<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-14013
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
<TABLE>
<S> <C>
DELAWARE 11-3197148
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
</TABLE>
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 85012
(602) 200-8900
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MICHAIL ITKIS
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
4041 N. CENTRAL AVENUE, SUITE 2000
PHOENIX, ARIZONA 85012
(602) 200-8900
(AGENT FOR SERVICE)
---------------
It is requested that copies of communications be sent to:
THEODORE E. GUTH, ESQ.
IRELL & MANELLA LLP
1800 AVENUE OF THE STARS
SUITE 900
LOS ANGELES, CALIFORNIA 90067
(310) 277-1010
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of the Registration Statement as determined
by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED MAXIMUM
OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PER WARRANT OR AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Redeemable Class B Warrants........... 275,000(2) $ 6.50(1) $1,787,500(1) $ 616.38*
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Class A Common Stock ($.01 par
value)(3)............................ 275,000(3) $14.69(1) $4,039,750(1) $1,393.02*
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Class A Common Stock ($.01 par
value)(4)............................ 8,765,196(4) $ -- $ -- -- (4)
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Redeemable Class B Warrants(5)........ 1,550,000(5) $ -- $ -- -- (5)
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Class A Common Stock ($0.1 par
value)(5)............................ 3,100,000(5) $ -- $ -- -- (5)
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</TABLE>
(1) Estimated solely for purpose of determining the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low prices per
share of the Redeemable Class B Warrants and the Class A Common Stock
reported on the Nasdaq SmallCap Market on October 8, 1996.
(2) Warrants issued in an April 1996 private placement and registered for
resale hereunder by the holders thereof.
(3) Shares issuable upon exercise of the Redeemable Class B Warrants described
in (2) above.
(4) Shares issuable upon exercise of up to 8,765,196 outstanding Class B
Warrants issued in prior public offerings and previously registered on
Form SB-2, Registration Nos. 33-86926 and 333-02044, for which
registration fees were previously paid. Pursuant to Rule 429, no
additional registration fee is due.
(5) Represents 1,550,000 Class B Warrants and 1,550,000 shares of Class A
Common Stock held by certain securityholders, and an additional 1,550,000
shares of Class A Common Stock issuable upon exercise of such warrants, in
each case previously registered for resale by the Selling Securityholders
on Form SB-2, Registration Nos. 33-86926 and 333-02044, for which
registration fees were previously paid. Pursuant to Rule 429, no
additional registration fee is due.
* Paid in connection with October 11, 1996 filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
Pursuant to Rule 429 of the Securities Act of 1933, as amended, this
Registration Statement relates to three different offerings, as follows:
OFFERING #1: This Registration Statement relates to (i) 275,000 of the
Company's redeemable class B warrants ("Class B Warrants") acquired by certain
selling securityholders in a private placement in April 1996, and (iii)
275,000 shares of Class A Common Stock underlying such Class B Warrants, all
for resale from time to time by the selling securityholders.
The complete Prospectus relating to Offering #1 follows immediately after
this Explanatory Note.
OFFERING #2: This Registration Statement also relates to the offer (the
"Exercise Offer") by the Company to holders of all of its 10,590,196
outstanding Class B Warrants to reduce to $7.50 the exercise price of such
Class B Warrants during an as yet undetermined period following the
effectiveness of this Registration Statement. This Registration Statement also
relates to the issuance of up to 10,590,196 shares of Class A Common Stock
(the "Class B Warrant Stock") issuable upon exercise of the Company's
outstanding Class B Warrants during and after the Exercise Offer (excluding,
after the Exercise Offer, Class B Warrants held by the selling securityholders
in Offerings #1 and #3). The issuance of the Class B Warrant Stock was
previously registered in the Company's Registration Statements on Form SB-2,
Registration Nos. 333-02044 and 33-86928 (the "SB-2"), and is included in this
Registration Statement to satisfy the Company's undertaking to file a post-
effective amendment to the SB-2.
The complete Prospectus relating to Offering #1 follows immediately after
this Explanatory Note. Following the Prospectus for Offering #1 are pages
(denoted as Alternate Offering #2 Pages) of the Prospectus relating solely to
the Class B Warrant Stock, including alternative front and back cover pages,
and sections entitled "Documents Incorporated by Reference," "Prospectus
Summary," "The Exercise Offer and Warrant Redemption," "Purpose of Exercise
Offer and Use of Proceeds," "Capitalization," "Price Range of Securities,"
"Summary and Pro Forma Financial Data," "Dilution," "Plan of Distribution,"
"Concurrent Offerings" and "Legal Matters" to be used in lieu of the sections
entitled "Dilution," "Selling Securityholders," "Plan of Distribution," "Blair
Commission," "Concurrent Offerings" and "Legal Matters" in the Prospectus
relating to Offering #1.
OFFERING #3: This Registration Statement also relates to (i) 1,550,000 Class
B Warrants and 1,550,000 shares of Class A Common Stock issued upon exercise
of certain redeemable class A warrants acquired by certain selling
securityholders in connection with the Company's 1994 Bridge Financing and
(ii) an additional 1,550,000 shares of Class A Common Stock underlying the
aforementioned Class B Warrants, all for resale from time to time by the
selling securityholders. The resale of the selling securityholder securities
offered in Offering #3 was previously registered in the Company's Registration
Statement on the above-described SB-2, and is included in this Registration
Statement to satisfy the Company's undertaking to file a post-effective
amendment to the SB-2.
The complete Prospectus relating to Offering #1 follows immediately after
this Explanatory Note. Following the Prospectus for Offering #1 are pages
(denoted as Alternate Offering #3 Pages) of the Prospectus relating solely to
the resale of the selling securityholder securities offered in Offering #3,
including an alternative cover page, and sections entitled "Use of Proceeds,"
"Dilution," "Selling Securityholders," "Concurrent Offerings" and "Legal
Matters" to be used in lieu of the sections entitled "Use of Proceeds,"
"Dilution," "Selling Securityholders," "Concurrent Offerings" and "Legal
Matters" in the Prospectus relating to Offering #1.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER , 1996
PROSPECTUS
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
275,000 REDEEMABLE CLASS B WARRANTS
275,000 SHARES OF CLASS A COMMON STOCK
This Prospectus relates to 275,000 Redeemable Class B Warrants (the "Class B
Warrants") of Interactive Flight Technologies, Inc., a Delaware corporation
(the "Company"), held by two holders (the "Selling Securityholders"), and the
275,000 shares of Class A Common Stock, $.01 par value ("Class A Common
Stock"), issuable upon the exercise of such 275,000 Class B Warrants. The
275,000 Class B Warrants held by the Selling Securityholders are sometimes
referred to herein as the "Selling Securityholder Warrants" and, together with
the shares of Class A Common Stock issuable upon exercise of the Selling
Securityholder Warrants, the "Selling Securityholder Securities." The Selling
Securityholder Warrants were issued to the Selling Securityholders in exchange
for certain services rendered to the Company. See "Selling Securityholders" and
"Plan of Distribution." Each Class B Warrant entitles the holder to purchase
one share of Class A Common Stock, at an exercise price of $9.75, subject to
adjustment, at any time until March 6, 2000. However, concurrently herewith,
the Company is offering (the "Exercise Offer") to the holders of the Company's
outstanding Class B Warrants to reduce the exercise price of the outstanding
Class B Warrants to $7.50 per share in each case if and only if a holder
exercises his or her Class B Warrants prior to 5:00 P.M., New York City time,
on , 1996, unless such date is extended by the Company. Following such
date through January 17, 1997, a holder will continue to have the right to
exercise his or her Class B Warrants (in accordance with the terms thereof) at
the re-set exercise price of $9.75 per share. The Class B Warrants are subject
to redemption by the Company for $.05 per Warrant, upon 30 days' written
notice, if the average closing bid price of the Class A Common Stock exceeds
$13.65 per share (subject to adjustment) for 30 consecutive business days
ending within 5 days of the date of the notice of redemption. This condition
has been met, and by notice dated [ ], 1996, the Company has exercised
its right pursuant to the terms of the Warrants to redeem on January 20, 1997
each Class B Warrant not exercised by January 17, 1997, at 5:00 P.M. New York
City time.
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
-----------
The Class A Common Stock and the Company's Class B Common Stock, $.01 par
value (the "Class B Common Stock"), are essentially identical, except that the
Class B Common Stock has six votes per share and the Class A Common Stock has
one vote per share on all matters upon which stockholders may vote. The holders
of Class B Common Stock, the majority of whom are executive officers, directors
and/or principal stockholders of the Company, control approximately 65% of the
total voting power and therefore are able to elect all of the Company's
directors and control the Company.
The securities offered by the Selling Securityholders by this Prospectus may
be sold from time to time by the Selling Securityholders or by their
transferees. The distribution of the Selling Securityholder Warrants and the
Class A Common Stock offered hereby by the Selling Securityholders may be
effected in one or more transactions that may take place on the over-the-
counter market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders.
The Selling Securityholders, and intermediaries through whom such securities
are sold, may be deemed underwriters within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event all of the Selling Securityholder
Warrants are exercised, the Company will receive gross proceeds of $2,681,250,
less payment of applicable commissions to D.H. Blair Investment Banking Corp
("Blair"). See "Selling Securityholders," "Plan of Distribution" and "Blair
Commission."
The Class A Common Stock and the Class B Warrants are traded on the Nasdaq
SmallCap Market ("Nasdaq"). On October , 1996, the closing sale price of the
Class A Common Stock on Nasdaq was $ per share and the closing sale price of
the Class B Warrants on Nasdaq was $ .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SECURITYHOLDERS OR ANY
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and other information filed by
the Company with the Commission pursuant to the informational requirements of
the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices at (i) Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, (ii) 7
World Trade Center, 13th Floor, New York, New York 10048, and (iii) 5757
Wilshire Boulevard, Suite 500, Los Angeles, California 90036. Copies of such
material may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a Web site that contains reports, proxy statements,
information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy statements,
information statements and other information may be found the Commission's
site address, http://www.sec.gov. The Class A Common Stock and the Class B
Warrants are listed on the Nasdaq SmallCap Market ("Nasdaq") and reports,
proxy statements and other information regarding the Company can be inspected
at the offices of such exchange.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto, as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Securities, reference is hereby made to the Registration
Statement, including the exhibits filed or incorporated as a part thereof.
Statements contained herein concerning the provisions of any document are not
necessarily complete and in each instance reference is made to the copy of the
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by reference to the copy of the
applicable documents filed with the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company under the Exchange
Act with the Commission are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-KSB for the fiscal year ended October 31,
1995, and Amendment No. 1 to the Annual Report on Form 10-KSB/A for the fiscal
year ended October 31, 1995; (2) the Company's Quarterly Reports on Form 10-
QSB dated January 31, 1996, April 30, 1996 and July 31, 1996; and (3) the
description of the Company's Common Stock as set forth in the Company's
registration statement on Form 8-A filed with the Commission on December 31,
1994, as amended by the Company's registration statement on Form 8-A/A filed
with the Commission on March 8, 1995, and any other amendments or reports
thereto filed with the Commission for the purpose of updating such
description.
2
<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock made hereby shall be
deemed to be incorporated in this Prospectus by reference and to be a part
hereof from the date of filing of such documents. Any statement incorporated
herein shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus has been delivered, on the request of such person, a copy of
any and all of the information that has been or may be incorporated by
reference in this Prospectus, other than exhibits thereto. Written or oral
requests for such copies should be directed to Interactive Flight
Technologies, Inc., 4041 N. Central Avenue, Suite 2000, Phoenix, Arizona
85012, Attention: Chief Financial Officer. The telephone number is (602) 200-
8900.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the matters discussed in
this Prospectus and in the documents incorporated by reference herein are
forward-looking statements (within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act) that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth in such forward-looking statements. Such risks
and uncertainties include, without limitation, the failure of passenger use of
the Entertainment Network to generate sufficient revenues, the failure to
execute definitive agreements with additional airlines (or, in the case of
Swissair, with the Swiss lottery organization) on favorable terms or at all,
the failure of the Company to receive sufficient financing to perform its
obligations under its existing and contemplated agreements, the risk of errors
in the assumptions regarding the Company's future capital requirements, the
impact of competition and downward pricing pressures, the effect of changing
economic conditions, risks in technology development, the risks involved in
currency fluctuations, and the other risks and uncertainties detailed in "Risk
Factors" below and in the Company's Registration Statement on Form SB-2 dated
April 4, 1996, the Company's Annual Report on Form 10-KSB and Amendment No. 1
to the Annual Report on Form 10-KSB/A for the fiscal year ended October 31,
1995.
3
<PAGE>
THE COMPANY
Interactive Flight Technologies, Inc. (the "Company") is engaged in the
development, assembly, installation and operation of a computer-based in-
flight entertainment network (the "Entertainment Network"). The first
generation of the Entertainment Network provided aircraft passengers the
opportunity to view movies, to play computer games and, in certain cases where
permitted by applicable law, to gamble through a high-resolution video touch
screen. The Company has also recently developed a second generation of the
Entertainment Network (the "IFEN-2") which includes additional features such
as secure casino gaming, in-flight shopping, a telephone interface system, the
ability for passengers to pay for IFEN-2 usage through their credit cards, and
increased video-on-demand capacity.
