we have a
material relationship. If such critical third party providers experience
difficulties resulting in disruption of service to us, a shutdown of our
operations at individual facilities could occur for the duration of the
disruption.
The Year 2000 project cost has been minimal and, based on preliminary
information, is not currently anticipated to have a material adverse effect on
our financial condition, results of operations or cash flow in future periods.
However, if we, our customers or vendors are unable to resolve any Year 2000
compliance problems in a timely manner, there could result a material financial
impact on us. Accordingly, management plans to devote the resources it considers
appropriate to resolve all significant Year 2000 problems in a timely manner.
The costs of the project and the date on which we believe we will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
FACTORS THAT COULD IMPACT FUTURE RESULTS
FACTORS AFFECTING THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES
RISKS RELATED TO OUR BUSINESS
ALTHOUGH WE CONTINUE TO OPERATE IN THE ENTERTAINMENT BUSINESS ON A REDUCED
SCALE, OUR PROSPECTS IN THE INTERNET SECTOR ARE DIFFICULT TO FORECAST BECAUSE WE
HAVE ONLY BEEN TRANSITIONING TO THE INTERNET AND ONLINE COMMERCE INDUSTRIES
SINCE FEBRUARY 1999.
We announced our intention to expand our business in the internet and
electronic commerce industries in February 1999 and we are gradually changing
our core television production business to internet technology services and
integration. These industries are new, highly speculative and involve a
substantial degree of risk. Since we are in an early stage of development in
these rapidly evolving industries, our prospects are difficult to predict and
could change rapidly and without warning. You must consider our prospects in
light of the risks, expenses and difficulties frequently encountered by
companies in the early stages of developing and expanding their business,
particularly companies in the new and rapidly evolving internet technology and
online commerce markets. These risks include, but are not limited to, the
inability to attract key personnel knowledgeable in the internet markets, the
inability to respond promptly to changes in a rapidly evolving and unpredictable
business environment and the inability to manage potential growth. To address
these risks, we must, among other things:
- successfully implement new business and marketing strategies;
- respond to competitive developments;
- expand our funding of early and expansion-stage companies; and
- attract and retain qualified personnel.
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WE MAY NOT BE SUCCESSFUL IN ENTERING INTO THE INTERNET AND ONLINE COMMERCE
FIELDS SINCE WE HAVE NEVER HISTORICALLY OPERATED IN THESE BUSINESSES. OPERATING
IN THESE BUSINESSES WILL ALSO REQUIRE SUBSTANTIAL WORKING CAPITAL.
The internet and online commerce industries are completely new business
ventures for us, and are businesses in which we have never operated. None of our
current executives has experience operating internet-related companies. Although
we believe that our experience in the entertainment business lends itself well
to these industries, we may not be able to operate successfully in them.
We retained the services of Strategic Capital Consultants to assist us
in investing in or acquiring interests in internet and online commerce
companies. However, if we fail to complete the acquisition of these types of
companies, or if we cannot successfully integrate their businesses into ours,
our business and financial condition could suffer.
In addition, our new business strategy, investment and acquisition
activities will require substantial working capital. We have spent and will
continue to spend substantial funds to locate appropriate acquisition
candidates, to market our efforts and to establish an effective management team
with experience in the internet and online commerce industries. We cannot assure
you that we will be successful in any of these areas.
WE RECENTLY ANNOUNCED THAT WE SIGNED A DEFINITIVE AGREEMENT TO MERGE WITH
INFOLOCITY. IF WE FAIL TO CONSUMMATE THE MERGER WITH INFOLOCITY OR IF WE
CANNOT SUCCESSFULLY INTEGRATE INFOLOCITY'S BUSINESS INTO OURS, OUR BUSINESS
AND FINANCIAL CONDITION COULD SUFFER.
In September 1999, we announced that we had entered into a definitive
agreement to merge with Infolocity, a privately held internet company which,
through its proprietary search technology, helps publicly traded companies
minimize the impact of negative information posted on the internet. We are
seeking to merge with Infolocity with the expectation that the merger will help
us execute our plan to expand our core business into the internet industry and
provide us with further opportunities to promote synergistic business
relationships among other internet companies. In order to achieve these
anticipated benefits, we must efficiently, effectively and timely integrate
Infolocity's operations into ours. The combination of these businesses requires,
among other things:
- integration of management staffs;
- coordination of operations and marketing efforts; and
- location of adequate sources of additional funding.
Full integration of these businesses will require considerable effort
on the part of our management, who will need to dedicate considerable time
toward integrating the financial and information systems, management staffs and
organizational cultures of the separate businesses. We could experience problems
associated with the integration, and the integration itself may not proceed
efficiently or be successful. Furthermore, even if we successfully integrate
Infolocity's operations into ours, the combination may adversely affect our
business and results of operations.
Completion of the merger depends upon a number of conditions. These
conditions include approval of the merger by our shareholders and the
shareholders of Infolocity. The conditions also include our receipt of
non-competition agreements from Infolocity's principal shareholders and
non-disclosure agreements from the employees of Infolocity. Each of the
principal shareholders of Infolocity is required prior to closing, to sign a
lock-up agreement preventing the principal shareholders from selling or
transferring shares of our Common Stock received as consideration in the merger
for a specified period of time. As part of the merger, we will enter into
employment agreements with key employees of Infolocity. Another condition to the
merger is that at the time of closing we continue to maintain our current
compliance with the published net tangible assets requirement of the Nasdaq
Small Cap Market.
OUR GROWTH AND OPERATING RESULTS COULD BE IMPAIRED IF WE ARE UNABLE TO MEET OUR
CURRENT LIQUIDITY AND CAPITAL RESOURCES REQUIREMENTS.
Our cash commitments for the next 12 months include paying aggregate
minimum base compensation of approximately $850,000 to our officers and key
independent contractors and minimum office rent of approximately
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$100,000. We also incur overhead and other costs such as employee salaries,
related benefits, office expenses, professional fees and similar expenses. For
our fiscal year ended June 30, 1999, our general and administrative expenses,
which included compensation and rent, totaled $3,953,012. Dividends on our
outstanding Series A Preferred Stock aggregate $425,000 annually, which we have
paid in stock during the past three years. At our option, we may pay dividends
on our series of preferred stock in shares of common stock or in cash. As a
result of all of these expenses, we had an accumulated deficit of ($23,436,654)
at June 30, 1999. As of that date, we also had cash and cash equivalents of
$11,244, accounts and contracts receivable of $1,751,884 and accounts payable
and accrued expenses of $1,087,522.
We may need to raise additional funds in order to meet these expenses,
fund our transition into the internet and online commerce industries and to
respond to competitive pressures. If we raise additional funds by issuing equity
or convertible debt securities, the percentage ownership of our stockholders
will be diluted. Any new securities could have rights, preferences and
privileges senior to those of our common stock. Furthermore, we cannot be
certain that additional financing will be available when and to the extent
required or that, if available, it will be on acceptable terms. If adequate
funds are not available on acceptable terms, we may not be able to fund our
expansion of our business into the internet and online commerce sectors.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.
For the fiscal years ended June 30, 1997, 1998 and 1999, we generated
revenues of $5,521,441, $22,369,511 and $2,936,718, respectively, and incurred
net losses of $4,592,145, $1,411,916 and $2,665,052, respectively (without
giving effect to the payment in 1997, 1998 and 1999 of dividends of $425,000
annually, on the Series A Preferred Stock and payment in 1999 of dividends of
$66,250 on the Series E Preferred Stock). As of June 30, 1999, we had an
accumulated deficit of ($23,436,654). If the cash we generate from our
operations cannot sufficiently fund possible future operating losses, we may
need to raise additional funds. Additional financing may not be available in
amounts or on terms acceptable to us, if at all.
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE AND ARE UNPREDICTABLE. IF WE FAIL
TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET
PRICE OF OUR COMMON STOCK MAY DECLINE SIGNIFICANTLY.
Our limited operating history in the internet and online commerce
industries makes it difficult to forecast accurately our revenues, operating
expenses and operating results. As a result, we may be unable to adjust our
spending in these areas in a timely manner to compensate for any unexpected
revenue shortfall.
BECAUSE OF THE LIMITED BARRIERS TO ENTRY IN THE INTERNET AND ONLINE COMMERCE
BUSINESSES, COMPETITION IN THESE MARKETS IS INTENSE. IF WE ARE UNABLE TO COMPETE
SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS THAT ENTER THESE MARKETS,
OUR REVENUES AND OPERATING RESULTS COULD BE IMPAIRED.
The internet and online commerce markets are new, rapidly evolving and
intensely competitive, and we expect that competition could further intensify in
the future. Barriers to entry are limited, and current and new competitors can
launch web sites and other similar businesses at a relatively low cost. Many of
our current and potential competitors have longer operating histories and
significantly greater financial, marketing and other resources than us.
Increased competition may result in reduced operating margins and loss of market
share.
We have not yet determined whether we will be able to compete
successfully against our current and future competitors. Further, as a strategic
response to changes in the competitive environment, we may from time to time
make marketing decisions or acquisitions that could adversely affect our
business, prospects, financial condition and results of operations.
OUR GROWTH AND OPERATING RESULTS WILL BE IMPAIRED IF THE INTERNET AND ONLINE
COMMERCE INDUSTRIES DO NOT CONTINUE TO GROW.
Our growth and operating results depend in part on widespread
acceptance and use of the internet as a point of convergence in the
telecommunications, entertainment and technology industries, as well as on
continued consumer acceptance and use of the internet as a way to buy products.
These practices are at an early stage of development, and demand and market
acceptance are uncertain.
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The internet may not become a viable medium for telecommunications,
entertainment and technology convergence or a healthy commercial marketplace due
to inadequate development of network infrastructure and enabling technologies
that address the public's concerns about:
- network performance;
- reliability;
- speed of access;
- ease of use; and
- bandwidth availability.
In addition, the internet's overall viability could be adversely
affected by increased government regulation. Changes in or insufficient
availability of telecommunications or other services to support the internet
could also result in slower response times and adversely affect general usage of
the internet. Also, negative publicity and consumer concern about the security
of transactions conducted on the internet and the privacy of users may also
inhibit the growth of commerce on the internet.