To date, the Company has entered into contracts to install and operate the
Entertainment Network on the aircraft of three airlines--Alitalia Airlines
S.p.A. ("Alitalia"), Debonair Airlines ("Debonair"), and Swissair VKB
("Swissair"). Under the Company's agreement with Alitalia (the "Alitalia
Agreement"), the first generation of the Entertainment Network system was
installed in November 1995 in the first class and business class seats of an
Alitalia MD-11 aircraft. Following completion of the test period of this first
installed Entertainment Network system, Alitalia accepted the remainder of the
Alitalia Agreement and the Company accordingly delivered first generation
Entertainment Network systems for installation on an additional four Alitalia
MD-11 aircraft. The agreement provides for the Company to operate the
Entertainment Networks on all five aircraft over a period of approximately
eight years. The Alitalia Agreement does not presently provide for, and is not
expected to provide for, passenger use of gambling features of the
Entertainment Network. Under the Alitalia Agreement, Alitalia is to pay an
aggregate of approximately $2.7 million for the hardware components of the
five Entertainment Network systems, of which $1.1 million has been paid to
date and $1.6 million is currently due and payable.
In March 1996, the Company entered into a second airline contract (the
"Debonair Agreement") with Debonair, a start-up European airline. The Debonair
Agreement provides for the Company to deliver and install IFEN-2 systems
(including video casino style gambling) for all seats on Debonair's entire
fleet, which consists of six RJ-146 aircraft. The aggregate purchase price to
be paid by Debonair for the hardware components of the six IFEN-2 systems and
related spare parts is approximately $5.8 million. However, the Debonair
Agreement provides that, provided Debonair utilizes the casino gaming feature
of the Entertainment Networks, Debonair is not required to pay any up-front
funds to the Company for the six Entertainment Networks. Instead, payments to
the Company will be made solely through a revenue-sharing arrangement, which
provides that the Company will receive a percentage of revenues generated by
the Entertainment Networks, principally casino gaming revenues, until the
aggregate purchase price plus accrued interest for all six Entertainment
Networks is paid, and thereafter the Company will receive a reduced percentage
of such revenues. The Debonair Agreement further provides that if the use of
the casino gaming features of the IFEN-2 systems is ordered by law to cease,
then no further payments of purchase price for each installed system shall be
due.
Effective July 18, 1996, the Company entered into an agreement with Swissair
to provide for delivery and installation by the Company of IFEN-2 systems on
sixteen Swissair MD-11 aircraft and five Swissair B-747 aircraft. The Company
will also provide various maintenance and operational services for the
installed IFEN-2 systems. Subject to execution of an agreement with
Interkantonale Landeslotterie ("ILL"), the operator of the Swiss lottery based
in Zurich, Switzerland, the IFEN-2 systems installed on Swissair aircraft will
allow passengers to participate in various Swiss lottery games, but are not
expected to allow use of the traditional casino style gaming features such as
slots or poker. In the event that no agreement is reached with ILL, either
Swissair or the Company may terminate the Swissair Agreement.
Under the Swissair Agreement, subject to the terms thereof, the Company is
entitled to receive an aggregate of approximately $72 million for the IFEN-2
hardware, plus the costs of installation and certain upgrades. The Company
will also be reimbursed for its projected costs in connection with maintaining
and operating the systems. However, the hardware purchase price and the
operating expenses are payable only out of net revenues received from
passenger participation in the aforementioned lottery games. Further, the
Company may receive
4
<PAGE>
such amounts only after Swissair is first reimbursed from the net lottery
revenues for certain expenses incurred in connection with the installation and
operation of the IFEN-2 systems. Any amounts remaining after payment of the
Company's operating costs and the hardware purchase price will be paid over to
ILL. The Company will also receive a percentage of revenues and commissions
from advertising and shopping services available on the installed IFEN-2
systems.
The Company is aggressively marketing the Entertainment Network to numerous
additional airlines, focusing primarily on international carriers or domestic
carriers with international routes. However, there can be no assurance that
definitive agreements will be executed with any other airlines. See "Risk
Factors."
On September 5, 1996, the Company signed a Letter of Intent to form a
strategic alliance (the "Alliance") with interests of the Pritzker family of
Chicago (the "Pritzker Interests"). The Letter of Intent contemplates that the
Pritzker Interests would use their marketing resources to enhance IFT's
relationship with international and domestic air carriers. In addition, the
Letter of Intent provides for the Pritzker Interests to help develop and
coordinate financing sources for IFT.
Subject to the satisfaction of certain conditions, the Pritzker Interests
would invest up to $20 million in a proposed joint venture in order to raise
one-third of the money required for a potential future airline project
currently under consideration (which amount would not be available to fund the
Company's currently existing airline obligations). The Pritzker Interests
would also have the option to invest in up to six similar ventures for future
airline projects. Under the Alliance, the Pritzker Interests would purchase up
to $1 million of IFT stock in the open market and would receive warrants to
purchase up to 10% of IFT (on a fully-diluted basis). These warrants would be
issued in specified increments as future airline contracts are executed by
IFT. Finally, the Alliance would provide for John Pritzker and one other
Pritzker nominee to join the Board of Directors of IFT, and for additional
Pritzker nominees if the size of the Board is increased.
Completion of the transaction and formation of the Alliance are subject to
customary conditions precedent, including the negotiation and execution of
definitive documentation. There can be no assurance that the parties will
agree upon and execute such definitive documents or that the Alliance, if
formed, will produce the desired results.
Since commencement of operations, the Company has developed a substantial
catalogue of proprietary technology and know-how relating to the Entertainment
Network and its related systems. In addition, the Company has an exclusive
license (the "FortuNet License") for technology for airline use from FortuNet,
Inc. ("FortuNet"), a gaming equipment manufacturer that distributes video
gaming networks to casinos and other gaming establishments. The Chief
Executive Officer of the Company, who is also a director and principal
stockholder of the Company, is a former employee of FortuNet and was a
substantial contributor to the development of the technology licensed from
FortuNet.
In July 1996, the Company relocated its principal executive offices and its
primary manufacturing and development facilities from Las Vegas, Nevada to
Phoenix, Arizona.
The Company was incorporated in Delaware in August 1994 and is the successor
by merger to In-Flight Entertainment Services Corp., a New York corporation
incorporated in February 1994. The Company completed an initial public
offering of its securities in March 1995. Unless the context requires or as
otherwise indicated, all references to the "Company" include the predecessor
company. The Company's principal executive offices are located at 4041 N.
Central Avenue, Suite 2000, Phoenix, Arizona 85012, and its telephone number
is (602) 200-8900.
5
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the securities offered hereby.
Limited Operating History; Unproven Viability of Entertainment Network. The
Company was organized in February 1994 and completed its initial public
offering in March 1995. To date, the Company has secured agreements with
Alitalia (for the provision of five first generation Entertainment Network
systems for a total purchase price of approximately $2.7 million plus amounts
received from the sale of service parts, if any), with Debonair (for the
provision of six IFEN-2 Entertainment Networks for a total purchase price of
approximately $5.8 million) and with Swissair (for the provision of twenty-one
IFEN-2 Entertainment Networks for a total purchase price of $72 million), in
the last case subject to agreement with ILL (the Swiss lottery organization).
However, as of the date hereof, the Company has installed systems and received
revenues only under the Alitalia agreement and, with respect to the other
agreements and any future agreements, may experience many of the problems,
delays, expenses and difficulties commonly encountered by early stage
companies, many of which are beyond the Company's control. These include, but
are not limited to, unanticipated problems related to product development,
regulatory compliance, manufacturing, marketing, additional costs and
competition and technological obsolescence, as well as problems associated
with sales or operations in foreign countries. There can be no assurance that
the Company will be able to market the IFEN-2 Entertainment Network to
additional airlines or that once installed, the IFEN-2 Entertainment Networks
will function as intended, meet with customer acceptance or generate any
revenue, or that the Company will ultimately achieve profitability. The
Company has incurred significant development and marketing operating losses to
date and there can be no assurance of future revenues or profits.
The acceptance of the Entertainment Network is dependent on a number of
factors, including the technological quality and features of such product
compared to competitive products, the actual and the perceived ability of the
Company to service the Entertainment Network, consumer demand and the
purchasing patterns of airlines. Many of these factors are beyond the
Company's control. As a result of all of these factors, as well as
unanticipated problems which may be experienced by the Company, the Company is
unable to predict when, if ever, the Entertainment Network will be
commercially successful.
Accumulated Deficit; Operating Losses and Charges to Operations. At July 31,
1996, the Company had an accumulated deficit of approximately $13.3 million.
The Company will be required to continue to expend significant funds in
connection with continued development, manufacturing and marketing activities
with respect to the Entertainment Network which to date have resulted in, and
are expected to continue to result in, operating losses and reductions in
working capital. The extent of future losses and the time required to achieve
profitability are highly uncertain. There can be no assurance that the Company
will be able to achieve profitability on a sustained basis, if at all.
Need for Additional Financing; Potential Cash Shortages. At July 31, 1996,
the Company had working capital of approximately $25.0 million. The Company
increased its working capital in May 1996 from the proceeds of its Class A
Warrant Exercise Offer, its third financing, from which the Company received
net proceeds of approximately $25.2 Million. However, the Company has incurred
additional losses since the Exercise Offer which have again reduced working
capital, and the Company expects that losses will continue for the foreseeable
future. As a result, unless funds are received from additional financing,
working capital is expected to continue to decrease following the initial
increase attributable to receipt of proceeds from the aforementioned Exercise
Offer.
The Company's revenues have been generated, and are anticipated to be
generated in the future, from sales, installation and servicing of the
Entertainment Network aboard commercial and charter aircraft. The contracts
the Company has executed and is currently negotiating generally provide for
the Company to install the Entertainment Network on an aircraft and to be paid
for the equipment and for its installation and maintenance out of revenue
generated by passenger use of the installed network on the aircraft. As a
result, the Company
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must expend significant capital amounts for the assembly, installation and
maintenance of the Entertainment Network on each aircraft, but revenue as
payment for the system will be received, if at all, only as a result of the
use of the system over a potentially significant period of time. The Company
will be required to incur substantial up-front costs required to perform the
Debonair Agreement and the Swissair Agreement. Moreover, the Company may also
enter into commitments to purchase equipment necessary for additional
installations, even in the absence of a purchase commitment from an airline,
if such action is determined to be necessary or desirable to pursue business
opportunities. The Company also expects its cash requirements to increase in
future periods due to higher expenses associated with increased sales and
marketing activities and financing of inventory purchases, installations and
accounts receivable.
As a consequence, the Company will need additional financing to perform
under its existing contracts (i.e., the Alitalia Agreement, the Debonair
Agreement and the Swissair Agreement) in addition to any future contracts that
it may enter into, including those it is currently negotiating. Although the
Company has been in discussions with a number of external sources of capital
to raise portions of the funds needed, there can be no assurances that such
funds will be available in the near future when they will be needed for the
contracts involved. Without additional funding from external capital sources
or from exercise of the Company's outstanding warrants, the Company will not
have sufficient cash to complete all of its existing and pending contracts.
Risks Relating to Growth and Expansion. Growth of the Company's business may
place significant pressure on the Company's management, operational and
technical resources. The Company believes that for competitive reasons, it is
important to obtain an installed customer base as early as possible and,
accordingly, the failure to expand operations in the early years of the
Company's business may hinder or preclude significant future growth. If the
Company is successful in obtaining additional agreements with airlines
relating to the installation of Entertainment Networks, the Company will be
required to raise substantial additional funds and deliver large volumes of
quality products to its airline customers on a timely basis at a reasonable
cost to the Company. The Company has no experience in delivering large volumes
of its products and does not have the capacity and may not have the capital
resources to meet wide scale production requirements. The Company currently
has contracts with domestic manufacturers for high-volume production, and may
enter into additional contracts with such domestic and foreign manufacturers.
However, there can be no assurance that any manufacturing arrangement will be
entered into or will be successful, that the Company's efforts to conduct
manufacturing activities will be successful or that the Company or any
supplier will be able to satisfy commercial scale production requirements on a
timely and cost-effective basis. The Company's success will also depend in
part upon its ability to provide its airline customers with timely service and
support. The Company will also be required to develop and improve operational,
management and financial systems and controls. Failure to manage growth would
have a material adverse effect on the business of the Company. Expenses
arising from Company activities to increase market penetration and support
growth will have a negative impact on operating results.
Risks Relating to the Debonair and Swissair Agreements. There are numerous
risks associated with the Debonair Agreement and the Swissair Agreements of
which investors should be aware. First, the Company will be required to incur
substantial up-front costs to perform under these agreements in advance of
receiving any significant payments from Debonair or Swissair. Further, the
Debonair Agreement provides that the only funds to be received by the Company
from Debonair will be in the form of revenue-sharing of the revenues from the
six Entertainment Networks (primarily revenues from the casino gaming).