BURDENSOME GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD IMPAIR OUR
RESULTS OF OPERATIONS.
It is possible that a number of laws and regulations may be adopted
concerning the internet, relating to, among other things:
- user privacy;
- content;
- copyrights;
- distribution;
- telecommunications; and
- characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
popularity or expansion of the internet. A decline in the growth of the internet
could decrease demand for our services and increase our cost of doing business.
The application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the internet and other online services could also harm our
business.
IF THE SOFTWARE, HARDWARE, COMPUTER TECHNOLOGY AND OTHER SYSTEMS AND SERVICES
THAT WE USE ARE NOT YEAR 2000 COMPLIANT, OUR OPERATING RESULTS COULD BE
IMPAIRED.
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities.
We use hardware and software systems, which are comprised only of an
internal personal computer network and commercially available software products.
We have assessed these systems and we believe that our systems correctly define
the year 2000. We have also assessed the embedded system contained in our leased
equipment, which we believe to be Year 2000 compliant.
In addition, we have received information from our key vendors and
customers with respect to their significant Year 2000 exposures which would have
a material effect on us. The financial impact on us of such third parties not
achieving high levels of year 2000 readiness cannot be estimated with any degree
of accuracy. In the area of business continuity, technological operations
dependent in some way on one or more third parties, the situation is much less
in our ability to predict or control. In some cases, third party dependence is
on vendors who are themselves working towards solutions to year 2000 problems.
In other cases, third party dependence is on suppliers of products and services
that are themselves computer-intensive. We are in various stages of attempting
to ascertain the state of year 2000 readiness of significant third parties. We
are taking steps to attempt to ensure that the third parties on which we are
heavily reliant are year 2000 ready, but cannot predict the likelihood of such
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compliance nor the direct and indirect costs of non-readiness by those third
parties or of securing such services from alternate third parties. We are not
yet aware of any year 2000 issues relating to third parties with which we have a
material relationship. If such critical third party providers experience
difficulties resulting in disruption of service to us, a shutdown of our
operations at individual facilities could occur for the duration of the
disruption.
The Year 2000 issue also presents numerous other risks that could hurt
our business, such as disruptions of service from third parties who provide us
with electricity, water or telephone service. If these critical third party
providers experience difficulties that result in disruptions of services to us,
a shutdown of our operations at individual facilities could occur. Also, general
uncertainty exists regarding the Year 2000 problem and its potential effect on
the overall business environment and economies of the United States and other
nations. As a result, we cannot determine at this time whether the Year 2000
problem will materially impact our operations or financial condition as a result
of significant disruption to these economies and/or business environments.
THE INDUSTRY IN WHICH MEDIAWORKS COMPETES IS INTENSELY COMPETITIVE. IF
MEDIAWORKS IS UNABLE TO COMPETE SUCCESSFULLY AGAINST ITS CURRENT AND FUTURE
COMPETITORS, ITS REVENUES AND OPERATING RESULTS COULD BE IMPAIRED AND OUR
BUSINESS COULD SUFFER AS A RESULT.
The television industry is highly competitive and involves a
substantial degree of risk. MediaWorks directly competes with many other
television distributors which are significantly larger than it. These
distributors typically have financial and other resources which are far greater
than those available to MediaWorks now or in the foreseeable future. New
technologies and the expansion of existing technologies in the television
industry may further increase the competitive pressures on MediaWorks. We cannot
assure you that MediaWorks will be successful in competing in the television
field.
MediaWorks' success depends upon its ability to distribute programming
for television which will appeal to markets characterized by changing popular
tastes. In light of the intense competition in the television industry,
MediaWorks may not be able to continuously acquire and develop products which
can be made into profitable television series.
OUR OUTSTANDING OPTIONS AND WARRANTS MAY DILUTE OUR STOCKHOLDERS' INTERESTS AND
COULD HINDER US FROM OBTAINING ADDITIONAL FINANCING.
As of September 30, 1999, we have granted options and warrants to
purchase a total of 6,439,792 shares of common stock that have not been
exercised. To the extent that these outstanding options and warrants are
exercised, our stockholders' interests will be diluted. Also, we may not be able
to obtain additional equity capital on terms we like, since the holders of the
outstanding options and warrants will likely exercise them at a time when we may
be able to obtain such capital on better terms than those in the options and
warrants.
THE CONVERSION OF OUR CONVERTIBLE PREFERRED STOCK MAY DILUTE OUR
STOCKHOLDERS' INTERESTS AND COULD HINDER US FROM OBTAINING ADDITIONAL
FINANCING.
As of September 30, 1999, we have issued and outstanding 1,000,000
shares of our Series A Preferred Stock, 2,500,000 shares of our Series C
Preferred Stock and 225,000 shares of our Series F Preferred Stock. At our
option, we can pay the dividends on our Series A Preferred Stock in cash or in
shares of common stock. No dividends are currently due on the Series C Preferred
Stock. We are not required to pay dividends on the Series F Preferred Stock.
Holders of our convertible preferred stock could convert their shares
into common stock at any time in the future. To the extent all of the shares of
our outstanding convertible preferred stock are converted into common stock, our
common stockholders' interests will be diluted. Since these shares of common
stock will be registered for sale in the marketplace, future offers to sell such
shares could potentially depress the price of our common stock. In the future,
this could make it difficult for us or our stockholders to sell the common
stock. Also, we may have problems obtaining additional equity capital on terms
we like, since we can expect the holders of our convertible preferred stock to
convert their shares into common stock at a time when we would be able to obtain
any needed capital on more favorable terms than those of the convertible
preferred stock.
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STOCK PRICES OF INTERNET-RELATED COMPANIES HAVE FLUCTUATED WIDELY IN RECENT
MONTHS AND THE TRADING PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE, WHICH
COULD RESULT IN SUBSTANTIAL LOSSES TO INVESTORS.
As a result of our recent expansion into internet and online commerce,
the trading price of our common stock could become more volatile and could
fluctuate widely in response to factors including the following, some of which
are beyond our control:
- variations in our operating results;
- announcements of technological innovations or new services by
us or our competitors;
- changes in expectations of our future financial performance,
including financial estimates by securities analysts and
investors;
- changes in operating and stock price performance of other
internet-related companies similar to us;
- conditions or trends in the internet and technology
industries;
- additions or departures of key personnel; and
- future sales of our common stock.
Domestic and international stock markets often experience significant
price and volume fluctuations. These fluctuations, as well as general economic
and political conditions unrelated to our performance, may adversely affect the
price of our common stock.
TAKEOVER EFFORTS COULD BE DETERRED AS A RESULT OF OUR RIGHT TO ISSUE
PREFERRED STOCK IN THE FUTURE AND CERTAIN PROVISIONS IN OUR CERTIFICATE OF
INCORPORATION.
Our Certificate of Incorporation permits our Board of Directors to
issue up to 20,000,000 shares of "blank check" Preferred Stock. Our Board of
Directors also has the authority to determine the price, rights, preferences,
privileges and restrictions of those shares without any further vote or action
by our stockholders. We have issued and outstanding 1,000,000 shares of Series A
Preferred Stock, 2,500,000 shares of Series C Preferred Stock and 225,000 shares
of Series F Preferred Stock. If we issue additional preferred stock with voting
and conversion rights, the rights of our common stockholders could be adversely
affected by, among other things, the loss of their voting control to others. Any
additional issuances could also delay, defer or prevent a change in our control,
even if these actions would benefit our stockholders.
Additionally, provisions of Delaware law and our Certificate of
Incorporation could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders.
WE HAVE NEVER PAID DIVIDENDS ON OUR COMMON STOCK. WE PAY ANNUAL CASH OR STOCK
DIVIDENDS ON SOME OF OUR PREFERRED STOCK.
We have never paid cash dividends on our common stock and we do not
expect to pay these dividends in the foreseeable future. Holders of our Series A
Preferred Stock are entitled to annual dividends of 8 1/2% (aggregating $425,000
annually, in cash or stock at our option, assuming no conversion). Holders of
our Series C Preferred Stock are entitled to dividends of 8% annually, so long
as we have net income in excess of $1,000,000 in the applicable fiscal year. We
pay these dividends quarterly, in cash or in shares of our common stock. For the
foreseeable future, we anticipate that we will retain all of our cash resources
and earnings, if any, for the operation and expansion of our business, except to
the extent required to satisfy our obligations under the terms of the Series A
Preferred Stock and Series C Preferred Stock.
SALES OF ADDITIONAL SHARES OF OUR COMMON STOCK INTO THE PUBLIC MARKET MAY CAUSE
OUR STOCK PRICE TO FALL.
If we or our stockholders sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options and warrants
or upon the conversion of shares of our convertible preferred stock) in the
public market, the market price of our common stock could fall. As of September
29, 1999, we will have outstanding approximately 13,613,657 shares of our common
stock. The unregistered common stock and the common stock held by our officers
and directors are "restricted" securities as that term is defined by Rule 144
under the Securities Act. In the future, these restricted securities may be sold
only in compliance with Rule 144 or if they are registered under the Securities
Act or under an exemption. Generally, under Rule 144, each person who holds
Page 16
<PAGE>
restricted securities for a period of one year may, every three months, sell in
ordinary brokerage transactions an amount of shares which does not exceed the
greater of 1% of our then-outstanding shares of common stock, or the average
weekly volume of trading of our common stock as reported during the preceding
four calendar weeks. A person who has not been an affiliate of ours for at least
the three months immediately preceding the sale and who has beneficially owned
shares of common stock for at least two years can sell such shares under Rule
144 without regard to any of the limitations described above. Sales of
substantial amounts of common stock in the public market, or the perception that
such sales could occur, may adversely affect the prevailing market price for our
common stock and could impair our ability to raise capital through a public
offering of equity securities.
In addition, as of June 30, 1999 holders of options and warrants may
acquire approximately 6,439,792 shares of Common Stock and holders of shares of
our Series A Preferred Stock, Series C Preferred Stock and Series F Preferred
Stock may acquire shares of Common Stock at various conversion rates.