Likewise, the Swissair Agreement provides that the purchase price for the
hardware, as well as the Company's operating costs, will be paid only out of
lottery revenues from the twenty-one Entertainment Networks (with ILL first
receiving a portion thereof and Swissair then receiving first priority for its
expenses prior to payment of the Company's expenses and the purchase price for
the hardware). Thus, the Company's ability to recoup its up-front costs and/or
derive any profit under the either of these agreements will be dependent upon
a number of factors, including the success of the airlines' respective
businesses, the extent to which passengers utilize the casino and lottery
gaming features of the Entertainment Networks and numerous other factors, most
of which are beyond the Company's control. In fact, Debonair is a start-up
airline and, consequently, there is no assurance that it will ever commence
operations or, if it does, that its operations will be successful. To the
extent that there are any unanticipated problems
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relating to product development, regulatory compliance, manufacturing and
other factors, the costs estimates described above to perform the Debonair
Agreement and the Swissair Agreement may increase significantly, thereby
utilizing a substantially higher amount of the Company's working capital than
currently contemplated.
Second, since these agreements contemplate that the Entertainment Network
will be installed in coach class and will feature casino gaming, the Company
must install and operate the newly-developed IFEN-2 system on both Debonair
and Swissair aircraft. These will represent the first commercial installations
of the IFEN-2 system, and there can be no assurance that the IFEN-2 systems,
once installed, will function properly or meet with customer acceptance.
Third, both of the contracts are subject to the gaming laws of various
jurisdictions. See "--Regulatory Restrictions on Gaming Devices."
Dependence Upon Limited Number of Potential Customers. The sole market for
the Company's products is expected to be commercial airlines. There are a
limited number of major commercial airlines worldwide. Accordingly, even
assuming a sustained commercial viability and the successful marketing of the
Entertainment Network, the Company expects to have contracts with only a
limited number of customers, each of which may account for a substantial
portion of the Company's revenues. The inability to generate new contracts to
replace completed contracts could result in substantial losses in future
fiscal periods. Moreover, because gaming is prohibited on all United States
air carriers and on aircraft operated to or from the United States by foreign
carriers, the Entertainment Network may be commercially less attractive to a
significant segment of the commercial airline market.
Regulatory Restrictions on Gaming Devices. United States law, with certain
exceptions, currently prohibits the knowing transportation of gaming devices
on aircraft operated in interstate air transportation. In addition, states may
prohibit the transportation and use of gaming devices on flights operating
between two points in a single state. Federal law also prohibits the
installation, transportation or operation of gaming devices by any U.S. or
foreign air carrier or for such carriers to permit their use on aircraft
operated to or from the United States in foreign air transportation. The
United States Secretary of Transportation has conducted a study and has
reported to Congress in March 1996, regarding the safety, commercial and
operational issues posed by gaming devices aboard commercial aircraft.
However, this report did recommend that Congress take immediate action to
modify Federal law regarding gaming devices on commercial aircraft and it is
uncertain what effect the report will have, if any. Moreover, the laws
regarding the transmission of gaming data into, out of, or within United
States territory, even where such data was lawfully obtained in another
jurisdiction, are unclear. As a result, there can be no assurance that the
transmission of such data will not be restricted or prohibited. Because gaming
can generally be expected to generate significantly greater revenues and
profitability than other entertainment options expected to be available on the
Entertainment Network, the inability to offer gaming on flights would have a
material adverse impact on the Company's business and on the market acceptance
by airlines of the Entertainment Network. The Company will also be subject to
the laws of foreign jurisdictions which may similarly restrict or prohibit the
gaming or other activities offered on the Entertainment Network.
Requirement For and Uncertainty of Regulatory Approval of Entertainment
Network. The installation and use of the Entertainment Network in each
aircraft type will require prior certification and approvals from the Federal
Aviation Administration ("FAA") and from aeronautical agencies of foreign
governments. Prior to certification and approval, the Entertainment Network
must be installed on an aircraft and tested, including an in-flight test. The
Company has received FAA certification for the Entertainment Network on
Alitalia MD-11 aircraft, and has completed delivery of the Entertainment
Network for installation on five Alitalia MD-11 aircraft. The Company will
require FAA and comparable foreign certification prior to installing the
Entertainment Network on the Debonair RJ-146 and the Swissair MD-11 and B-747
aircraft, and the aircraft of any other airlines with which the Company may
execute agreements in the future. However, there can be no assurance that
further FAA and foreign certifications and approvals will be obtained, or
obtained in a timely fashion in connection with the Swissair Agreement or
thereafter. In addition, even if FAA certification is obtained, federal
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law grants to the FAA the authority to reexamine at any time the basis upon
which certification and approval of the Entertainment Network may be granted
and, if appropriate, to amend or revoke such certifications and approvals,
subject to certain appeal rights.
Risks of Patent Infringement. The use of the Company's technology, including
the patented technology licensed from FortuNet, may give rise to claims that
the Company's products infringe the patents of others. The Company is aware of
a number of United States and foreign patents which include claims relating to
technologies similar to those included in the Entertainment Network. Although
the Company is aware of a foreign patent (and a corresponding U.S.
application) that may cover the Entertainment Network, the Company believes
that this patent is currently unenforceable and cannot be revived because of
the failure to pay certain renewal fees and that, even if this patent were to
become enforceable, the Company can take steps to help ensure that its
activities would not be infringing. However, in the event such patent became
enforceable and an infringement claim were brought against the Company and any
such claim were successful, in addition to any potential liability for
damages, the Company could be required to obtain a license in order to
continue to market the Entertainment Network. There can be no assurance that
the Company would prevail against any such claim or that any license required
would be made available on acceptable terms or at all. In addition, if the
Company becomes involved in any such litigation, it could consume a
substantial portion of the Company's resources and management time and any
resulting liability of the Company may have a material adverse effect on the
Company's results of operations and financial condition. The Company has
agreed to pay all costs and damages associated with any patent infringement
litigation initiated against Alitalia, Debonair, Swissair and ILL.
Uncertainty of Patent Protection; No Assurance of Significant Competitive
Advantage. The Entertainment Network is dependent upon unpatented proprietary
technology and know-how developed by the Company and, to a lesser extent,
patented technology that the Company has licensed from FortuNet. There can be
no assurance that FortuNet's issued patents (or any issued to the Company in
the future) will provide the Company with any significant competitive
advantage or that challenges will not be instituted against the validity or
enforceability of any patent licensed or owned by the Company or, if
instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity and protect against infringement of patents
can be substantial. FortuNet's obligations to indemnify the Company under the
FortuNet License are limited to the amount of license fees payable to FortuNet
under the FortuNet License. Furthermore, there can be no assurance that others
will not independently develop substantially equivalent or more advanced
proprietary information and techniques or otherwise gain access to the
Company's trade secrets or obtain such technology or duplicate the
Entertainment Network. In addition, to the extent that consultants (including
FortuNet), key employees or other third parties apply technological
information developed by them or by others to Company projects, disputes may
arise as to the proprietary rights to such information which may not be
resolved in favor of the Company. There can also be no assurance that the
Company can meaningfully protect its intellectual property (particularly in
countries where there are no patents corresponding to those patents licensed
from FortuNet).
Risks of Foreign Operations; Dependence on Foreign Sales
Representatives. Because the Company believes the Entertainment Network is
commercially more viable on international flights, the Company's principal
customers are expected to be foreign airlines. Moreover, the Company uses and
intends to continue to use the services of sales representatives to negotiate
contracts with foreign airlines. As a result, the Company may become obligated
to pay significant fees to such representatives, who typically charge a
percentage of the contract purchase price. Accordingly, the Company's control
over the negotiating process may be reduced. Further, a substantial portion of
the Company's operations will be subject to various factors characteristic of
conducting business outside the United States, such as import duties, trade
restrictions, work stoppages, foreign currency fluctuations, export controls
or license requirements, political or economic instability, imposition of
government controls and other factors, any or all of which could have a
material adverse effect on the business of the Company. Agreements may also be
more difficult to enforce and receivables more difficult to collect through a
foreign country's legal or currency expatriation systems. In addition, the
laws of certain countries relating to proprietary rights do not protect the
Company's products and intellectual property rights to the same extent as do
the laws of the United States.
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Capital Intensive Purchase; Extensive Sales Cycle; Fluctuations in Revenues
and Operating Results. The outright purchase of an Entertainment Network by an
airline would represent a significant capital investment by such airline.
Airlines are generally faced with increasing pressures to cut costs,
particularly in non-safety related areas, and their ability to pass increased
costs to consumers is limited. Accordingly, the Company anticipates that an
extensive time period will be involved in negotiating and obtaining any actual
purchase commitments from airlines, which may include a test installation in
addition to an evaluation of the technology. In addition, installations are
expected to be conducted in incremental deployments and revenues expected to
be recognized as the installations are completed, so that related receivables
may not be collected for an extended period after installation. As a result,
the Company is unable to predict whether or when any additional purchase
agreements with airlines will be entered into, and the Company may experience
significant fluctuations in revenue and cash flow or periods in which no
revenues are recognized and cash flow shortages are experienced. In addition,
if anticipated sales and installations do not occur when expected,
expenditures and inventory levels could be disproportionately high and the
Company's operating results for that quarter may be adversely affected.
Particularly during the early years of operations, if the Company obtains any
such additional purchase agreements, a limited number of customers may account
for all or substantially all of the Company's revenues.
Seasonality. Because the installation of the Entertainment Network requires
that the aircraft be taken out of service temporarily, and because the
grounding of an aircraft represents a significant lost revenue opportunity for
an airline, the Company believes that a significant portion of installations
will occur during the winter months when air traffic is typically reduced.
Additional variability in revenues and operating results may arise from
budgeting and purchasing patterns of airlines.
Competition. The Company currently competes and will compete with a number
of companies offering in-flight entertainment systems, most of whom (including
but not limited to Sony Transcom, Hughes Avicom, BE Aerospace, Matsushita and
TNCI) have substantially greater financial, management, technical and other
resources than the Company and who offer products, systems or services similar
to the Entertainment Network. There can be no assurance that the Company will
compete effectively with such other companies, or that other companies will
not develop products which are superior to the Company's or which achieve
greater market penetration.
Rapid Technological Change; Need to Introduce New Programming Software. The
markets for in-flight entertainment systems and interactive products are
characterized by rapid technological developments and changes in customer
preferences and requirements. As a result, the Company's success is dependent
upon its ability to update on a regular basis and enhance the Entertainment
Network and to develop or acquire and introduce in a timely manner new
entertainment options and programming software for incorporation in the
Entertainment Network. There can be no assurance that the Company will be
successful in developing or licensing and marketing enhancements of the
Entertainment Network on a timely basis, or at all, that any enhancements will
adequately address changing airline or passenger preferences and demands or
gain the acceptance of the Company's customers or that the cost of licensing
programming software from third parties or developing its own software will
not become prohibitive. If the Entertainment Network does not incorporate
newer technologies and programming software, the Company's business and
operating results may be adversely affected.
Dependence on Programming Software and Product Distributors. The Company
will be required to obtain rights from vendors of programming software to
include such programming software on the Entertainment Network. The Company
has arrangements with certain movie distributors pursuant to which the Company
chooses from lists of available movies from each distributor and compiles the
lists for presentation to the airlines. In addition, in order to provide
shopping channel services, the Company will be required to enter into
arrangements with distributors capable of providing delivery of products
throughout international markets. There can be no assurance that the Company
will be able to negotiate any such agreements or that such agreements will be
on terms favorable to the Company.
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Dependence on Third Party Suppliers and Contractors. The Company assembles
the hardware constituting its Entertainment Network from components purchased
from third party suppliers, and its dependence on such suppliers will reduce
its control over the manufacturing process. In addition, the Company currently
uses single suppliers for certain of the hardware comprising the Entertainment
Network. Although the Company believes that other sources of supply are
available, delays or increased costs associated with locating and procuring
such supplies could have a material adverse effect on the Company.
Further, because the Company lacks the FAA authorization to perform these
functions, the Company must contract with third parties to obtain FAA
certifications of the Entertainment Network on each proposed type of host
aircraft, and to install the Entertainment Networks on customers aircraft. The
Company has contracted with Elsinore Aerospace Services ("Elsinore"), an FAA-
designated engineering representative experienced in flight entertainment
systems, to assist the Company in the application and approval process in
connection with the Debonair systems. Similarly, the Company has contracted
with Hollingsead International to assist with such process in connection with
the Swissair systems and to perform the installation of the Entertainment
Networks on Swissair aircraft. Any breach or delay in performance by either of
these contractors could have a material adverse effect on the Company's
results of operations and its relationships with its airline customers.
Dependence on Key Personnel. The Company's success depends upon the
continued contributions of its executive officers, most of whom are also
principal stockholders of the Company. Because of a medical disability, Steven
M. Fieldman, the Company's Vice President--Business Development, devotes
approximately 20 hours per week to business activities, all of which relate to
the affairs of the Company. The Company does not have key man insurance on Mr.
Fieldman. The Company has obtained key man insurance on the life of Michail
Itkis, the Company's Chief Executive Officer. The loss of services of, or a
material reduction in the amount of time devoted to, the Company by its
executive officers could adversely affect the business of the Company.