NASDAQ COULD DELIST OUR COMMON STOCK WHICH COULD MAKE IT MORE DIFFICULT FOR YOU
TO SELL OR OBTAIN QUOTATIONS AS TO THE PRICE OF OUR COMMON STOCK.
In order to continue to be listed on Nasdaq, we must meet the following
requirements:
- net tangible assets of at least $2,000,000, or a market
capitalization of $35,000,000 or $500,000 in net income for
two of the last three years;
- a minimum bid price of $1.00;
- two market makers;
- 300 stockholders;
- at least 500,000 shares in the public float o a minimum market
value for the public float of $1,000,000; and o compliance
with certain corporate governance standards.
Our minimum bid price at September 29, 1999 was $1.34375. If we cannot
satisfy Nasdaq's maintenance criteria in the future, Nasdaq could delist our
common stock. In the event of delisting, trading, if any, would be conducted
only in the over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." As a result of any possible delisting, an investor
would likely find it more difficult to sell or obtain quotations as to the price
of our common stock.
ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Certified Public Accountants, Financial
Statements and Notes to the Financial Statements appear in a separate section of
this Form 10-KSB following Part III. The Index to Financial Statements appears
on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
Page 17
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
The directors and executive officers of our company and their ages at
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Irwin Meyer 64 Chief Executive Officer, Chairman of the
Board of Directors
Arthur H. Bernstein 36 Executive Vice President, Secretary and
Director
Michael Iscove (1)(2) 48 Director
Thomas A. Daniels 46 Director
Ivan Berkowitz (1)(2) 53 Director
<FN>
- ---------------------------
(1) Audit Committee Member
(2) Compensation Committee Member
</FN>
</TABLE>
Directors are elected to an annual term that expires at our Company's annual
meeting of stockholders.
IRWIN MEYER has been a director of our Company since its inception in
1989 and has served as our Chief Executive Officer since February 1995. Since
October 1997, Mr. Meyer has been Chairman of the Board of Directors. At various
times prior to October 1997, Mr. Meyer has served as our Chairman of the Board
(April 1996-October 1997; January 1991-June 1992); Co-Chairman of the Board
(February 1990-December 1990) and President (February 1995-October 1997). From
1988 to July 1994, Mr. Meyer was a director of Ventura Entertainment Group Ltd.,
our former parent company ("Ventura"), and from May 1988 to December 1990, Mr.
Meyer was President of Ventura. Mr. Meyer was an executive producer of seven of
our made-for-television movies. In 1995 he was nominated for Producer of the
Year by the Producers Guild of America. Mr. Meyer received the Antoinette Perry
("Tony") Award, the New York Drama Critics Circle Award, the Drama Desk Award,
the Outer Critics Circle Award and the Cue Magazine Golden Apple Award for his
1977 production of the musical "Annie." Mr. Meyer is a member of the Academy of
Motion Picture Arts and Sciences and the Academy of Television Arts and
Sciences. He holds a B.S.
from New York University.
ARTHUR H. BERNSTEIN has been a director of our Company since
February 1995 and has served as the Executive Vice President of our Company
since October 1997 as well as our Secretary since March 1995. Between June
1992 and October 1997, Mr. Bernstein served as a Senior Vice President of our
Company and was our Vice President-Business and Legal Affairs from September
1991 to June 1992. Prior to this, Mr. Bernstein was a Director of Legal and
Business Affairs for New World Entertainment Ltd. from July 1989 to August
1991. From 1987 to June 1989, he was Assistant General Counsel of Four Star
International, Inc. Mr. Bernstein received a B.S. in finance and marketing
from Philadelphia College of Textiles and Sciences in 1984 and his law degree
from Temple University in 1987.
MICHAEL ISCOVE has been a director of our Company since October
1997. Since June 1995, Mr. Iscove has served as the Chairman, President and
Chief Executive Officer of Sirius Corporate Finance Inc. Prior to that,
Mr. Iscove was the President of Creative Fusion from April 1989 to June 1995.
In 1978, Mr. Iscove received a Chartered Accounts Designation in accounting
from The Canadian Institute of Chartered Accountants. In 1972, Mr. Iscove
received a B.A. degree in English from York University, Toronto, Canada.
THOMAS A. DANIELS has been a director of our Company since July
1998. Since our acquisition of MediaWorks in July 1998, Mr. Daniels has
served as President of MediaWorks. Mr. Daniels co-founded
18
MediaWorks in 1996. Prior to that time, Mr. Daniels was, at various
times, a senior production and distribution executive with Blake Edward's
Television, Paramount Pictures Television and Columbia Pictures Television.
IVAN BERKOWITZ has been a director of our Company since February 1999.
Since 1993, Mr. Berkowitz has served as managing General Partner of Steib &
Company, a privately held New York based investment company. Between 1995 and
1997, Mr. Berkowitz served as Chief Executive Officer of PolyVision Corporation.
Between 1990 and 1994, Mr. Berkowitz served as Chairman of the Board of
Directors of Migdalei Shekel. Currently, Mr. Berkowitz serves on the Board of
Directors of the following public companies: Propierre, a real estate fund, HMG
WorldWide, a manufacturer of point of purchase displays, PolyVision Corporation,
a manufacturer of school products and displays, and Migdalei Shekel, a real
estate company based in Tel Aviv, Israel. Since 1989, Mr. Berkowitz has served
as President of Great Court Holdings Corporation, a privately held New York
based investment company. Mr. Berkowitz holds a B.A. (cum laude) from Brooklyn
College, an MBA in Finance from Baruch College, City University of New York, and
a Ph.D. in International Law from Cambridge University, England.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who own more than ten percent of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of our Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish us with copies of Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were required
during the fiscal year ended June 30, 1999 all Section 16(a) filing requirements
applicable to our officers, directors and greater than ten percent beneficial
owners were satisfied, except Ivan Berkowitz filed a Form 3 late and Arthur
Bernstein filed a Form 4 late.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to us for the fiscal years
ended June 30, 1997, 1998 and 1999, of those persons who were (i) at June 30,
1999 the Chief Executive Officer and (ii) each other executive officer of our
Company whose annual compensation exceeded $100,000 (the "Named Executive
Officers") in such fiscal years:
Page 19
<PAGE>
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- Number of
Fiscal Year Securities
Ended Underlying All Other
June 30, Salary Bonus Options Compensation
----------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Irwin Meyer........................... 1999 $312,000 $0 0 $18,000(2)
Chief Executive Officer (1) 1998 312,000 0 0 18,000(2)
1997 312,000 0 0 18,000(2)
68,016(3)
Arthur H. Bernstein................... 1999 $175,000 $0 600,000 $12,000(2)
Executive Vice President 1998 175,000 0 0 12,000(2)
and Secretary 1997 160,000 0 150,000 12,000(2)
Thomas A. Daniels..................... 1999 $188,482 $0 500,000 $11,500(2)
Director and President of 1998 0 0 0 0
MediaWorks, a wholly owned 1997 0 0 0 0
subsidiary of the Company (4)
<FN>
- ---------------------------
(1) Includes amounts paid to Mountaingate which provides us with the service of
Mr. Meyer and others.
(2) Automobile reimbursement.
(3) Forgiveness of note receivable due from Mountaingate.
(4) Mr. Daniels began employment with us on July 15, 1998.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Irwin Meyer for his
services as Chief Executive Officer of our Company and a production agreement
with Mountaingate Productions LLC ("Mountaingate") for the services of Mr. Meyer
and others as producers and/or executive producers and to perform other duties.
Mountaingate is a California limited liability company of which Alison Meyer and
Patricia Meyer, the adult children of Mr. Meyer, are the sole members. The
production agreement with Mountaingate provides for annual compensation of
$262,000, plus a $1,500 monthly automobile reimbursement. The employment
agreement with Mr. Meyer provides for annual compensation of $50,000. Both of
these agreements have been extended to June 30, 2002. Both agreements are
terminable by us in the event of Mr. Meyer's death or disability. In such event,
we shall pay Mountaingate a guaranteed fee of $262,000 for one year. We may also
terminate these agreements "for cause" (as defined in the agreements).
Mountaingate and Mr. Meyer may terminate their respective agreements in the
event of a material breach thereof by us or for "good reason" (as defined in the
agreements). In such event, we shall be obligated to pay all amounts due
thereunder for the balance of their respective terms. In the event that we
materially breach either agreement after a "change in control" (as defined in
the agreements), Mountaingate and Mr. Meyer, respectively, shall be entitled to
a lump sum payment equal to three times their then current total annual
compensation.
Arthur Bernstein is employed as Executive Vice President of our Company
pursuant to an employment agreement, as amended, which has been extended to June
30, 2002. Mr. Bernstein's annual compensation is $175,000 plus a $1,000 monthly
automobile reimbursement. The employment agreement is terminable by us in the
event of Mr. Bernstein's death or disability. In such event, we are obligated to
pay Mr. Bernstein's compensation for one year. We may also terminate the
employment agreement "for cause" (as defined in the agreement). Mr. Bernstein
may terminate this Employment Agreement in the event of a material breach by us
or for "good reason" (as defined in the agreement). In such event, we will be
obligated to pay him all amounts due thereunder for the balance of its term and
all unvested stock options held by him shall vest. In the event of a "change in
control" (as defined in this agreement) of our Company, all stock options issued
to Mr. Bernstein shall vest and we shall, at Mr.
Page 20
<PAGE>
Bernstein's option, purchase shares of Common Stock owned by him at the then
market price and shall acquire all of his stock options for the difference
between the exercise price of such options and the greater of the price at which
the new controlling entity acquired its interest in our Company or the then
market price of the Common Stock.
Thomas Daniels is employed as Chief Executive Officer of our
subsidiary, MWI Distribution, Inc. d/b/a MediaWorks International pursuant to an
employment agreement, as amended, which will terminate on June 30, 2002. Mr.
Daniel's annual compensation is $186,000 plus a $750.00 monthly automobile
reimbursement. The employment agreement is terminable by us in the event of Mr.
Daniel's death or disability. We may also terminate the employment agreement
"for cause" (as defined in the agreement). Mr. Daniels may terminate this
Employment Agreement in the event of a material breach by us or for "good
reason" (as defined in the agreement). In such event, we will be obligated to
pay him all amounts due thereunder for the balance of its term.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 30, 1999,
relating to the ownership of the Common Stock, Series C Preferred Stock and
Series F Preferred Stock by (i) each person known by us to be the beneficial
owner of more than five percent of the outstanding shares of our Common Stock,
Series C Preferred Stock and Series F Preferred Stock, (ii) each of our
directors, (iii) each of the Named Executive Officers, and (iv) all of our
executive officers and directors as a group. Except as may be indicated in the
footnotes to the table and subject to applicable community property laws, each
such person has the sole voting and investment power with respect to the shares
owned. The address of each person listed is in care of us, 5757 Wilshire
Boulevard, Penthouse 1, Los Angeles, California 90036, unless otherwise set
forth below.
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Series C Series F
Common Preferred Preferred
Stock Stock Stock
Beneficially Percent of Beneficially Percent of Beneficially Percent of
Name and Address Owned (1) Class (1) Owned (1) Class (1) Owned (1) Class (1)
- ---------------------------- ------------ ---------- -------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Alison Meyer (2) 1,700,000 12.3% 1,300,000 52.0%
Patricia Meyer (2) 1,700,000 12.3% 1,300,000 52.0%
Arthur H. Bernstein (3) 200,000 1.6%
Salvatore Grosso (4) 1,611,111 12.8%
Lawrence S. Jacobson (4) 1,611,111 12.8%
Irwin Meyer 0 0%
Ivan Berkowitz (5) 525,000 4.2%
Mountaingate Productions LLC (2) 1,700,000 12.3% 1,300,000 52.0%
Strategic Capital 1,200,000 48.0%
Consultants
Michael Iscove (6) 366,945 3.0%
Thomas A. Daniels (7) 1,001,945 7.9%
Joseph Stephens & 498,473 4.0%
Company, Inc. (8)
Augustine Fund, L.P. 225,000 100%
Directors and Executive 2,093,890 15.2%
Officers as a group (5
persons) (9)
- ---------------------------
Page 21
<PAGE>
<FN>
(1) Under Rule 13d-3 under the Exchange Act, certain shares may be deemed to
be beneficially owned by more than one person (if, for example, persons
share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of
an option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the amount
of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily reflect
the person's actual ownership or voting power with respect to the number
of shares of Common Stock actually outstanding at June 30, 1999.
(2) Includes options to purchase 1,700,000 shares of Common Stock by
Mountaingate. Mountaingate owns 1,300,000 shares of Series C Convertible
Preferred Stock. Alison Meyer and Patricia Meyer, the adult children of
Irwin Meyer, our Chief Executive Officer, beneficially own the options to
purchase the 1,700,000 shares of Common Stock and the 1,300,000 shares of
Series C Convertible Stock by virtue of being the sole members of
Mountaingate.
(3) Represents options to purchase 200,000 shares of Common Stock.
(4) Each of Mr. Grosso and Mr. Jacobson directly holds and has sole
dispositive and voting power as to 1,111,111 shares. Includes options to
purchase 500,000 shares of Common Stock by each of Mr. Grosso and
Mr. Jacobson.
(5) Represents options to purchase 525,000 shares of Common Stock.
(6) Represents 16,945 shares of Common Stock held through Sirius Corporate
Finance, Inc., of which Mr. Iscove is President and options to purchase
350,000 shares of Common Stock held by Mr. Iscove.
(7) Includes options to purchase 620,000 shares of Common Stock.
(8) According to a Schedule 13G filed by Joseph Stevens & Company, Joseph
Sobara and Steven Markowitz on February 11, 1999, Joseph Stevens &
Company, Inc. owned as of December 31, 1998, warrants to purchase 200,000
units, each unit consisting of four shares of common stock and two
redeemable common stock purchase warrants. Each redeemable warrant
entitles the holder to purchase an additional share of Common Stock. All
of the warrants are currently exercisable. Additionally, Joseph Stevens &
Company, Inc. held as of December 31, 1998, 8,753 redeemable warrants in
its market making account, all of which are currently exercisable. Mr.
Sobara and Mr. Markowitz each was a controlling shareholder, director and
officer of Joseph Stevens & Company, Inc. on December 31, 1998.
Additionally, Mr. Markowitz owned 1,833 shares of Common Stock. The
address of Joseph Stevens & Company, Inc., and Messrs. Sobara and
Markowitz is 33 Maiden Lane, New York, New York 10038.
(9) Includes options to purchase 1,695,000 shares of Common Stock.
</FN>
</TABLE>
There are no issued and outstanding shares of Series B Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock. There are no 5% beneficial
owners of Series A Preferred Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For consulting services performed in connection with our acquisition of
the Grosso-Jacobson Companies during the fiscal year ended June 30, 1998,
Michael Iscove, a member of the Board of Directors of the Company, received
approximately $160,000 in consulting fees from us, comprised of $100,000 in cash
and 16,945 shares of common stock, valued at $3.60 per share.
In connection with our acquisition of MediaWorks International, Michael
Iscove received $40,000 in consulting fees from us during the fiscal year ended
June 30, 1998.
During the fiscal year ended June 30, 1999, Michael Iscove provided
$75,000 of consulting services to our company.
For legal services performed in connection with our acquisition of the
Grosso-Jacobson Companies, the law firm of Kay, Collyer & Boose was paid
$150,000 in cash. Michael Collyer, a former member of our Board of Directors, is
a partner in the law firm of Kay, Collyer & Boose.
Page 22
<PAGE>
During the fiscal year ended June 30, 1999, we issued a promissory note
to Mountaingate for the sum of $44,046.14, which represents amounts owed to
Mountaingate under its production agreement with our company. The promissory
note bears interest at the rate of ten percent (10%) per annum.
During the fiscal year ended June 30, 1999, we and Mountaingate entered
into a Securities Purchase Agreement. Mountaingate purchased for $1,300.00,
1,300,000 shares of the Series C Convertible Preferred Stock convertible at a
fixed rate of $0.50 per share.
For more information concerning transactions between us and related
parties, see Note 6 of the Notes to the Financial Statements.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1999.
1. Financial Statements:
Financial Statements are listed in the "Index to Financial
Statements" at page F-1.
2. Schedules:
Financial Statements schedules are listed in the "Index to
Financial Statements" at page F-1 herein.
3. Exhibits: (numbered in accordance with Item 601 of Regulation S-B)
(a) The Exhibits listed below are filed or incorporated by
reference as part of this Report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
2.1 Agreement and Plan of Merger, dated September 15, 1997, by and
among The Producers Entertainment Group Ltd., TPEG Acquisition
I Corp., The Grosso-Jacobson Entertainment Corporation,
Salvatore Grosso and Lawrence S. Jacobson.(3)
2.2 Agreement and Plan of Merger, dated September 15, 1997, by and
among The Producers Entertainment Group Ltd., TPEG Acquisition
II Corp., The Grosso-Jacobson Productions, Inc., Salvatore
Grosso and Lawrence S. Jacobson. (3)
2.3 Agreement and Plan of Merger, dated September 15, 1997, by and
among The Producers Entertainment Group Ltd., TPEG Acquisition
III Corp., Grosso-Jacobson Music Company, Inc., Salvatore
Grosso and Lawrence S. Jacobson. (3)
2.4 Agreement of Merger dated as of July 15, 1998, by and among
The Producers Entertainment Group Ltd., TPEG Merger Company,
MWI Distribution, Inc. and Tom Daniels and Craig Sussman.(4)
2.5 Agreement and Plan of Merger, dated September 22, 1999, by and
among IAT Resources Corporation, Infolocity Merger Sub, Inc.
and Infolocity, Inc.
3.1 Restated Certificate of Incorporation, dated June 24, 1993.(1)
3.2 Amendment to Certificate of Incorporation, dated April 28,
1998.(2)
3.3 Bylaws. (1)
Page 23
<PAGE>
3.4 Amendment No. 1 to Bylaws.(1)
4.1 Certificate of Designations for Series A Preferred Stock dated
December 13, 1994.(1)
4.2 Certificate of Designations for Series B Preferred Stock dated
July 15 , 1998.
4.3 Certificate of Designations for Series C Preferred Stock dated
May 20, 1999.
4.4 Certificate of Designations for Series D Preferred Stock,
dated July 31, 1998.(2)
4.5 Certificate of Designations for Series E Preferred Stock,
dated July 31, 1998.(2)
4.6 Certificate of Designations for Series F Preferred Stock,
dated July 31, 1998.(2)
4.7 Securities Purchase Agreement, dated July 31, 1998 between The
Producers Entertainment Group Ltd. and the Augustine Fund,
L.P.(2)
4.8 Registration Rights Agreement, dated July 31, 1998 between The
Producers Entertainment Group Ltd. and the Augustine Fund,
L.P. (2)
4.9 Escrow Agreement dated as of July 31, 1998 among the Augustine
Fund, L.P., The Producers Entertainment Group Ltd. and H.
Glenn Bagwell, Jr., as Escrow Agent.(1)
10.1 1998 Stock Incentive Plan.(5)
10.2 Executive Extension Agreement, dated October 20, 1997, between
The Producers Entertainment Group Ltd. and Irwin Meyer.(3) +
10.3 Executive Extension Agreement, dated October 20, 1997, between
The Producers Entertainment Group Ltd. and Arthur Bernstein.
(3) +
10.4 Mountaingate Extension Agreement, dated October 20, 1997,
between The Producers Entertainment Group Ltd. and
Mountaingate Productions, LLC. (3)
10.5 Employment Agreement dated as of July 15, 1998, by and among
TPEG Merger Company and Thomas Daniels. (4) +
10.6 Registration Rights Agreement dated as of July 15, 1998, by
and among The Producers Entertainment Group Ltd., Tom Daniels
and Craig Sussman. (4)
10.7 Securities Purchase Agreement with Strategic Capital
Consultants, dated as of January 14, 1999. (6)
10.8 Securities Purchase Agreement with Mountaingate Productions
LLC, dated as of January 14, 1999. (6)
21.1 Subsidiaries of the Company.
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP.