Control by Existing Stockholders; Potential Anti-takeover Provisions. The
Company's executive officers and/or directors (together with their relatives)
control approximately 65% of the total voting power of the Company, reflecting
the multiple votes afforded to the Class B Common Stock. As a result, such
stockholders are able to elect all of the Company's directors and otherwise
control the Company's operations. The Company and each of its principal
stockholders have entered into a stockholders' agreement (the "Stockholders'
Agreement") which grants to such stockholders certain rights with respect to
the sale of shares by the other stockholders and the Company and other matters
affecting corporate governance, including an agreement by such stockholders to
vote for the current members of the Board of Directors of the Company or
nominees of such stockholders. The existence of such rights will solidify the
control over the Company by its executive officers and directors. The
Company's Board of Directors is also authorized to issue from time to time,
without stockholder authorization, shares of preferred stock, in one or more
designated series or classes. The Company is also subject to a Delaware
statute regulating business combinations. Any of these provisions could
discourage, hinder or preclude an unsolicited acquisition of the Company and
could make it less likely that stockholders would receive a premium for their
shares as a result of any such attempt.
Charge to Earnings in the Event of Release of Escrow Shares. Currently,
3,200,000 shares of Class B Common Stock owned by officers, directors and
principal stockholders of the Company are held in escrow (the "Escrow
Shares"), and such shares will be released from escrow if the Company attains
certain earnings levels over the next two years or if the Class A Common Stock
trades at certain levels over the next year. In addition, in accordance with
the terms of the governing escrow agreement, Blair has consented to the
modification of the terms of such release of the Escrow Shares, subject to
obtaining the approval therefor from the holders of a majority of the
Company's Class A Common Stock (other than holders of Escrow Shares). The
position of the Securities and Exchange Commission (the "Commission") with
respect to such escrow arrangements provides that in the event any shares are
released from escrow to the stockholders of the Company who are officers,
directors, employees or consultants of the Company, a compensation expense to
the Company will be recorded for financial reporting purposes. Accordingly,
the Company will, in the event of the release of the Escrow Shares, recognize
during the period in which the earnings thresholds are met or such stock
levels achieved, a substantial
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noncash charge to earnings equal to the fair value of such shares on the date
of their release, which would have the effect of significantly increasing the
Company's loss or reducing or eliminating earnings, if any, at such time. The
recognition of such compensation expense may have a depressive effect on the
market price of the Company's securities. Notwithstanding the foregoing
discussion, there can be no assurance that the Escrow Shares will be released
from escrow.
Outstanding Warrants and Options. The Company has outstanding (i) 10,590,196
Class B Warrants (including the Selling Securityholder Warrants) to purchase
10,590,209 shares of Class A Common Stock; (ii) 165,000 Class C Warrants held
by the Selling Securityholders, each of which entitles the holder to purchase
one share of Class A Common Stock for an exercise price of $11.00; (iii)
165,000 Class D Warrants held by the Selling Securityholders, each of which
entitles the holder to purchase one share of Class A Common Stock for an
exercise price of $14.00 and (iv) unit purchase options granted to Blair and
its affiliates in connection with the Company's initial public offering (the
"Unit Purchase Options") to purchase an aggregate of 1,120,000 shares of Class
A Common Stock, assuming exercise of the underlying Warrants. In addition, as
of October 17, 1996, the Company had 2,345,000 shares of Class A Common Stock
reserved for issuance upon exercise of options granted under the Company's
Stock Option Plan, and 1,472,700 options were then outstanding under the Stock
Option Plan. Holders of such warrants and options are likely to exercise them
when, in all likelihood, the Company could obtain additional capital on terms
more favorable than those provided by warrants and options. Further, while
these warrants and options are outstanding, the Company's ability to obtain
additional financing on favorable terms may be adversely affected.
Potential Adverse Effect of Redemption of Class B Warrants. The Class B
Warrants are subject to redemption by the Company at a redemption price of
$.05 per Warrant upon not less than 30 days' prior written notice if the
closing bid price of the Class A Common Stock shall have averaged in excess of
$13.65 per share for 30 consecutive trading days ending within 5 days of the
notice. Redemption of the Class B Warrants could force the holders to exercise
the Class B Warrants and pay the exercise price therefor at a time when it may
be disadvantageous for the holders to do so, to sell the Class B Warrants at
the then current market price when they might otherwise wish to hold the Class
B Warrants, or to accept the redemption price which, at the time the Class B
Warrants are called for redemption, is likely to be substantially less than
the market value of the Class B Warrants.
Current Prospectus and State Registration to Exercise Class B
Warrants. Holders of Class B Warrants will only be able to exercise the Class
B Warrants if (i) a current prospectus under the Securities Act relating to
the securities underlying the Class B Warrants is then in effect, and (ii)
such securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
Class B Warrants reside. With respect to the Selling Securityholder Warrants,
this Prospectus is the prospectus required to be in effect. Although the
Company has undertaken and intends to use its best efforts to maintain a
current prospectus covering the securities underlying the Class B Warrants to
the extent required by Federal securities laws, there can be no assurance that
the Company will be able to do so. The value of the Class B Warrants may be
greatly reduced if a prospectus covering the securities issuable upon the
exercise of the Class B Warrants is not kept current or if the securities are
not qualified, or exempt from qualification, in the states in which the
holders of Class B Warrants reside. If and when the Class B Warrants become
redeemable by the terms thereof, the Company may exercise its redemption right
even if it is unable to qualify the underlying securities for sale under all
applicable state securities laws. Holders of Class B Warrants called for
redemption residing in states where the underlying securities have not been
qualified for sale would generally still be able to sell their Class B
Warrants at the then market price thereof.
Possible Delisting of Securities from the Nasdaq Stock Market. While the
Company's Class A Common Stock and Class B Warrants are listed on the Nasdaq
SmallCap Market, there can be no assurance that the Company will meet the
criteria for continued listing. Continued inclusion on Nasdaq generally
requires that (i) the Company maintain at least $2,000,000 in total assets and
$1,000,000 in capital and surplus, (ii) the minimum bid price of the Class A
Common Stock be $1.00 per share, (iii) there be at least 100,000 shares in the
public float valued at $1,000,000 or more, (iv) the Class A Common Stock have
at least two active market makers, and (v) the Class A Common Stock be held by
at least 300 holders.
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If the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Class A Common Stock and Class B Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and the news media's coverage of the Company
and lower prices for the Company's securities than might otherwise be
attained.
Possible Adverse Effect on Liquidity of the Company's Securities Due to the
Investigation of D.H. Blair Investment Banking Corp. and D.H. Blair & Co.,
Inc. by the Securities and Exchange Commission. The Commission is conducting
an investigation concerning various business activities of Blair and D.H.
Blair & Co., Inc. ("Blair & Co."), the dominant market maker in the Company's
securities. The investigation appears to be broad in scope, involving numerous
aspects of Blair's and Blair & Co.'s compliance with the Federal securities
laws and compliance with the Federal securities laws by issuers whose
securities were underwritten by Blair or Blair & Co., or in which Blair or
Blair & Co. make over-the-counter markets, persons associated with Blair or
Blair & Co., such issuers and other persons. The Company has been advised by
Blair that the investigation has been ongoing since at least 1989 and that it
is cooperating with the investigation. Blair cannot predict whether this
investigation will ever result in any type of formal enforcement action
against Blair or Blair & Co., or, if so, whether any such action might have an
adverse effect on Blair or the Company's securities. An unfavorable resolution
of the Commission's investigation could have the effect of limiting Blair &
Co.'s ability to continue to make a market in the Company's securities, which
could affect the liquidity or price of such securities.
Shares Eligible for Future Sale. Future sales of Class A Common Stock by
existing stockholders pursuant to Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), or pursuant to a separate prospectus
included a registration statement filed by the Company or otherwise, could
have an adverse effect on the price of the Company's securities. In addition
to the registration statement of which this Prospectus forms a part, the
Company has filed a registration statement under the Securities Act for the
benefit of certain other security holders and which currently covers the
resale of 1,550,000 Class B Warrants and up to 3,100,000 shares of Class A
Common Stock (including those shares purchasable upon exercise of the such
1,550,000 Class B Warrants). In addition, the Company has registered for
resale 2,345,000 shares of Class A Common Stock issuable upon exercise of
options granted or to be granted under the Company's Stock Option Plan. As of
October 17, 1996, 1,472,700 options were outstanding under the Stock Option
Plan. Further, all of the shares of Class A Common Stock issuable upon
conversion of the 3,960,000 shares of Class B Common Stock are eligible for
resale under Rule 144, subject to volume and manner of sale limitations. Blair
has demand and "piggy-back" registration rights covering the securities
underlying the Unit Purchase Option, and the holders of Class C and Class D
Warrants have "piggy-back" registration rights covering the shares underlying
such warrants. Sales of Class A Common Stock, or the possibility of such
sales, in the public market in any of the foregoing manners may adversely
affect the market price of the securities offered hereby.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of the Selling Securityholder Securities offered
hereby; however, to the extent that the Selling Securityholder Warrants are
exercised, the Company will receive proceeds equal to the exercise price
thereof multiplied by the number of warrants exercised. If all of the Selling
Securityholder Warrants are exercised, the Company would receive gross
proceeds of $2,681,250, less payment of the Blair Commission. The Company
presently intends to use such proceeds for working capital and general
corporate purposes.
13
<PAGE>
DILUTION
The net tangible book value of the Company as of July 31, 1996 was
$27,201,088 million or $2.27 per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities of the
Company, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 275,000 shares of Common Stock offered hereby
(and after deduction of estimated commissions and offering expenses), the pro
forma net tangible book value of the Company at July 31, 1996 would have been
$29,703,238 million, or $2.42 per share. This represents an immediate increase
in such net tangible net book value of $0.15 per share to existing
stockholders and an immediate dilution of $7.33 per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price........................................ $9.75
Net tangible book value before this offering................ $2.27
Increase attributable to new investors...................... .15
-----
Pro forma net tangible book value after this offering......... $2.42
-----
Dilution of net tangible book value to new investors.......... $7.33
=====
</TABLE>
The foregoing excludes 1,472,000 shares that are issuable upon the exercise
of outstanding employee options under the Company's Stock Option Plan as of
October 17, 1996. To the extent that these and other options, stock awards or
warrants that may be issued are exercised in the future, there will be further
dilution to new investors.
The following table summarizes, on a pro forma basis as of August 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Class A Common Stock purchased from the Company,
the total consideration paid to the Company, and the average consideration
paid per share (before deduction of underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 8,074,329 96.7% $44,129,000 94.3% $5.47
New investors................ 275,000 3.3 2,681,250 5.7 $9.75
--------- ----- ----------- -----
Total...................... 8,349,329 100.0% $46,810,250 100.0%
========= ===== =========== =====
</TABLE>
14
<PAGE>
SELLING SECURITYHOLDERS
The Selling Securityholders are Banner Aerospace, Inc. ("Banner"), a
Delaware corporation, and Leonard Toboroff ("Toboroff"). Banner and Toboroff
received their respective Class B Warrants in exchange for certain services
rendered to the Company in connection with the Company's proposals to
Swissair, leading up to the execution of the Swissair Agreement.
The following table sets forth the number of Class B Warrants and underlying
shares of Class A Common Stock beneficially owned by each of the Selling
Securityholders and included herein. Because the Selling Securityholders may
offer all or some of the Selling Securityholder Securities which they own
pursuant to the offering contemplated by this Prospectus, and because there
are currently no agreements, arrangements or understandings with respect to
the sale of any of the Securityholder Securities, no estimate can be given as
to the amount of Selling Securityholder Securities that will be held by the
Selling Securityholders after completion of this offering. The Selling
Securityholder Securities offered by this Prospectus may be offered from time
to time by the Selling Securityholders named below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A
NUMBER OF COMMON STOCK
CLASS B WARRANTS BENEFICIALLY
BENEFICIALLY HELD HELD AND MAXIMUM
AND MAXIMUM AMOUNT TO BE
NAMES OF SELLING SECURITYHOLDERS AMOUNT TO BE SOLD SOLD(1)
-------------------------------- ----------------- -----------------
<S> <C> <C>
Banner Aerospace, Inc.................. 187,500 187,500
Leonard Toboroff....................... 87,500 87,500
</TABLE>
- --------
(1) Represents shares to be issued upon exercise of the Selling Securityholder
Warrants.
PLAN OF DISTRIBUTION
The sale of all or a portion of the Selling Securityholder Securities
offered hereby by the Selling Securityholders may be effected from time to
time on Nasdaq at prevailing prices at the time of such sales, at prices
related to such prevailing prices or at negotiated prices. The Selling
Securityholders may sell all or a portion of the Selling Securityholder
Securities in private transactions or in the over-the-counter market at prices
related to the prevailing prices of the Selling Securityholder Securities on
Nasdaq at the time of the sale. The Selling Securityholders may effect such
transactions by selling to or through one or more broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Securityholders. For example, the
Selling Securityholder Securities may be sold by one or more of the following
without limitation: (a) a block trade in which the broker or dealer so engaged
will attempt to sell the Selling Securityholder Securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face to face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Securityholders may arrange for other brokers or dealers to
participate in the resales.
The Selling Securityholders and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of shares by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
To the extent required under the Securities Act, a supplemental prospectus
will be filed disclosing (a) the name of any such broker-dealers, (b) the
number of Selling Securityholder Securities involved, (c) the price at which
such Selling Securityholder Securities are to
15
<PAGE>
be sold, (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by
reference in this prospectus, as supplemented, and (f) other facts material to
the transaction.
The Company and the Selling Securityholders may agree to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act. In addition, the Company has agreed to indemnify the Selling
Securityholders and any underwriter with respect to the Selling Securityholder
Securities against certain liabilities, including, without limitation, certain
liabilities under the Securities Act, or, if such indemnity is unavailable, to
contribute toward amounts required to be paid in respect of such liabilities.