27.1 Financial Data Schedule.
</TABLE>
- ---------------------------
(1) Incorporated by reference to Registrant's Report on Form 8-K dated June 18,
1996.
(2) Incorporated by reference to Registrant's Registration Statement on Form S-3
filed September 1, 1998.
Page 24
<PAGE>
(3) Incorporated by reference to Registrant's Report on Form 8-K filed November
4, 1997 (as amended on December 29, 1997).
(4) Incorporated by reference to Registrant's Report on Form 8-K filed July 31,
1998.
(5) Incorporated by reference to Registrant's Proxy Statement filed April 1,
1998.
(6) Incorporated by reference to Registrant's Report on Form 10-Q filed on May
24, 1999.
+ Denotes employment contract.
(b) Reports on Form 8-K:
The following Current Reports on Form 8-K were filed by the Company
during the quarter ended June 30, 1999:
(i) Current Report on Form 8-K filed May 3, 1999. Items 5 and 7
were reported.
Page 25
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(d) OF THE EXCHANGE ACT, THE
REGISTRANT HAS CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
HEREUNDER DULY AUTHORIZED.
IAT RESOURCES CORPORATION
Dated: October 11, 1999 By /s/ Irwin Meyer
---------------------------------
Irwin Meyer
Chief Executive Officer
IN ACCORDANCE WITH EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON
THE DATES INDICATED:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Position Date
- ------------------------------------------- ---------------------------------------- ----------------------
/s/ Irwin Meyer Chief Executive Officer, Chairman of October 11, 1999
- ------------------------------------------- the Board of Directors
Irwin Meyer
/s/ Arthur Bernstein Executive Vice President, Secretary October 11, 1999
- ------------------------------------------- and Director
Arthur H. Bernstein
/s/ Michael Iscove Director October 11, 1999
- -------------------------------------------
Michael Iscove
/s/ Thomas A. Daniels Director and Chief Executive Officer October 11, 1999
- ------------------------------------------- of MediaWorks
Thomas A. Daniels
/s/ Ivan Berkowitz Director October 11, 1999
- -------------------------------------------
Ivan Berkowitz
</TABLE>
Page 26
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONTENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheet F-3-4
Consolidated Statements of Operations F-5-6
Consolidated Statements of Shareholders' Equity F-7-8
Consolidated Statements of Cash Flows F-9-10
Notes to Consolidated Financial Statements F-11-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
IAT Resources Corporation
(formerly The Producers Entertainment Group Ltd.)
We have audited the accompanying consolidated balance sheet of IAT Resources
Corporation (formerly The Producers Entertainment Group Ltd.) and subsidiary as
of June 30, 1999, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the two years in the period
ended June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IAT Resources
Corporation (formerly The Producers Entertainment Group Ltd.) and subsidiary as
of June 30, 1999, and the results of its consolidated operations and its
consolidated cash flows for each of the two years in the period ended June 30,
1999 in conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 8, 1999
F-2
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
<CAPTION>
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 11,244
Accounts receivable, Net of
allowance for doubtful accounts of $562,830 $1,638,484
Receivable from related parties 102,156
Prepaid assets 19,207
----------
Total current assets 1,771,091
FILM COSTS 471,762
FIXED ASSETS, at cost, net 100,843
GOODWILL, less accumulated amortization of $99,282 886,913
INVESTMENTS 800,000
OTHER ASSETS 10,035
----------
TOTAL ASSETS $4,040,644
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
CURRENT LIABILITIES
<S> <C>
Accounts payable and accrued expenses $ 1,018,476
Dividends payable 278,750
Due to related parties 69,046
Capital lease obligation 33,258
------------
Total current liabilities 1,399,530
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A, $0.001 par value
1,300,000 shares authorized
1,000,000 shares issued and outstanding 1,000
Preferred stock, Series C, $0.001 par value
3,000,000 shares authorized
3,000,000 shares issued and outstanding 3,000
Preferred stock, Series D, $0.001 par value
50,000 shares authorized
50,000 shares issued and outstanding 50
Preferred stock, Series E, $0.001 par value
500,000 shares authorized
225,000 shares issued and outstanding 225
Preferred stock, Series F, $0.001 par value
500,000 shares authorized
275,000 shares issued and outstanding 275
Common stock, $0.001 par value
50,000,000 shares authorized
11,975,764 shares issued and outstanding 11,976
Treasury stock, at cost
93,536 shares (1,010,192)
Additional paid-in capital 27,071,434
Accumulated deficit (23,436,654)
------------
Total shareholders' equity 2,641,114
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,040,644
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
REVENUES $ 2,936,718 $ 22,369,511
------------ ------------
COSTS RELATED TO REVENUES
Amortization of film costs -- 9,384,311
Cost of sales 926,295 9,773,397
------------ ------------
Total costs related to revenues 926,295 19,157,708
------------ ------------
NET REVENUES 2,010,423 3,211,803
WRITE-OFF OF PROJECTS IN DEVELOPMENT 301,037 199,450
GENERAL AND ADMINISTRATIVE EXPENSES 3,953,012 3,592,772
------------ ------------
LOSS FROM OPERATIONS (2,243,626) (580,419)
------------ ------------
OTHER INCOME (EXPENSE)
Merger expenses (6,696) (372,695)
Interest and dividend income 1,140 61,817
Interest and financing expense (12,447) (4,225)
Write-off of notes receivable and other assets (166,965) (196,105)
Amortization of related party covenant not to compete (115,000) (276,000)
Amortization of goodwill (99,282) --
Other expense (22,176) (44,289)
------------ ------------
Total other income (expense) (421,426) (831,497)
------------ ------------
NET LOSS (2,665,052) (1,411,916)
DIVIDEND REQUIREMENT OF SERIES A PREFERRED STOCK (425,000) (425,000)
DIVIDEND REQUIREMENT OF SERIES E PREFERRED STOCK (66,250) --
------------- -------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (3,156,302) $ (1,836,916)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
BASIC LOSS PER COMMON SHARE $ (0.35) $ (0.29)
=============== ================
DILUTED LOSS PER COMMON SHARE $ (0.35) $ (0.29)
=============== ================
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
BASIC 9,085,053 6,522,459
=============== ================
FULLY DILUTED 9,085,053 6,522,459
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------------------------------------------------------------------------------
Series A Series C Series D Series E Series F
------------------ ------------------ ------------------ ------------------ ------------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance, June 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1,000,000 $ 1,000 - $ - - $ - - $ - - $ -
Issuance of common
shares in payment
of dividends on
Series A preferred
stock
Issuance of common
shares and planned
issuance of warrants
in payment of
consulting and
legal fees
Dividends paid on
Series A preferred
stock
Net loss
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance, June 30,
1998 1,000,000 1,000 - - - - - - - -
Issuance of common
shares in payment
of dividends on
Series A preferred
stock
Issuance of common stock in connection with the acquisition of MWI
Distributions, Inc.
Issuance of common
stock for the
exercise of options
Issuance of common
stock for the
exercise of options-
Strategic
Issuance of Series C
preferred stock 3,000,000 3,000
Issuance of Series D
preferred stock 50,000 50
Offering costs
Issuance of Series E
preferred stock 225,000 225
Offering costs
Issuance of Series F
preferred stock 275,000 275
Issuance of common
stock from the
preferred Series D
conversion -
Augustine Fund
Common Stock Additional
------------------- Treasury Paid-in Accumulated
Shares Amount Stock Capital Deficit Total
------ ------ -------- ---------- ----------- -----
Balance, June 30, 6,351,476 $ 6,352 $(1,010,192) $ 22,963,421 $(18,443,436) $3,517,145
1997
Issuance of common
shares in payment
of dividends on
Series A preferred
stock 293,689 293 318,456 318,749
Issuance of common
shares and planned
issuance of warrants
in payment of
consulting and
legal fees 27,778 28 129,472 129,500
Dividends paid on
Series A preferred
stock (425,000) (425,000)
Net loss (1,411,916) (1,411,916)
-------- ------- ----------- ------------ ------------- -----------
Balance, June 30,
1998 6,672,943 6,673 (1,010,192) 23,411,349 (20,280,352) 2,128,478
Issuance of common
shares in payment
of dividends on
Series A preferred
stock 343,932 344 318,406 318,750
Issuance of common
stock in connection
with the acquisition
of MWI
Distributions, Inc. 1,203,704 1,204 525,416 526,620
Issuance of common
stock for the
exercise of options 600,000 600 427,400 428,000
Issuance of common
stock for the
exercise of options-
Strategic 500,000 500 249,500 250,000
Issuance of Series C
preferred stock 3,000
Issuance of Series D
preferred stock 499,950 500,000
Offering costs (35,000) (35,000)
Issuance of Series E
preferred stock 1,001,744 1,001,969
Offering costs (157,500) (157,500)
Issuance of Series F
preferred stock 275
Issuance of common
stock from the
preferred Series D
conversion -
Augustine Fund 2,005,185 2,005 1,245,800 1,247,805
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY (CONTINUED) FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------------------------------------------------------------------------------
Series A Series C Series D Series E Series F
------------------ ------------------ ------------------ ------------------ ------------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock for
consulting
services $ $ $ $ $
Return of stock -
Grosso-Jacobson
Dividends paid on
Series A preferred
stock
Dividends paid on
Series E preferred
stock
Net loss
--------- ------- --------- ------- ------ ------ ------- ------ ------- ------
Balance, June 30,
1999 1,000,000 $ 1,000 3,000,000 $ 3,000 50,000 $ 50 225,000 $ 225 275,000 $ 275
========= ======= ========= ======= ====== ====== ======= ====== ======= ======
Common Stock Additional
------------------- Treasury Paid-in Accumulated
Shares Amount Stock Capital Deficit Total
------ ------ -------- ---------- ----------- -----
Issuance of common
stock for
consulting
services 650,000 $ 650 $ $ 279,350 $ $ 280,000
Return of stock -
Grosso-Jacobson (694,981) (694,981)
Dividends paid on
Series A preferred
stock (425,000) (425,000)
Dividends paid on
Series E preferred
stock (66,250) (66,250)
Net loss
Balance, June 30,
1999 (2,665,052) (2,665,052)
---------- ----------- ------------ ------------ ------------- -----------
11,975,764 $ 11,976 $ (1,010,192) $ 27,071,434 $(23,436,654) $ 2,641,114
========== =========== ============ ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
87,199
Additions to goodwill (15,000) -
Cash from purchase of business 252,122 -
----------- -----------
Net cash used in investing activities (814,265) (3,630,449)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (1,210,802) -
Payments on capital lease obligation (37,647) (21,690)
Payment of cash dividends on preferred stock - (212,500)
Proceeds from issuance of preferred stock 3,431,050 -
Offering costs (192,500) -
----------- -----------
Net cash provided by (used in) financing activities 1,990,101 (234,190)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Net decrease in cash and cash equivalents $ (62,507) $ (1,271,119)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 73,751 1,344,870
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,244 $ 73,751
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 12,447 $ 4,225
============= =============
INCOME TAXES PAID $ - $ -
============= =============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended June 30, 1999, the Company exchanged capitalized film
costs of $694,981 for 1,666,667 shares of common stock.
During the year ended June 30, 1999, the Company issued 1,203,704 shares of
common stock valued at $526,620 for the acquisition of a company. Cash from
investing, financing, and operating activities excludes the following:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable $ 1,611,037
Fixed assets, net 4,709
Other assets 10,835
Goodwill 961,913
Accounts payable and accrued expenses (153,570)
Deferred revenues (139,126)
Notes payable (1,884,172)
</TABLE>
During the year ended June 30, 1999, the Company issued 650,000 shares of common
stock for consulting services valued at $280,000.
During the years ended June 30, 1999 and 1998, the Company issued 343,932 and
293,689 shares of common stock, respectively, valued at $318,750 and $318,749,
respectively, in payment of dividends on its Series A preferred stock.
During the year ended June 30, 1998, the Company acquired fixed assets under a
capital lease obligation totaling $92,594.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - BUSINESS ACTIVITY
IAT Resources Corporation (formerly The Producers Entertainment Group
Ltd.) ("IAT") was incorporated under its former name, The Producers
Entertainment Group, Ltd. ("TPEG"), under the laws of the State of
Delaware on August 10, 1989. Effective June 4, 1999, TPEG officially
changed its name to IAT Resources Corporation, reflecting a significant
change of TPEG's core business from entertainment production and
distribution to Internet technology development and integration.
For approximately eight years, IAT acquired, developed, produced, and
distributed drama, comedy, documentary, and instructional television
series, made-for-television movies, and theatrical motion pictures.
Although IAT continues to engage in certain entertainment-related
production and distribution activities, during the past eight months,
it has reduced its network and cable television activities and has
begun to redirect its core business toward the Internet and technology
industry.
ACQUISITION
On July 15, 1998, IAT acquired 100% of the capital stock of MWI
Distributions, Inc., dba MediaWorks International ("MWI"), a California
corporation. MWI provides international television and video
distribution, specializing in the licensing of children's and family
programming and animation. MWI is also an active co-production and
co-financing partner in various animated and live-action programming
ventures and engages in worldwide sales of direct-to-video series and
specials. The transaction was accounted for as a purchase. The results
of operations of MWI are included in these financial statements from
the date of acquisition. The consideration paid at closing to the
shareholders of MWI was 763,232 shares of IAT's common stock with an
additional 440,472 shares held in escrow pending collection of
receivables and potential future revenues.
On March 22, 1999, IAT entered into an agreement with the shareholders
of MWI under which one of the shareholders cancelled 89,352 shares of
common stock issued to him in connection with the acquisition.
The purchase price exceeded the fair value of net assets acquired by
approximately $986,195, including $15,282 of additional cost incurred
during the year, which is being amortized on a straight-line basis over
ten years. The following summarized, unaudited, pro forma financial
information assumes the acquisition had occurred on July 1, 1996:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales $24,187,692 $ 6,349,258
Net loss $(2,092,056) $ (4,693,293)
Loss per share $ (0.33) $ (0.68)
</TABLE>
F-11
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - BUSINESS ACTIVITY (CONTINUED)
ACQUISITION (Continued)
These pro forma amounts include MWI's actual results from November 11,
1996 (inception) to June 30, 1997 and for the year ended June 30, 1998.
The amounts are based upon certain assumptions and estimates and do not
reflect any benefit from economies which might be achieved from
combined operations. The pro forma results do not necessarily represent
results which would have occurred if the acquisition had taken place on
the basis assumed above, nor are they indicative of the results of
future combined operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of IAT and
its wholly-owned subsidiary, MWI (collectively, the "Company"). All
significant intercompany accounts have been eliminated.
REVENUE RECOGNITION
Amounts received as license fees for projects in production are
deferred until the project becomes available for broadcast in
accordance with the terms of the licensing agreement and are recognized
as revenues at such time. Additional licensing and distribution fees
are recognized as earned in accordance with the terms of the related
agreements. Revenues from the sale of completed productions are
generally recognized upon their sale.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers United
States treasury bills, money market funds, and certificates of deposit
purchased with an original maturity of three months or less to be cash
equivalents.
F-12
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FILM COSTS AND AMORTIZATION
Film costs include the costs of completed projects, costs of projects
in production, and costs expended on projects in development. Film
costs are stated at the lower of amortized cost or estimated net
realizable value. Amortization of completed projects is charged to
operations on an individual project basis in a ratio that the current
year's revenue bears to management's estimate of total revenues
(current and future years) from all sources. This is commonly referred
to as the individual-film-forecast method. Adjustments of amortization
resulting from changes in estimates of total revenues are recognized in
the current year's amortization. When a completed project is fully
amortized, its cost and related accumulated amortization are removed
from the accounts. If, in the opinion of management, any property in
the development stage is not planned for use, the net carrying value of
such property is charged to the current year's operations.
FIXED ASSETS
Fixed assets are stated at cost. The Company provides for depreciation
and amortization using the straight-line method over the estimated
useful lives of the assets of three to seven years.
CAPITAL LEASES
The Company leases fixed assets under non-cancelable leases that are
classified as capital leases (see Note 17). The leased fixed assets
have been capitalized, and the related obligations have been recorded
at the fair value of the assets at the inception of the leases. The
leased fixed assets are depreciated using the straight-line method over
the estimated useful lives, and interest expense is recognized over the
terms of the leases.
COST OF REVENUES
Costs related to projects sold consist of direct costs incurred in the
production of projects that are subsequently sold to third parties. The
Company does not retain any ownership interest in these projects, and
accordingly, upon their sale, all incurred costs are charged to
operations. Participation in future profits from projects that are sold
are included in revenues when earned.
RELATED PARTY COVENANT NOT TO COMPETE
The covenant not to compete was the result of a litigation settlement
with a former officer and is being amortized over the covenant period
ending December 31, 1998.
F-13
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNCLASSIFIED BALANCE SHEET
The Company has elected to present an unclassified balance sheet in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 53, "Financial Reporting by Producers and Distributors of Motion
Picture Films."
LOSS PER COMMON SHARE
Basic and diluted loss per common share have been computed after
deducting the dividend requirement of the Company's Series A preferred
stock from net loss. Basic loss per share is based on the
weighted-average number of common shares outstanding during the years
ended June 30, 1999 and 1998. Diluted loss per share is equal to the
basic loss per share because the assumed conversion of the Series A and
Series E preferred stock and the assumed exercise of outstanding stock
purchase warrants and options have not been included as the effect
would be anti-dilutive. Treasury stock has been excluded from the loss
per common share calculation.
REVERSE STOCK SPLIT
In April 1998, the shareholders approved a 1-for-3 reverse split of the
Company's common stock. The reverse split was effective in May 1998.
All agreements concerning stock options and other commitments payable
in shares of the Company's common stock provide for a reduction in the
number of shares due to the declaration of the reverse stock split. An
amount equal to the par value of the common shares issued was
transferred from the common stock to additional paid-in capital. This
transfer has been reflected in the consolidated statement of
shareholders' equity at July 1, 1996. All references to the number of
shares, except shares authorized, and to per share information in the
consolidated financial statements have been adjusted to reflect the
reverse stock split on a retroactive basis.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant credit risks consist of cash and trade receivables. The
Company places its cash with high-credit, quality financial
institutions or in high-quality, short-term investments such as insured
certificates of deposit. At times, the cash in any one bank may exceed
the Federal Deposit Insurance Corporation's insured limit of $100,000.
At June 30, 1999, the Company had no uninsured cash. With regard to
receivables, the risk is relatively limited due to most customers being
either domestic or foreign broadcasting networks or established
domestic and foreign distributors.
F-14
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 requires a liability approach for
measuring deferred tax assets and liabilities based on temporary
differences existing at each balance sheet date using enacted tax rates
in effect when those differences are expected to reverse. As of June
30, 1999, such differences arose principally from net operating loss
carryforwards.
Deferred tax assets, consisting primarily of the tax effect of net
operating loss carryforwards, are offset with a valuation allowance
because of the uncertainty regarding realizability.
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 disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
COMPREHENSIVE INCOME
For the year ended June 30, 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards
for reporting comprehensive income and its components in a financial
statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of
items to be included in comprehensive income, which are excluded from
net income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities.
Comprehensive income is not presented in the Company's financials
statements since the Company did not have any of the items of
comprehensive income in any period presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Post-Retirement Benefits." The Company does not expect adoption of SFAS
No. 132 to have a material impact, if any, on its financial position or
results of operations.
F-15
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. The Company does not expect adoption of SFAS No. 133 to
have a material effect, if any, on its financial position or results of
operations.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," is effective for financial statements with the
first fiscal quarter beginning after December 15, 1998. The Company
does not expect adoption of SFAS No. 134 to have a material effect, if
any, on its financial position or results of operations.
SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal years
beginning February 1999. This statement is not applicable to the
Company.
In June 1999, the FASB issued SFAS No. 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others." This statement is not applicable to the
Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect
adoption of SFAS No. 137 to have a material impact, if any, on its
financial position or results of operations.
NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplate the continuation of the Company as a going concern,
including the realization of assets and liquidation of liabilities in
the ordinary course of business. For the years ended June 30, 1999 and
1998, the Company incurred net losses of $2,665,052 and $2,641,114,
respectively. At June 30, 1999, the Company's total shareholders'
equity was $1,828,810, including an accumulated deficit of $24,547,149.
F-16
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's cash commitments for the year ended June 30, 2000 include
payment of its current liabilities of $ 1,399,530 and compensation to
officers and key independent contractors and office rent of
approximately $ 950,000. The Company also incurs other costs such as
salaries, related benefits, professional fees, office, and other
expenses. For the year ended June 30, 1999, general and administrative
expenses aggregated to $4,727,600. Dividends on the Company's Series A
preferred stock aggregate to $425,000 annually. Dividends are payable
either in cash or common stock. The Company's operations have been
financed mostly by the net proceeds received from private placements of
its securities and proceeds received from exercise of stock options and
warrants. At June 30, 1999, substantially all of the Company's
outstanding stock options were exercisable at prices substantially
above the market price of the Company's common stock.
NOTE 4 - LOSS OF REVENUE SOURCE
During the year ended June 30, 1998, the Company discontinued its
personal management services. As a result, the Company will no longer
be receiving revenue from this source. Revenue from this source was
$1,605,861 for the year ended June 30, 1998. Income before income tax
from this source was approximately $166,000 for the year ended June 30,
1998.
NOTE 5 - ACQUISITION OF GROSSO-JACOBSON ENTERTAINMENT CORP.
On October 20, 1997, the Company exchanged 2,222,222 shares of the
Company's common stock for all of the outstanding stock of
Grosso-Jacobson Entertainment Corporation, Grosso-Jacobson Productions,
Inc., and Grosso-Jacobson Music Company, Inc. (collectively, the "G-J
Companies"). The G-J Companies produce a wide variety of television
programming, including prime time series and made-for-television
movies.
On January 19, 1999, the Company entered into an agreement to terminate
all agreements and relationships between the Company and the G-J
Companies, except the Merger Agreement. In exchange for the Company
investing $575,000 in a new company to be formed by the officers of the
G-J Companies and the transfer of certain unproduced projects in
development for a 15% profit participation, the officers agreed to
terminate their employment agreement and return 1,666,667 shares of the
Company's common stock. As of June 30, 1999, these shares are held in
escrow.
F-17
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 5 - ACQUISITION OF GROSSO-JACOBSON ENTERTAINMENT CORP. (CONTINUED)
In accordance with paragraph 23 of Accounting Principles Bulletin
("APB") Opinion No. 29, "Accounting for Non-Monetary Transactions,"
this transaction has been recorded based on the recorded amount of the
non-monetary assets distributed. Because the shares are held in escrow,
outstanding shares have been reduced and shareholders' equity has been
debited with the recorded amount of the assets distributed of $694,981.
In addition, the Company issued 500,000 options to each of the two
officers at an exercise price of $0.82 per share. All options are
exercisable and outstanding at June 30, 1999.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company has entered into a production agreement with a Loan-Out
Company for the services of a key officer and others as producer and to
perform other duties. The Loan-Out Company is under the control of
officers/directors of the Company and their family. This agreement
expires in June 2002 and provides for an approximate annual payment of
$262,000, plus a $1,500 monthly automobile reimbursement.
During the year ended June 30, 1999, the Company incurred a promissory
note to the Loan-Out Company for the sum of $44,046, which represents
amounts owed to the Company under its production agreement. The
promissory note bears interest at the rate of 10% per annum and is due
in December 1999.
During the year ended June 30, 1999, the Company entered into a
Securities Purchase Agreement with the Loan-Out Company. The Loan-Out
Company purchased 1,300,000 shares of Series C convertible preferred
stock, par value $0.001 per share, for a purchase price of $0.001 per
share.
During the year ended June 30, 1999, the Company entered into financial
consulting agreements with a shareholder and issued an aggregate of
650,000 shares of common stock valued at $280,000 for consulting
services. In addition, the Company granted 500,000 options at an
exercise price of $0.50 per share, all of which have been exercised at
June 30, 1999.
During the year ended June 30, 1999, the Company entered into a
Securities Purchase Agreement with the consulting company. The
consulting company purchased 1,700,000 shares of the Company's Series C
preferred stock, par value $0.001 per share, for a purchase price of
$0.001 per share.
F-18
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company receives legal services from a law firm, a partner of which
is a member of the Board of Directors. During the year ended June 30,
1998, the Company paid the law firm $17,000. In addition, during the
year ended June 30, 1998, the Company formulated a plan to issue
options with a value of $25,000 for legal services.
The Company receives financial consulting services from a member of the
Board of Directors. During the years ended June 30, 1999 and 1998, the
Company paid $81,000 and $210,000, respectively, for consulting
services. In addition, during the year ended June 30, 1998, the Company
issued stock options with a value of $104,500 for consulting services.
During the year ended June 30, 1999, the Company issued 300,000 and
25,000 options at an exercise price of $0.82 and $2.35, respectively.
All options are exercisable and outstanding at June 30, 1999.
The Company used the services of a law firm in which the former
chairman of the Board of Directors is a partner. During the years ended
June 30, 1999 and 1998, the Company paid this law firm $10,000 and
$61,000, respectively.
Receivables from related parties of $47,778 at June 30, 1998 were
receivable upon demand and paid in full at June 30, 1999.
Payables to related parties of $25,000 at June 30, 1999 were payable on
demand and were paid in full subsequent to June 30, 1999.
The Company granted 50,000 options to a former executive at an exercise
price of $1.75. These options are exercisable and outstanding at June
30, 1999.
The Company granted 150,000 options to another former executive at an
exercise price of $1.50. These options are exercisable and outstanding
at June 30, 1999.
The Company granted 25,000 and 500,000 options to a director of the
Company at exercise prices of $2.35 and $1.35, respectively. These
options are exercisable and outstanding at June 30, 1999.
NOTE 7 - LITIGATION
SETTLEMENTS
During the year ended June 30, 1999, the Company settled certain
litigation for $46,725. The Company paid the settlement in August 1999,
for which the amount has been accrued as of June 30, 1999.
F-19
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 7 - LITIGATION (CONTINUED)
SETTLEMENTS (Continued)
On March 22, 1999, the Company filed a request for arbitration against
the former employee and Chief Executive Officer of MWI Distributions,
Inc., alleging breach of contract. On June 29, 1999, the parties
entered into a settlement agreement releasing each other from all
present and future claims. The Company has agreed to return 89,352
shares of common stock already held by the former employee received
from the merger. In addition, the Company will pay 25% of the Company's
net recovery from the Company's disputes with an entertainment company,
after deduction for attorney's fees, contingent fees, and costs.
Deduction for contingent fees is limited to 15% of the total recovery.
The former employee will be released from any obligation to comply with
the non-competition clause as included in the employment agreement.
PENDING LITIGATION
On April 15, 1999, suit was filed against the Company alleging breach
of contract with a financing company. The claim indicates failure to
deliver Class B preferred stock per a Finders Fee Agreement entered
into in July 1998. The Company denies the claim, the parties are
currently in negotiation, and no estimate can be made in the likelihood
of an unfavorable outcome.
The Company is currently in litigation with an entertainment company.
The Company believes that the entertainment company wrongfully
terminated its contracts. The Company seeks to recover commissions owed
to MWI, and no estimate can be made in the likelihood of an unfavorable
outcome.
OTHER LITIGATION
In the normal course of its business, the Company is subject to various
lawsuits and claims. The Company believes that the final outcomes of
these matters, either individually or in the aggregate, will not have a
material effect on its consolidated financial statements.
NOTE 8 - DISTRIBUTION RIGHTS
During the year ended June 30, 1995, the Company transferred a
completed television service with a net carrying value of $291,241 in
exchange for the right to receive a portion of the distribution revenue
from the series. This amount was written down by $95,136 at June 30,
1997 to reflect the estimated present value of this right. The balance
of $196,105 was written off during the year ended June 30, 1998.
F-20
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 9 - FILM COSTS
Film costs as of June 30, 1999 consisted of projects in development of
$471,762. Write-offs of projects in development for the years ended
June 30, 1999 and 1998 aggregated to $301,037 and $199,450,
respectively. Based on management's present estimate of future revenues
at June 30, 1999, substantially all of the unamortized costs of
completed projects will be amortized by June 30, 2004.
NOTE 10 - FIXED ASSETS
Fixed assets as of June 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Furniture and equipment $ 179,604
Computer equipment 77,784
Equipment held under capital leases 92,594
Leasehold improvements 45,979
----------------
395,961
Less accumulated deprecation and amortization 295,118
----------------
TOTAL $ 100,843
================
</TABLE>
Depreciation and amortization expense for the years ended June 30, 1999
and 1998 were $102,355 and $53,387, respectively.
NOTE 11 - INVESTMENTS
On February 24, 1999, the Company entered into an agreement to invest
in a publicly held company and agreed to purchase 100,000 shares of
restricted shares of the Company's common stock for $500,000. For no
additional consideration, the Company was issued 100,000 warrants at an
exercise price of $6.00 per share. The warrants shall only be
exercisable at any time prior to March 1, 2001. The Company has booked
this investment at cost, and the investment represents less than 5%
ownership in the investee.
On February 3, 1999, the Company entered into an agreement to invest in
a privately held company and agreed to purchase up to $1,000,000 in
common shares at a purchase price of $2.00 per share. As of June 30,
1999, the Company purchased 150,000 shares for a total investment of
$300,000. The Company has booked the investment at cost, and the
investment represents less than 5% ownership in the investee.
F-21
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 11 - INVESTMENTS (CONTINUED)
These investments are stated at cost, which approximates their fair
value as of June 30, 1999.
NOTE 12 - FINANCING FACILITY AND ISSUANCE OF PREFERRED STOCK
On July 31, 1998, IAT entered into a financing arrangement. At IAT's
option, the arrangement allows IAT to sell and requires the other party
to purchase up to $5,000,000 worth of convertible preferred stock over
a 24-month period, subject to certain restrictions and limitations.