The Company has agreed to pay certain costs and expenses incurred in
connection with the registration of the Selling Securityholder Securities,
except that the Selling Securityholders shall be responsible for all selling
commissions, transfer taxes and related charges in connection with the offer
and sale of such Selling Securityholder Securities.
There is no assurance that any of the Selling Securityholders will sell any
or all of the Selling Securityholder Securities. The Company has agreed to
keep the registration statement relating to the offering and sale by the
Selling Securityholders of the Selling Securityholder Securities continuously
effective for a period of two (2) years from the date of this Prospectus.
BLAIR COMMISSION
Pursuant to the Warrant Agreement, the Company has agreed not to solicit
Warrant exercises other than through Blair, unless Blair declines to make such
solicitation. Blair has agreed to assist the Company in effecting the Exercise
Offer. Upon any exercise of the Warrants, the Company will pay Blair a fee of
5% of the aggregate Warrant exercise price (the "Blair Commission"), if (i)
the market price of the Company's Class A Common Stock on the date the
Warrants are exercised is greater than the then exercise price of the
Warrants; (ii) the exercise of the Warrants was solicited by a member of the
NASD as designated in writing on the Warrant Certificate subscription form;
(iii) the Warrants are not held in a discretionary account; (iv) disclosure of
compensation arrangements was made both at the time of the offering and at the
time of exercise of the Warrants; and (v) the solicitation of exercise of the
Warrant was not in violation of Rule 10b-6 promulgated under the Exchange Act.
As of October 1, 1996, there were seven market makers in the Company's
securities. Rule 10b-6 may prohibit Blair from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by Blair of the exercise of Class A Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that Blair may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, Blair may
be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable.
CONCURRENT OFFERINGS
Pursuant to the registration statement of which this Prospectus forms a
part, the Company has registered (i) up to 10,590,196 shares of Class A Common
Stock of the Company, which are issuable upon exercise of the Company's
outstanding Class B Warrants pursuant to the Company's Exercise Offer in which
it has reduced the exercise price of the Class B Warrants to $7.50 until
, 1996, (ii) the resale of 1,550,000 Class B Warrants held by certain
other selling securityholders and the 1,550,000 shares of Class A Common Stock
underlying such Class B Warrants. Sales of such securities, or the potential
of such sales, may have an adverse effect on the market price of the
securities offered hereby.
16
<PAGE>
DESCRIPTION OF CAPITAL STOCK AND WARRANTS
COMMON STOCK
Class A Common Stock. Holders of Class A Common Stock have the right to cast
one vote for each share held of record on all matters submitted to a vote of
holders of Class A Common Stock, including the election of directors. The
Class A and Class B Common Stock vote together as a single class on all
matters on which stockholders may vote, except when class voting is required
by applicable law.
Holders of Class A Common Stock are entitled to receive such dividends,
together with the holders of Class B Common Stock, pro rata based on the
number of shares held, when, as and if declared by the Board of Directors,
from funds legally available therefor, subject to the rights of holders of any
outstanding Preferred Stock. In the case of dividends or other distributions
payable in stock of the Company, including distributions pursuant to stock
splits or division of stock of the Company, only shares of Class A Common
Stock will be distributed. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities, subject to the
rights of the holders of any outstanding Preferred Stock, shall be
distributed, pro rata, among the holders of the Class A and Class B Common
Stock. Holders of Class A Common Stock are not entitled to preemptive,
subscription, cumulative voting or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Class A Common Stock.
All outstanding shares of Class A Common Stock are, and the shares of Class A
Common Stock offered hereby will be when issued, fully paid and non-
assessable.
Class B Common Stock. Immediately prior to the date hereof there were
3,960,000 shares of Class B Common Stock outstanding held by six stockholders
of record. Each share of Class B Common Stock is entitled to six votes on all
matters on which stockholders may vote, including the election of directors.
The Class A and Class B Common Stock vote together as a single class on all
matters on which stockholders may vote, except when class voting is required
by applicable law.
Holders of Class B Common Stock are entitled to participate together with
the holders of Class A Common Stock, pro rata based on the number of shares
held, in the payment of cash dividends and in the liquidation, dissolution and
winding up of the Company, subject to the rights of holders of any outstanding
Preferred Stock. In the case of dividends, or other distributions payable in
stock of the Company, including distributions pursuant to stock splits or
divisions of stock of the Company, only shares of Class A Common Stock shall
be distributed with respect to Class B Common Stock.
Shares of Class B Common Stock are automatically convertible into an
equivalent number of fully paid and non-assessable shares of Class A Common
Stock upon the sale or transfer of such shares by the original record holder
thereof except to another holder of Class B Common Stock. Each share of Class
B Common Stock also is convertible at any time upon the option of the holder
into one share of Class A Common Stock. There are no preemptive, subscription,
redemption, conversion or cumulative voting rights applicable to the Class B
Common Stock except under the Stockholders' Agreement.
REDEEMABLE CLASS B WARRANTS
Each Class B Warrant entitles the registered holder to purchase one share of
Class A Common Stock at an exercise price of $9.75 at any time after issuance
until 5:00 P.M., New York City Time, on March 6, 2000. However, concurrently
herewith, the Company has made the Exercise Offer to the holders of the
Company's outstanding Class B Warrants to reduce the exercise price of the
outstanding Class B Warrants to $7.50 per share to the extent that a holder
exercises his or her Class B Warrants prior to 5:00 P.M., New York City time,
on , 1996, unless such date is extended by the Company. Following such
date through January 17, 1997, a holder will continue to have the right to
exercise his or her Class B Warrants (in accordance with the terms thereof) at
the re-set exercise price of $9.75 per share. In addition, the Class B
Warrants are subject to redemption by the Company upon 30 days' written notice
at a redemption price of $.05 per Class B Warrant, if the closing
17
<PAGE>
price of the Company's Class A Common Stock for any 30 consecutive trading days
ending within 5 days of the notice of redemption averages in excess of $13.65
per share. This condition has been met, and by notice dated [ ], 1996, the
Company has exercised its right pursuant to the terms of the Warrants to redeem
on January 20, 1997 each Class B Warrant not exercised by January 17, 1997, at
5:00 P.M. New York City time.
The Class B Warrants are issued pursuant to the Warrant Agreement among the
Company, Blair and American Stock Transfer & Trust Company, New York, New York,
as Warrant Agent, and are evidenced by warrant certificates in registered form.
The Class B Warrants provide for adjustment of the exercise price and for a
change in the number of shares issuable upon exercise to protect holders
against dilution in the event of a stock dividend, stock split, combination or
reclassification of the Class A Common Stock or upon issuance of shares of
Class A Common Stock at prices lower than the market price of the Class A
Common Stock, with certain exceptions.
The exercise price of the Class B Warrants was determined by negotiation
between the Company and the Underwriter in the Company's initial public
offering and should not be construed to be predictive of or to imply that any
price increases in the Company's securities will occur.
A Class B Warrant may be exercised upon surrender of the Class B Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of American Stock Transfer & Trust Company, New York, New York, the
Warrant Agent, with the form of "Election to Purchase" on the reverse side of
the Class B Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Class B Warrant is being exercised. Shares issued upon exercise of
Class B Warrants and payment in accordance with the terms of the Class B
Warrants will be fully paid and non-assessable.
The Class B Warrants do not confer upon the Class B Warrantholder any voting
or other rights of a stockholder of the Company. Upon notice to the Class B
Warrantholders, the Company has the right to reduce the exercise price or
extend the expiration date of the Class B Warrants.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by the law firm of Irell & Manella LLP, Los Angeles, California.
EXPERTS
The financial statements of Interactive Flight Technologies, Inc., as of
October 31, 1995 and for the year then ended, and the cumulative statements of
operations, stockholders' equity (deficiency), and cash flows for the period
February 1, 1994 (inception) through October 31, 1995, have been incorporated
by reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP and Richard A. Eisner & Company LLP,
independent certified public accountants incorporated by reference herein
(insofar as such report of Richard A. Eisner & Company LLP relates to the
amounts included for the period from February 1, 1994 (inception) to October
31, 1994), and upon the authority of said firms as experts in accounting and
auditing.
The balance sheet of the Company at October 31, 1994 and the related
statements of operations, stockholders' equity (deficiency) and cash flows for
the period from inception (February 1, 1994) through October 31, 1994
incorporated herein by reference have been audited by, and are incorporated
herein by reference in reliance upon the report of, Richard A. Eisner & Company
LLP, independent certified public accountants, given on the authority of that
firm as experts in accounting and auditing.
18
<PAGE>
Effective May 10, 1995, the Company changed its independent accountants from
Richard A. Eisner & Company LLP ("Eisner") to KPMG Peat Marwick LLP ("Peat
Marwick"). Prior to the retention of Peat Marwick, neither the Company, nor
any person on its behalf, consulted with Peat Marwick regarding the
application of accounting principles to any transaction or the types of audit
opinion that might be rendered on the Company's financial statements. The
decision to change accountants was recommended by the Board of Directors of
the Company. There were no disagreements with Eisner on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures, which disagreements, if not resolved to their
satisfaction, would have caused them to make reference in connection with
their opinion to the subject matter of the disagreement.
19
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER , 1996
ALTERNATE OFFERING
#2 PAGES
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
EXERCISE OFFER/PROSPECTUS
OFFER TO REDUCE THE EXERCISE PRICE OF CLASS B WARRANTS TO $7.50
TO HOLDERS OF THE COMPANY'S 10,590,196 CLASS B WARRANTS
FOR EXERCISES BEFORE , 1996
ISSUANCE OF UP TO 10,590,196 SHARES OF CLASS A COMMON STOCK
UNDERLYING OUTSTANDING REDEEMABLE CLASS B WARRANTS
Interactive Flight Technologies, Inc. (the "Company"), hereby offers (the
"Exercise Offer"), to the holders (the "Holders") of the Company's outstanding
Class B Redeemable Stock Purchase Warrants (the "Class B Warrants" or
"Warrants") who exercise their Class B Warrants pursuant to the Exercise Offer,
to reduce the exercise price of the outstanding Class B Warrants to $7.50 per
share (from $9.75 per share) for each Class B Warrant so exercised, in each
case if and only if a Holder exercises his or her Class B Warrants prior to
5:00 P.M., New York City time, on , 1996, unless such date is extended
by the Company as described herein (such date, or such date as so extended,
being referred to as the "Expiration Date"). Following the Expiration Date and
until the Redemption Date described below, a Holder will continue to have the
right to exercise his or her Class B Warrants (in accordance with the terms
thereof) at the re-set exercise price of $9.75 per share. However, by notice
dated , 1996, the Company has exercised its right pursuant to the terms
of the Warrants to redeem (the "Warrant Redemption") on January 20, 1997 (the
"Redemption Date"), each Class B Warrant not exercised by January 17, 1997, at
5:00 P.M., New York City time. ACCORDINGLY, ALL CLASS B WARRANTS NOT EXERCISED
PRIOR TO 5:00 P.M. NEW YORK TIME ON JANUARY 17, 1997, WILL CEASE TO BE
EXERCISABLE AND WILL REPRESENT ONLY THE RIGHT TO RECEIVE, ON OR AFTER THE
REDEMPTION DATE, $.05 PER WARRANT UPON SURRENDER THEREOF.
THE EXERCISE OFFER WILL EXPIRE ON [ ],
1996, AT 5:00 P.M., NEW YORK CITY TIME, UNLESS
EXTENDED. WITHDRAWAL RIGHTS WILL ALSO EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON [ ],
1996. FURTHER, ANY CLASS B WARRANTS NOT EXERCISED
BY JANUARY 17, 1997, AT 5:00 P.M. NEW YORK CITY
TIME, WILL CEASE TO BE EXERCISABLE AND WILL
THEREAFTER BE REDEEMED ON JANUARY 20, 1997 FOR
$.05 PER WARRANT.
This Exercise Offer/Prospectus also relates to the issuance of up to
10,590,196 shares of the Company's Class A Common Stock, $.01 par value ("Class
A Common Stock"), issuable upon exercise of the outstanding Class B Warrants
during and following the Exercise Offer, except that this Exercise
Offer/Prospectus does not relate to the issuance of such shares following the
Exercise Offer to Holders who acquired their Class B Warrants in a transaction
or chain of transactions not involving any public offering.
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" ON PAGE 8.
-----------
The Class A Common Stock and the Company's Class B Common Stock, $.01 par
value (the "Class B Common Stock"), are essentially identical in all respects,
except that the Class B Common Stock has six votes per share and the Class A
Common Stock has one vote per share. The Class B Common Stock is convertible
into Class A Common stock on a share-for-share basis. The holders of the Class
B Common Stock, all of whom are executive officers, directors and/or principal
stockholders of the Company, control approximately 65% of the total voting
power of the Company and are therefore able to elect all of the Company's
directors and to control the Company.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS EXERCISE OFFER/ PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Exercise Offer/Prospectus is , 1996
<PAGE>
On March 14, 1995, the Company completed an initial public offering (the
"IPO") of 3,220,000 Units (the "Units"), each Unit consisting of one share of
Class A Common Stock, one redeemable class A warrant (each, a "Class A
Warrant") and one Class B Warrant. Each Class A Warrant entitles the holder to
purchase one share of Class A Common Stock and one Class B Warrant for an
exercise price of $7.00. The components of the Units were transferrable
separately upon issuance. On May 17, 1996, the Company completed an Exercise
Offer pursuant to which the Company offered holders of its redeemable Class A
Warrants who exercised their Class A Warrants (i) to issue an extra 1/2 of a
Class B Warrant for each Class A Warrant exercised by such holder on or prior
to May 17, 1996 (in addition to the one share of Class A Common Stock and one
Class B Warrant issuable upon exercise of the Class A Warrants pursuant to the
terms of the Class A Warrants), and (ii) to reduce the exercise price of the
Class A Warrants to $5.75 per share (from $7.00 per share) with respect to any
such exercise. On July 26, 1996, pursuant to the terms of the Class A
Warrants, the Company redeemed its remaining Class A Warrants for $.05 per
Class A Warrant.
The Class A Common Stock and the Class B Warrants are traded on the Nasdaq
SmallCap Market ("Nasdaq"). On October , 1996, the closing sale price of
the Class A Common Stock on Nasdaq was $ per share, and the closing
sale price of the Class B Warrants on Nasdaq was $ .
IMPORTANT
Any Holder desiring to exercise all or any portion of his or her Class B
Warrants should either (1) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, mail or deliver it together with a certified or bank check
payable to "Interactive Flight Technologies, Inc." in the amount of $7.50 per
share exercised in the Exercise Offer and any other required documents to
American Stock Transfer & Trust Company (the "Warrant Agent") and either mail
or deliver the Holder's Class B Warrant certificate(s) to the Warrant Agent or
follow the procedure for book-entry exercise set forth under the caption "The
Exercise Offer--Procedures for Exercising Class B Warrants--Book Entry
Exercise," or (2) request the Holder's broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for him or her. A Holder
having Class B Warrants registered in the name of a broker, dealer, commercial
bank, trust company or other nominee must contact that broker, dealer,
commercial bank, trust company or other nominee if such Holder desires to
exercise such Class B Warrants. Holders who desire to exercise Class B
Warrants and whose certificates for such Class B Warrants are not immediately
available should exercise such Class B Warrants by following the procedures
for guaranteed delivery set forth under the caption "The Exercise Offer--
Procedures for Exercising Class B Warrants--Guaranteed Delivery."
----------------
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING OF
THE EXERCISE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS
IS MAKING ANY RECOMMENDATION TO ANY HOLDER AS TO WHETHER TO EXERCISE CLASS
B WARRANTS PURSUANT TO THE EXERCISE OFFER. EACH HOLDER SHOULD MAKE HIS OR
HER OWN DECISION, AFTER READING THIS EXERCISE OFFER/PROSPECTUS, AS TO
WHETHER TO EXERCISE CLASS B WARRANTS AND, IF SO, HOW MANY CLASS B
WARRANTS TO EXERCISE. THE COMPANY HAS BEEN ADVISED THAT CERTAIN OF ITS
EXECUTIVE OFFICERS OR DIRECTORS INTEND TO EXERCISE THEIR CLASS B
WARRANTS PURSUANT TO THE EXERCISE OFFER.
----------------
Questions and requests for assistance or for additional copies of this
Exercise Offer/Prospectus, the Letter of Transmittal or the Notice of
Guaranteed Delivery may be directed to the Warrant Agent at its address and
telephone number set forth in "The Exercise Offer and Warrant Redemption--
Warrant Agent."
Alt 2-2
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") with the Commission are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-
KSB for the fiscal year ended October 31, 1995, and Amendment No. 1 to the
Annual Report on Form 10-KSB/A for the fiscal year ended October 31, 1995
(including, but not limited to, the Financial Statements and notes thereto
commencing on page F-1 thereof); (2) the Company's Quarterly Reports on Form
10-QSB dated January 31, 1996, April 30, 1996, and July 31, 1996 (including,
but not limited to, the Financial Statements and notes thereto commencing on
page 3 of each such Quarterly Report); and (3) the description of the
Company's Common Stock as set forth in the Company's registration statement on
Form 8-A filed with the Commission on December 31, 1994, as amended by the
Company's registration statement on Form 8-A/A filed with the Commission on
March 8, 1995, and any other amendments or reports thereto filed with the
Commission for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Exercise Offer/Prospectus and
prior to the termination of the offering of the shares of Common Stock made
hereby shall be deemed to be incorporated in this Exercise Offer/Prospectus by
reference and to be a part hereof from the date of filing of such documents.
Any statement incorporated herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Exercise
Offer/Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Exercise Offer/Prospectus has been delivered, on the request of such
person, a copy of any and all of the information that has been or may be
incorporated by reference in this Exercise Offer/Prospectus, other than
exhibits thereto. Written or oral requests for such copies should be directed
to Interactive Flight Technologies, Inc., 4041 N. Central Avenue, Suite 2000,
Phoenix, Arizona 85012, Attention: Chief Financial Officer. The telephone
number is (602) 200-8900.
Alt 2-3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) incorporated by reference
into this Exercise Offer/Prospectus.
THE COMPANY
Interactive Flight Technologies, Inc. (the "Company") is engaged in the
development, assembly, installation and operation of a computer-based in-
flight entertainment network (the "Entertainment Network"). The first
generation of the Entertainment Network provided aircraft passengers the
opportunity to view movies, to play computer games and, in certain cases where
permitted by applicable law, to gamble through a high-resolution video touch
screen. The Company has also recently developed a second generation of the
Entertainment Network (the "IFEN-2") which includes additional features such
as secure casino gaming, in-flight shopping, a telephone interface system, the
ability for passengers to pay for IFEN-2 usage through their credit cards, and
increased video-on-demand capacity.
To date, the Company has entered into contracts to install and operate the
Entertainment Network on the aircraft of three airlines--Alitalia Airlines
S.p.A. ("Alitalia"), Debonair Airlines ("Debonair"), and Swissair VKB
("Swissair"). Under the Company's agreement with Alitalia (the "Alitalia
Agreement"), the first generation of the Entertainment Network system was
installed in November 1995 in the first class and business class seats of an
Alitalia MD-11 aircraft. Following completion of the test period of this first
installed Entertainment Network system, Alitalia accepted the remainder of the
Alitalia Agreement and the Company accordingly delivered first generation
Entertainment Network systems for installation on an additional four Alitalia
MD-11 aircraft. The agreement provides for the Company to operate the
Entertainment Networks on all five aircraft over a period of approximately
eight years. The Alitalia Agreement does not presently provide for, and is not
expected to provide for, passenger use of gambling features of the
Entertainment Network. Under the Alitalia Agreement, Alitalia is to pay an
aggregate of approximately $2.7 million for the hardware components of the
five Entertainment Network systems, of which $1.1 million has been paid to
date and $1.6 million is currently due and payable.
In March 1996, the Company entered into a second airline contract (the
"Debonair Agreement") with Debonair, a start-up European airline. The Debonair
Agreement provides for the Company to deliver and install IFEN-2 systems
(including video casino style gambling) for all seats on Debonair's entire
fleet, which consists of six RJ-146 aircraft. The aggregate purchase price to
be paid by Debonair for the hardware components of the six IFEN-2 systems and
related spare parts is approximately $5.8 million. However, the Debonair
Agreement provides that, provided Debonair utilizes the casino gaming feature
of the Entertainment Networks, Debonair is not required to pay any up-front
funds to the Company for the six Entertainment Networks. Instead, payments to
the Company will be made solely through a revenue-sharing arrangement, which
provides that the Company will receive a percentage of revenues generated by
the Entertainment Networks, principally casino gaming revenues, until the
aggregate purchase price plus accrued interest for all six Entertainment
Networks is paid, and thereafter the Company will receive a reduced percentage
of such revenues. The Debonair Agreement further provides that if the use of
the casino gaming features of the IFEN-2 systems is ordered by law to cease,
then no further payments of purchase price for each installed system shall be
due.
Effective July 18, 1996, the Company entered into an agreement with Swissair
to provide for delivery and installation by the Company of IFEN-2 systems on
sixteen Swissair MD-11 aircraft and five Swissair B-747 aircraft. The Company
will also provide various maintenance and operational services for the
installed IFEN-2 systems. Subject to execution of an agreement with
Interkantonale Landeslotterie ("ILL"), the operator of the Swiss lottery based
in Zurich, Switzerland, the IFEN-2 systems installed on Swissair aircraft will
allow passengers to participate in various Swiss lottery games, but are not
expected to allow use of the traditional casino style gaming features such as
slots or poker. In the event that no agreement is reached with ILL, either
Swissair or the Company may terminate the Swissair Agreement.
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<PAGE>
Under the Swissair Agreement, subject to the terms thereof, the Company is
entitled to receive an aggregate of approximately $72 million for the IFEN-2
hardware, plus the costs of installation and certain upgrades. The Company
will also be reimbursed for its projected costs in connection with maintaining
and operating the systems. However, the hardware purchase price and the
operating expenses are payable only out of net revenues received from
passenger participation in the aforementioned lottery games. Further, the
Company may receive such amounts only after Swissair is first reimbursed from
the net lottery revenues for certain expenses incurred in connection with the
installation and operation of the IFEN-2 systems. Any amounts remaining after
payment of the Company's operating costs and the hardware purchase price will
be paid over to ILL. The Company will also receive a percentage of revenues
and commissions from advertising and shopping services available on the
installed IFEN-2 systems.
The Company is aggressively marketing the Entertainment Network to numerous
additional airlines, focusing primarily on international carriers or domestic
carriers with international routes. However, there can be no assurance that
definitive agreements will be executed with any other airlines. See "Risk
Factors."
On September 5, 1996, the Company signed a Letter of Intent to form a
strategic alliance (the "Alliance") with interests of the Pritzker family of
Chicago (the "Pritzker Interests"). The Letter of Intent contemplates that the
Pritzker Interests would use their marketing resources to enhance IFT's
relationship with international and domestic air carriers. In addition, the
Letter of Intent provides for the Pritzker Interests to help develop and
coordinate financing sources for IFT.
Subject to the satisfaction of certain conditions, the Pritzker Interests
would invest up to $20 million in a proposed joint venture in order to raise
one-third of the money required for a potential future airline project
currently under consideration (which amount would not be available to fund the
Company's currently existing airline obligations). The Pritzker Interests
would also have the option to invest in up to six similar ventures for future
airline projects. Under the Alliance, the Pritzker Interests would purchase up
to $1 million of IFT stock in the open market and would receive warrants to
purchase up to 10% of IFT (on a fully-diluted basis). These warrants would be
issued in specified increments as future airline contracts are executed by
IFT. Finally, the Alliance would provide for John Pritzker and one other
Pritzker nominee to join the Board of Directors of IFT, and for additional
Pritzker nominees if the size of the Board is increased.
Completion of the transaction and formation of the Alliance are subject to
customary conditions precedent, including the negotiation and execution of
definitive documentation. There can be no assurance that the parties will
agree upon and execute such definitive documents or that the Alliance, if
formed, will produce the desired results.
Since commencement of operations, the Company has developed a substantial
catalogue of proprietary technology and know-how relating to the Entertainment
Network and its related systems. In addition, the Company has an exclusive
license (the "FortuNet License") for technology for airline use from FortuNet,
Inc. ("FortuNet"), a gaming equipment manufacturer that distributes video
gaming networks to casinos and other gaming establishments. The Chief
Executive Officer of the Company, who is also a director and principal
stockholder of the Company, is a former employee of FortuNet and was a
substantial contributor to the development of the technology licensed from
FortuNet.
In July 1996, the Company relocated its principal executive offices and its
primary manufacturing and development facilities from Las Vegas, Nevada to
Phoenix, Arizona.
The purpose of the Exercise Offer is to raise additional capital by
encouraging Holders to exercise their Class B Warrants. In the absence of the
Exercise Offer, the Company anticipates that its current cash reserves,
together with funds to be received from its current contracts (described
above), will be sufficient to fund the Company's currently-budgeted operations
through December 1996. The Company will require significant additional
financing to continue its operations beyond such date. In the absence of the
Exercise Offer, the
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<PAGE>
Company will not have sufficient resources to deliver all the Entertainment
Networks to Debonair and Swissair as currently contemplated under the Debonair
Agreement and the Swissair Agreement and, therefore, the ability of the
Company to successfully perform under those contracts is dependent upon
raising capital through the Exercise Offer or otherwise.
The Exercise Offer represents, in the opinion of the Company, a critical
opportunity to raise the needed significant capital, particularly in light of
the fact that there is no assurance that the Company will be able to secure
significant capital through other sources. Assuming that 100%, 75% and 50% of
the Class B Warrants are exercised in the Exercise Offer, the Company will
receive net proceeds (after payment of a 5% solicitation fee and estimated
expenses of approximately $80,000) of approximately $75,375,147, $56,511,360
and $37,647,573, respectively. These proceeds, together with the revenues
assumed to be derived under the Company's contracts, would be expected to be
sufficient to fund the Company's operations through approximately October
1998, December 1997, and March 1997, respectively. However, the Company is
engaged in discussions with a number of airlines and, in the event that the
Company obtains commitments from one or more airlines for the purchase of
additional Entertainment Networks financed by the Company, the foregoing
estimates of the Company's liquidity are likely to be significantly shortened,
since the Company anticipates that such agreements will contain extended
payment terms similar to those of its current contracts. See "Risk Factors --
Need for Additional Financing; Potential Cash Shortages."
The Company was incorporated in Delaware in August 1994 and is the successor
by merger to In-Flight Entertainment Services Corp., a New York corporation
incorporated in February 1994. The Company completed an initial public
offering of its securities in March 1995. Unless the context requires or as
otherwise indicated, all references to the "Company" include the predecessor
company. The Company's principal executive offices are located at 4041 N.
Central Avenue, Suite 2000, Phoenix, Arizona 85012, and its telephone number
is (602) 200-8900.
SUMMARY OF THE OFFERING
<TABLE>
<C> <S>
Securities Offered............... 10,590,196 shares of Class A Common Stock underlying
outstanding Class B Warrants.
Expiration Date.................. , 1996, unless extended by the Company. The
"Expiration Date" is the original expiration date of
the Exercise Offer or as that date may be extended. See
"The Exercise Offer--Terms of the Exercise Offer."
Redemption Date.................. January 20, 1997
Class B Warrant Exercise Price:
During the Exercise Offer........ $7.50 per share.
After the Exercise Offer (but
prior to the Redemption Date)... $9.75 per share.
Redemption Price of Class B War-
rants Not Exercised Prior to Re-
demption Date................... $0.05 per Class B Warrant
Shares of Class A Common Stock
Outstanding:
Prior to the Exercise Offer...... 8,074,329 shares(1)
After the Exercise Offer......... 18,664,525 shares(1)(2)
Class B Warrants Outstanding:
Prior to the Exercise Offer...... 10,590,196 Class B Warrants
After the Exercise Offer......... (3)
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Closing Sale Price Prior to
Announcement of Exercise Offer
and Warrant Redemption
( , 1996)................. Class A Common Stock: $
Class B Warrants: $
Current Closing Sale Price
( , 1996)................ Class A Common Stock: $
Class B Warrants: $
Ownership of Class B Warrants.... Certain officers and directors of the Company own Class
B Warrants, and some of these individuals have advised
the Company that they intend to exercise their Class B
Warrants in the Exercise Offer.
Warrant Agent.................... American Stock Transfer and Trust Company, 40 Wall
Street, 46th Floor, New York, NY 10005, 1-800-937-5449
(Reorganization Department).
Method of Exercising............. In order to exercise Class B Warrants, Holders must
follow the procedures set forth under the caption "The
Exercise Offer--Procedures for Exercising Class B
Warrants."
Warrant Solicitation Fee......... Pursuant to the terms of the warrant agreement
governing the Class B Warrants, the Company will be
required to pay to D.H. Blair Investment Banking Corp.,
the underwriter of the Company's initial public
offering ("Blair"), a warrant solicitation fee equal to
5% of the gross proceeds received by the Company from
the exercise of Class B Warrants in the Exercise Offer.
See "Plan of Distribution."
Use of Proceeds.................. The net proceeds to the Company will be utilized to
implement the Company's plan of operation, including
performing under its current contracts; marketing the
Entertainment Network to additional airlines and
performing under any contracts executed with such
airlines; and continuing the development of the
Entertainment Network. See "Purpose of Exercise Offer
and Use of Proceeds."
Risk Factors..................... The securities offered hereby involve a high degree of
risk and should not be purchased by investors who
cannot afford the loss of their entire investment. See
"Risk Factors."
</TABLE>
- --------
(Footnotes from page 6)
(1) Excludes (i) 10,590,196 shares of Class A Common Stock issuable upon
exercise of the outstanding Class B Warrants; (ii) 165,000 shares of Class
A Common Stock issuable upon outstanding Class C Warrants; (iii) 165,000
shares of Class A Common Stock issuable upon outstanding Class D Warrants;
(iv) 1,120,000 shares of Class A Common Stock issuable upon exercise of
unit purchase options and the Class A and Class B Warrants contained
therein issued to Blair in the Company's initial public offering; and
(v) 2,345,000 shares of Class A Common Stock reserved for issuance under
the Company's Stock Option Plan, under which, as of the date of this
Exercise Offer/Prospectus, options to purchase 1,472,700 shares of Class A
Common Stock are outstanding. See "Concurrent Offerings" and "Description
of Securities."
(2) Assumes the issuance of 10,590,196 shares of Class A Common Stock, the
maximum number of shares issuable upon the exercise of the maximum number
of Class B Warrants exercisable under the terms of the Exercise Offer.
(3) If 100%, 75% and 50% of the Class B Warrants are exercised in the Exercise
Offer, 0, 2,647,549 and 5,295,098 Class B Warrants, respectively, would
remain outstanding after the Exercise Offer. However, any such remaining
Class B Warrants will be redeemed for $.05 on January 20, 1997, unless
exercised prior thereto.
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<PAGE>
THE EXERCISE OFFER AND WARRANT REDEMPTION
THE CLASS B WARRANTS
The Class B Warrants are subject to a Warrant Agreement (the "Warrant
Agreement") by and among the Company, Blair and American Stock Transfer and
Trust Company, as Warrant Agent. Pursuant to the terms of the Warrant Agreement,
the Class B Warrants are exercisable for one share of Class A Common Stock (the
"Underlying Stock") at an exercise price of $9.75, subject to adjustment, at any
time prior to the Redemption Date. See "Description of Securities--Redeemable
Class B Warrants."
THE COMPANY IS HEREBY OFFERING, TO HOLDERS WHO EXERCISE THEIR CLASS B
WARRANTS PURSUANT TO THE EXERCISE OFFER, TO REDUCE THE EXERCISE PRICE OF CLASS
B WARRANTS TO $7.50 PER SHARE (FROM $9.75 PER SHARE) FOR EACH CLASS B WARRANT
SO EXERCISED, IF AND ONLY IF A HOLDER EXERCISES HIS OR HER CLASS B WARRANTS
PRIOR TO THE EXPIRATION DATE (AS HEREINAFTER DEFINED).
IN ADDITION, BY NOTICE DATED , 1996, THE COMPANY HAS EXERCISED ITS
RIGHT TO REDEEM FOR $.05 ANY CLASS B WARRANT WHICH IS NOT EXERCISED PRIOR TO
JANUARY 17, 1997, AT 5:00 P.M. NEW YORK CITY TIME.
TERMS OF THE EXERCISE OFFER
Pursuant to the Exercise Offer, the Company has offered to reduce to $7.50
the Exercise Price of Class B Warrants to Holders of the Company's 10,590,196
Class B Warrants, for exercises before , 1996. The reduced per share
exercise price of $7.50 was selected by the Company, after consultation with
Blair, as the highest exercise price which would be expected to induce all or
a substantial portion of the Holders to exercise their Class B Warrants in the
Exercise Offer. However, there can be no assurance that the reduction in
exercise price will be sufficient to induce Holders to exercise their
Warrants.
Upon the terms and subject to the conditions of the Exercise Offer, the
Company will accept exercises for any and all Class B Warrants that are
validly exercised in accordance with the terms of the Exercise Offer prior to
the Expiration Date (as hereinafter defined) and not withdrawn in accordance
with the procedures set forth under the caption "--Withdrawal Rights." As used
in the Exercise Offer, the term "Expiration Date" means 5:00 p.m., New York
City time, on , 1996; provided, however, that if the Company, in its
sole discretion, has extended the period of time during which the Exercise
Offer will be open, the term "Expiration Date" means the latest time and date
on which the Exercise Offer, as so extended, will expire.
The Company reserves the right, in its sole discretion, at any time and from
time to time, to extend the period of time during which the Exercise Offer is
open by giving oral or written notice of such extension to the Warrant Agent.
There can be no assurance that the Company will exercise its right to extend
the Exercise Offer. If the Company decides, in its sole discretion, to
decrease the number of Class B Warrants exercisable in the Exercise Offer or
to increase or decrease the $7.50 exercise price applicable in the Exercise
Offer and, at the time that notice of such increase or decrease is first
published, sent or given to holders of Class B Warrants in the manner
specified below, the Exercise Offer is scheduled to expire at any time earlier
than the tenth business day from the date that such notice is first so
published, sent or given, the Exercise Offer will be extended until the
expiration of such period of ten business days.
The Company also expressly reserves the right to (i) delay the acceptance of
exercises of any Class B Warrants not theretofore accepted for exercise in
order to comply in whole or in part with applicable law, (ii) terminate the
Exercise Offer and not accept for exercise any Class B Warrants not
theretofore accepted for exercise upon the occurrence of any of the conditions
specified under the caption "--Certain Conditions of the Exercise Offer," and
(iii) amend the Exercise Offer in any respect at any time and from time to
time.
Any extension, delay, termination or amendment will be followed as promptly
as practicable by public announcement thereof, such announcement in the case
of an extension to be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. For
purposes of the
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<PAGE>
Exercise Offer, a "business day" means any day, other than a Saturday, Sunday
or Federal holiday, on which the principal office of the Commission in
Washington, D.C. is scheduled to be open for business and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time. Without
limiting the manner in which the Company may choose to make any public
announcement, except as provided by applicable law (including Rule 13e-4(e)(2)
under the Exchange Act), the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
The Company confirms that if it makes a material change in the terms of the
Exercise Offer or the information concerning the Exercise Offer, or if it
waives a material condition of the Exercise Offer, the Company will extend the
Exercise Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2)
under the Exchange Act, which require that the minimum period during which an
offer must remain open (to allow for adequate dissemination to Holders and
Holder response) following material changes in the terms of the Exercise Offer
or information concerning the Exercise Offer, other than a change in
percentage of securities exercisable or the $7.50 exercise price applicable in
the Exercise Offer, will depend upon the facts and circumstances, including
the relative materiality of the terms or information. The Company confirms
that its reservation of the right to delay issuance to Holders of the
Underlying Stock in respect of exercise of Class B Warrants which it has
accepted for exercise is limited by Rule 13e-4(f)(5) under the Exchange Act,
which requires that an issuer pay the consideration offered or return the
exercised securities promptly after the termination or withdrawal of the
Exercise Offer.
ACCEPTANCE FOR PAYMENT; PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Exercise Offer
(including, if the Exercise Offer is extended or amended, the terms and
conditions of the Exercise Offer as so extended or amended), the Company will
accept for exercise any and all Class B Warrants validly exercised prior to
the Expiration Date and not withdrawn, as soon as practicable after the
Expiration Date. In all cases, acceptance of exercises of Class B Warrants
pursuant to the Exercise Offer will only be made, and the Underlying Stock
will only be issued, after timely receipt by the Warrant Agent of (i)
certificates for such Class B Warrants or confirmation (a "Book-Entry
Confirmation") of such Class B Warrants in the Warrant Agent's account at The
Depository Trust Company ("DTC"), the Pacific Securities Depository Trust
Company ("PSDTC") or the Philadelphia Depository Trust Company ("Philadep")
(DTC, PSDTC and Philadep being sometimes collectively referred to as the
"Book-Entry Transfer Facilities" or individually referred to as a "Book-Entry
Transfer Facility") pursuant to the procedure set forth under the caption "--
Procedures for Exercising Class B Warrants--Book-Entry Exercise," (ii) a
properly completed and duly executed Letter of Transmittal or manually signed
facsimile thereof (with any required signature guarantees) or, in the case of
book-entry exercise, an Agent's Message (as defined below), (iii) a certified
or bank check payable to "Interactive Flight Technologies, Inc." in the amount
of $7.50 per share exercised in the Exercise Offer, and (iv) any other
documents required by the Letter of Transmittal to American Stock Transfer &
Trust Company (the "Warrant Agent").
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Warrant Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility's system exercising the Class B Warrants which are the
subject of such Book-Entry Confirmation, that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal, and that the
Company may enforce such agreement against such participant.
For purposes of the Exercise Offer, the Company shall be deemed to have
accepted for exercise Class B Warrants as, if and when the Company gives oral
or written notice to the Warrant Agent, as agent for the exercising Holders,
of the Company's acceptance for exercise of such Class B Warrants pursuant to
the Exercise Offer. Subject to the terms and conditions of the Exercise Offer,
issuance of the Underlying Stock with respect to Class B Warrants accepted for
exercise pursuant to the Exercise Offer will be made by the Warrant Agent,
which will act as agent for the exercising Holders for the purpose of
receiving such securities from the Company
Alt 2-9
<PAGE>
and transmitting such securities to exercising Holders. If any exercised Class
B Warrants are not accepted for exercise for any reason, or if certificates
are submitted for more Class B Warrants than are exercised, then certificates
for such Class B Warrants not accepted for exercise or not exercised will be
returned (or, in the case of Class B Warrants exercised by book-entry transfer
into the Warrant Agent's account at a Book-Entry Transfer Facility, such Class
B Warrants will be credited to an account maintained at such Book-Entry
Transfer Facility), without expense to the exercising Holder, as soon as
practicable after the expiration or termination of the Exercise Offer.
If, prior to the Expiration Date, the Company shall increase or decrease the
$7.50 exercise price applicable in the Exercise Offer, the Company will make
applicable the increased or decreased exercise price in respect of, all
Holders whose Class B Warrants are accepted for exercise pursuant to the
Exercise Offer.
PROCEDURES FOR EXERCISING CLASS B WARRANTS
Valid Exercise. For Class B Warrants to be validly exercised pursuant to the
Exercise Offer, a properly completed and duly executed Letter of Transmittal
or manually signed facsimile thereof (with any required signature guarantees),
together with a certified or bank check payable to "Interactive Flight
Technologies, Inc." in the amount of $7.50 per share so exercised in the
Exercise Offer and any other documents required by the Letter of Transmittal,
or, solely in connection with a book-entry exercise of the Class B Warrants,
an Agent's Message must be received by the Warrant Agent prior to the
Expiration Date at its address set forth in "The Exercise Offer and Warrant
Redemption--Warrant Agent," and either the certificates for such Class B
Warrants must be delivered to the Warrant Agent along with the Letter of
Transmittal, or such Class B Warrants must be delivered pursuant to the
procedure for book-entry transfer set forth below and a Book-Entry
Confirmation of receipt of such Class B Warrants must be received by the
Warrant Agent, in each case prior to the Expiration Date. Holders who are
unable to comply with the foregoing procedures prior to the Expiration Date
may exercise Class B Warrants pursuant to the guaranteed delivery procedures
set forth below.
IN ORDER FOR AN EXERCISING HOLDER TO PARTICIPATE IN THE EXERCISE OFFER,
CLASS B WARRANTS MUST BE VALIDLY EXERCISED PRIOR TO THE EXPIRATION DATE, WHICH
IS CURRENTLY 5:00 P.M., NEW YORK CITY TIME, ON [ ], , 1996.
Book-Entry Exercise. The Warrant Agent will establish accounts with respect
to the Class B Warrants at each of the Book-Entry Transfer Facilities for
purposes of the Exercise Offer within two business days after the date of this
Exercise Offer/Prospectus, and any financial institution that is a participant
in a Book-Entry Transfer Facility system may make book-entry exercises of
Class B Warrants by causing the Book-Entry Transfer Facility to exercise such
Class B Warrants in the Warrant Agent's account at such Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
such exercise. However, although exercise of Class B Warrants may be effected
through book-entry at a Book-Entry Transfer Facility, the Letter of
Transmittal (or manually signed facsimile thereof), properly completed and
duly executed (with any required signature guarantees), together with a
certified or bank check payable to "Interactive Flight Technologies, Inc." in
the amount of $7.50 per share so exercised in the Exercise Offer and any other
required documents must, in any case, be transmitted to and received by the
Warrant Agent at its address set forth in "The Exercise Offer and Warrant
Redemption--Warrant Agent" prior to the Expiration Date, or exercising Holders
must comply with the guaranteed delivery procedures set forth below. DELIVERY
OF SUCH DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH
BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
WARRANT AGENT.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or by a
bank, credit union, savings association or other entity which is a member in
good standing of the Securities Transfer Agent's Medallion Program
(collectively, "Eligible Institutions") unless the Class B Warrants exercised
thereby are exercised (i) by a registered Holder of such Class B Warrants
(which term shall include
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<PAGE>
any participant in a Book-Entry Transfer Facility whose name appears on a
security position listing as the owner) who has not completed the box entitled
"Special Issuance Instructions" on the Letter of Transmittal, or (ii) for the
account of an Eligible Institution. See Instruction 1 of the Letter of
Transmittal. If the certificates are registered in the name of a person other
than the signer of the Letter of Transmittal, or if payment is to be made, or
Class B Warrants not exercised or not accepted for exercise are to be issued,
to a person other than the registered Holder, then the certificates must be
endorsed or accompanied by appropriate transfer powers, in either case signed
exactly as the names of the registered Holder appears on the certificates, and
the signatures on the certificates or stock powers must be guaranteed as
aforesaid. See Instruction 5 of the Letter of Transmittal.
Guaranteed Delivery. If a Holder desires to exercise Class B Warrants
pursuant to the Exercise Offer and certificates for such Class B Warrants are
not immediately available, or the procedure for book-entry transfer cannot be
completed on a timely basis, or time will not permit all required documents to
reach the Warrant Agent prior to the Expiration Date, such Class B Warrants
may nevertheless be exercised if all of the following conditions are met:
(i) such exercise is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided herewith is delivered to the Warrant
Agent in the manner provided below and received by the Warrant Agent prior
to the Expiration Date; and
(iii) the certificates for all exercised Class B Warrants in proper form
for exercise (or Book-Entry Confirmation of exercise of such Class B
Warrants in the Warrant Agent's account at a Book-Entry Transfer Facility
as described above), together with a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), a certified
or bank check payable to "Interactive Flight Technologies, Inc." in the
amount of $7.50 per share so exercised in the Exercise Offer and any other
documents required by the Letter of Transmittal (or, in the case of book-
entry exercise, an Agent's Message), are received by the Warrant Agent
within five New York Stock Exchange trading days after the date of
execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by telegram, telex, facsimile transmission or mail, to the Warrant Agent and
must include a guarantee by an Eligible Institution in the form set forth in
such Notice of Guaranteed Delivery. In all cases, issuance of the Underlying
Stock in respect of Class B Warrants accepted for exercise will be made only
after timely receipt by the Warrant Agent of (i) certificates for such Class B
Warrants (or Book-Entry Confirmation of exercise of such Class B Warrants in
the Warrant Agent's account at a Book-Entry Transfer Facility as described
above), (ii) a properly completed and duly executed Letter of Transmittal or
manually signed facsimile thereof (with any required signature guarantees) or,
in the case of book-entry exercises, an Agent's Message, (iii) a certified or
bank check payable to "Interactive Flight Technologies, Inc." in the amount of
$7.50 per share so exercised in the Exercise Offer, and (iv) any other
documents required by the Letter of Transmittal.
The method of delivery of all documents, including certificates for Class B
Warrants, is at the election and risk of the exercising Holder. If delivery is
by mail, registered or certified mail with return receipt requested, properly
insured, is recommended and sufficient time should be allowed to ensure timely
delivery.
Other Requirements. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exercise of Class B Warrants
pursuant to any of the procedures described above will be determined in the
sole discretion of the Company, whose determination shall be final and
binding. The Company reserves the absolute right to reject any or all
exercises determined by it not to be in proper form or the acceptance of which
would, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any of the conditions of the Exercise
Offer or any defect or irregularity in any exercise with respect to any
particular Class B Warrants of any particular Holder. The Company's
interpretation of the terms and conditions of the Exercise Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding. No exercise of Class B Warrants will be deemed to have been validly
made until all defects
Alt 2-11
<PAGE>
and irregularities have been cured or waived. Neither the Company or the
Warrant Agent or any other person will be under any duty to give notification
of any defects or irregularities in exercises nor will any of them incur any
liability for failure to give any such notification.
If, on or after [ ], 1996, the Company should split, combine or otherwise
change the Class A Common Stock or Class B Warrants, or shall disclose that it
has taken any such action or if there shall occur any antidilution adjustment
pursuant to the terms of the Class B Warrants or other adjustment affecting
the exercise price or the number of shares of Class A Common Stock obtainable
upon exercise of the Class B Warrants, then, without prejudice to the
Company's rights set forth under the captions "--Terms of the Exercise Offer"
and "--Certain Conditions of the Exercise Offer," the Company, in its sole
discretion, may make such adjustments in the exercise price, the amount and
nature of the securities issuable upon exercise thereof and other terms of the
Exercise Offer as it deems appropriate to reflect such split, combination or
other change.
WITHDRAWAL RIGHTS
Except as stated herein, exercises of Class B Warrants made pursuant to the
Exercise Offer are irrevocable. Class B Warrants exercised pursuant to the
Exercise Offer may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for exercise by the Company, may also be withdrawn
after , 1996. If, for any reason, the Company is delayed in its
acceptance for exercise of any Class B Warrants, or is unable to accept Class
B Warrants for exercise pursuant to the Exercise Offer then, without prejudice
to the Company's rights under the Exercise Offer, exercised Class B Warrants
may be retained by the Warrant Agent on behalf of the Company and may not be
withdrawn, except to the extent that exercising Holders are entitled to
withdrawal rights as set forth herein.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Warrant Agent
at its address set forth in "The Exercise Offer and Warrant Redemption--
Warrant Agent." Any such notice of withdrawal must specify the name of the
person who exercised the Class B Warrants, the name of the registered
holder(s), if different from the name of the person who exercised the Class B
Warrants, the number of Class B Warrants exercised and the number of Class B
Warrants to be withdrawn. If certificates for Class B Warrants to be withdrawn
have been delivered or otherwise identified to the Warrant Agent, the serial
numbers shown on the particular certificates evidencing the Class B Warrants
to be withdrawn and a signed notice of withdrawal with the signature
guaranteed by an Eligible Institution (except in the case of Class B Warrants
exercised by an Eligible Institution) must be submitted prior to the physical
release of the certificates for the Class B Warrants to be withdrawn. If Class
B Warrants have been exercised pursuant to the procedure for book-entry
transfer described under the caption "--Procedures for Exercising Class B
Warrants--Book-Entry Exercise," the notice of withdrawal must specify the name
and number of the account at the applicable Book-Entry Transfer Facility to be
credited with the withdrawn Class B Warrants.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined in the sole discretion of the
Company, whose determination shall be final and binding. Neither the Company
nor the Warrant Agent or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal nor
will any of them incur any liability for failure to give any such
notification.
Any Class B Warrants withdrawn will be deemed not validly exercised for
purposes of the Exercise Offer. However, withdrawn Class B Warrants may be
reexercised at any subsequent time prior to the Expiration Date by following
any of the procedures described under the caption "--Procedures for Exercising
Class B Warrants."
Alt 2-12
<PAGE>
CERTAIN CONDITIONS OF THE EXERCISE OFFER
Notwithstanding any other provision of the Exercise Offer, the Company shall
not be required to accept for exercise any Class B Warrants exercised, or may
terminate the Exercise Offer, or may delay the acceptance for exercise of
Class B Warrants pursuant to the Exercise Offer, if at any time on or after
, 1996 and before the acceptance for exercise of any such Class B
Warrants or the payment therefor any one or more of the following shall occur:
(a) there shall have occurred (i) any general suspension of, or general
limitation on prices for, or trading in, securities on the Nasdaq SmallCap
Market, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation
(whether or not mandatory) by any governmental agency or authority on, or
any other event that adversely affects, the extension of credit by banks or
other financial institutions, (iii) a material change in United States or
any other currency exchange rates or a suspension of or limitation on the
markets therefor, (iv) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving the United
States, or, (v) in the case of any of the foregoing existing at the time of
the commencement of the Exercise Offer, a material acceleration or
worsening thereof; or
(b) any change (or development involving a prospective change) shall have
occurred or been threatened in the business, properties, assets, financial
condition, operations, results of operation or prospects of the Company
that is or may be materially adverse to the Company, or the Company shall
have become aware of any fact that is or may be materially adverse with
respect to the value of the Class B Warrants; or
(c) there shall have been threatened or instituted or there shall be
pending any action, proceeding, order, decree or injunction by or before
any court, government or governmental agency or other regulatory or
administrative authority, domestic or foreign, that (i) challenges the
exercise of Class B Warrants pursuant to the Exercise Offer or otherwise
relates in any manner to the Exercise Offer, (ii) otherwise could
materially adversely affect the business, properties, assets, stock
ownership, liabilities, financial condition, operations, results of
operations or prospects of the Company, or (iii) in the case of any of the
foregoing existing at the time of the commencement of the Exercise Offer,
any development shall have occurred that the Company, in its sole judgment,
determines to be adverse; or
(d) any action shall have been taken or any statute, rule, regulation or
order shall have been proposed, enacted, promulgated, enforced or deemed to
be applicable to the Exercise Offer by any court, government or
governmental agency or other regulatory or administrative authority,
domestic or foreign, which would or might prohibit, restrict or delay
consummation of the Exercise Offer or materially impair the contemplated
benefits to the Company of the Exercise Offer; or
(e) a tender or exchange offer with respect to some or all of the Class B
Warrants and/or Class A Common Stock, or a merger or acquisition proposal
for the Company, shall have been proposed, announced or made by any group
or person, or the Company shall enter into any agreement with respect to a
merger, other business combination, disposition of assets other than in the
ordinary course of business or issuance of securities with any person;
which, in the sole judgment of the Company in any such case, and regardless of
the circumstances (including any action by the Company) giving rise to any
such condition, makes it inadvisable to proceed with the Exercise Offer or
with such acceptance for exercise.
All the foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to such
condition (including any action or inaction by the Company) or may be waived
by the Company in whole or in part at any time and from time to time in its
sole discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by the Company concerning the events
described herein will be final and binding.
Alt 2-13
<PAGE>
WARRANT AGENT
The Warrant Agent is American Stock Transfer & Trust Company. The Warrant
Agent's telephone number is 1-800-937-5449 (Reorganization Department). The
address to which the Warrants, payments of the exercise price of Class B
Warrants and Letters of Transmittal should be mailed or delivered is: 40 Wall
Street, 46th Floor, New York, New York 10005.
FEES AND EXPENSES
The Warrant Agent will receive reasonable and customary compensation for its
services and will be reimbursed for certain out-of-pocket expenses estimated
to total $ .
Pursuant to the terms of the Warrant Agreement, the Company has agreed not
to solicit Class B Warrant exercises other than through