In the event that IAT's average daily stock closing price, multiplied
by the number of shares traded on that day for the preceding 20 trading
days is less than $40,000, the preferred stock investor is not required
to purchase shares. Although IAT did not exceed the minimum requirement
for the September 22, 1998 purchase, the investor did not exercise the
right to refuse funding.
The preferred stock is convertible to common stock at 80% to 82.5% of
the average of the closing bid prices for the common stock for the five
trading days immediately preceding the date of conversion.
Alternatively, the first tranche of $500,000 can be converted at 100%
of the average of the closing bid prices for the common stock for the
five days preceding such initial $500,000 investment.
The preferred stock pays quarterly dividends at an annual rate of 6%
per year.
On July 31, August 11, and September 22, 1998, IAT exercised its right
under this agreement and sold $500,000 worth of Series D and $2,250,000
worth of Series E preferred stock to the investor. In conjunction with
this transaction, IAT issued 275,000 shares of Series F preferred stock
to the investor which is convertible into common stock at $1.02 per
share.
In addition, IAT paid a finder's fee of $56,250 and granted the
investment banker warrants to purchase 30,000 shares of common stock at
$1.44 per share.
F-22
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 13 - STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The Company's Board of Directors adopted the 1998 Stock Incentive Plan
(the "Plan") on February 17, 1998. The Plan, which was amended in April
1999, authorizes the granting of stock options to officers,
non-employee directors, employees, and consultants to purchase an
aggregate of 3,000,000 shares of common stock. Options awarded under
the Plan expire after 10 years. The Company may also grant other stock
options outside its stock option plan.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies APB Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than
for restricted stock and options/warrants issued to outside third
parties. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under its plan
consistent with the methodology prescribed by SFAS No. 123, the
Company's net loss and loss per share would be increased to the pro
forma amounts indicated below for the year ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
Net loss
<S> <C> <C>
As reported $ (2,665,052) $ (1,411,916)
Pro forma $ (4,372,852) $ (1,411,916)
Basic loss per common share
As reported $ (0.35) $ (0.29)
Pro forma $ (0.48) $ (0.29)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense
related to grants made before 1995. The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for the year
ended June 30, 1999 and 1998: dividend yields of 0% and 0%,
respectively; expected volatility of 100% and 99%, respectively;
risk-free interest rate of 5.5% and 6%, respectively; and expected
lives of two and 4.48 years, respectively.
F-23
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 13 - STOCK OPTIONS AND WARRANTS (CONTINUED)
STOCK OPTIONS (Continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The following summarizes the stock option transactions under the Stock
Option Plan:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
--------------- ----------------
<S> <C> <C>
Balance, June 30, 1997 293,972 $ 16.74
Expired (6,944) $ (97.20)
---------------
Balance, June 30, 1998 287,028 $ 14.79
Granted 3,420,000 $ 1.19
Exercised (600,000) $ 0.71
Expired (585,416) $ 2.56
---------------
BALANCE, JUNE 30, 1999 2,521,612 $ 4.57
===============
EXERCISABLE, JUNE 30, 1999 2,521,612 $ 4.57
===============
</TABLE>
F-24
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 13 - STOCK OPTIONS AND WARRANTS (CONTINUED)
STOCK OPTIONS (Continued)
The weighted-average remaining contractual life of the options
outstanding is 7.13 years at June 30, 1999. The exercise prices for the
options outstanding as of June 30, 1999 ranged from $0.50 to $39.00,
and the information relating to these options is as follows:
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
Average Average Average
Remaining Exercise Exercise
Range of Stock Stock Contractual Price Price
Exercise Options Options Life of Options of Options of Options
Prices Outstanding Exercisable Outstanding Outstanding Exercisable
---------------- --------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.50 - 0.82 720,000 720,000 7.06 $ 0.77 $ 0.77
$ 0.83 - 2.35 1,600,000 1,600,000 4.94 $ 1.19 $ 1.19
$ 2.36 - 39.00 201,612 201,612 2.00 $ 14.79 $ 14.79
--------------- ---------------
2,521,612 2,521,612
=============== ===============
</TABLE>
WARRANTS
In addition to the 1,533,333 redeemable warrants exercisable at $5.25
per share of common stock issued in connection with the September 1996
public offering, there are approximately 216,667 other outstanding
warrants. As part of a June 1996 private placement of $500,000
aggregate principal amount of 10% promissory notes ("Bridge Notes"),
166,667 "Bridge Warrants" were issued. Upon repayment of the Bridge
Notes in September 1996, the "Bridge Warrants" were automatically
exchanged for 166,667 redeemable warrants exercisable at $5.25 per
share. The Company has other existing warrants outstanding to purchase
an aggregate of 50,000 shares of common stock at prices ranging from
$21.00 to $24.00 per share. There were a total of approximately
1,533,333 warrants outstanding as of June 30, 1999.
NOTE 14 - EMPLOYMENT AGREEMENTS
The Company has entered into agreements for the services of certain of
its key executives. These agreements expire through June 30, 2002 and
provide for approximate aggregate annual payments of $411,000 and an
annual auto allowance of $21,000. Certain of these agreements provide
for payments by the Company in the event of death, disability,
termination, or a change in control of the Company.
F-25
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 15 - INCOME TAXES
The provision for (benefit from) federal income taxes at statutory
rates is computed as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- -------------
<S> <C> <C>
Provision for (benefit from) income taxes at statutory
34% rate $ (1,151,000) $ (480,051)
Tax effect (benefit) of
Change in valuation allowance 1,348,000 521,240
State income tax deduction, net of federal
benefit (197,000) (41,189)
--------------- -------------
TOTAL $ - $ -
=============== =============
</TABLE>
The Company's total deferred tax assets, deferred tax liabilities, and
deferred tax asset valuation allowance at June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset
State net operating loss carryforward $ 833,000
Federal net operating loss carryforward 6,363,000
-------------
7,196,000
Valuation allowance (7,196,000)
-------------
NET DEFERRED TAX ASSETS $ -
=============
</TABLE>
As of June 30, 1999, the Company had federal and state net operating
loss carryforwards of approximately $18,145,000 and $9,072,000,
respectively, which expire through 2013 and 2004, respectively.
Utilization of the net operating loss carryforwards in any one year may
be limited by, among other things, alternative minimum tax rules and
restrictions caused by changes in the Company's stock ownership
(Internal Revenue Code Section 382). The 1996 ownership changes
resulted in an annual Section 382 net operating loss limitation of
approximately $945,700.
F-26
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company's office leases provide for minimum annual base rents and
payment of certain defined operating expenses. The leases expire
through June 2002. At June 30, 1999, future minimum annual commitments
under non-cancelable lease obligations are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
June 30, Leases Leases
----------- --------- ---------
<S> <C> <C> <C>
2000 $ 34,942 $ 89,215
--------- ---------
Total minimum lease payments 39,942 $ 89,215
=========
Less amount representing interest 1,684
---------
PRESENT VALUE OF NET MINIMUM LEASE
PAYMENTS $ 33,258
=========
</TABLE>
For capitalized leases, the original contract's present value, net of
depreciation, is included in net fixed assets. The net book value of
fixed assets under capital leases at June 30, 1999 is $50,155.
Depreciation expense for leased fixed assets was $30,865 for the year
ended June 30, 1999.
Rent expense for the years ended June 30, 1999 and 1998 was $269,219
and $450,219, respectively.
The Company is a party to various agreements relating to its properties
that provide for payments to others upon the sale, production, and/or
distribution of the property. Other agreements provide for
participation by others in the net revenues and/or profits from
completed projects.
In the normal course of its business, the Company is subject to various
lawsuits and claims. The Company believes that the final outcomes of
these matters, either individually or in the aggregate, will not have a
material effect on its consolidated financial statements.
F-27
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 17 - MAJOR CUSTOMERS
For the year ended June 30, 1999, the Company had sales to one customer
representing approximately 77% of total revenues. For the year ended
June 30, 1998, the Company had sales to three customers representing
approximately 40%, 15%, and 11% of total revenues.
As of June 30, 1999, 70% of the Company's trade receivables was from
one customer. As of June 30, 1998, 73% and 21% of the Company's trade
receivables were from two customers. One of these customers was
acquired by the Company subsequent to the year ended June 30, 1998 (see
Note 1).
NOTE 18 - YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000
Issue and is developing an implementation plan to resolve the Issue.
The Issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company is dependent on computer
processing in the conduct of its business activities.
Based on the review of the computer systems, management does not
believe the cost of implementation will be material to the Company's
financial position and results of operations.
F-28
<PAGE>
IAT RESOURCES CORPORATION
(FORMERLY THE PRODUCERS ENTERTAINMENT GROUP LTD.)
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------
NOTE 19 - SUBSEQUENT EVENTS
On September 23, 1999, the Company entered into a merger agreement with
Infolocity, Inc., a privately-held Internet company. Through its
proprietary search technology, Infolocity, Inc. assists publicly traded
companies in minimizing the impact of negative or false information
posted on the Internet. The terms of the merger include a tax-free
exchange of the Company's common stock for 100% of the issued and
outstanding stock of Infolocity, Inc. As a result of the merger,
Infolocity, Inc. will be a wholly-owned subsidiary of the Company. In
addition to the merger, the Company entered into a Bridge Loan
Promissory Note for $2,000,000 due from Infolocity, Inc. for advances
given by the Company, of which $900,000 has been advanced as of
September 30, 1999. The remaining advance will be given in October and
November 1999. The note shall accrue interest at 7% per annum and shall
be payable quarterly, commencing on November 30, 1999. The loan is
guaranteed by the owners of Infolocity, Inc. One of the conditions of
this merger is that the Company must maintain its NASDAQ listing. At
June 30, 1999, the Company is not in compliance with NASDAQ's listing
requirements.
In August 1999, the Company entered into a $4,000,000 private placement
agreement of 6% convertible debentures on a best effort basis. To date,
the Company has received $1,350,000.
F-29
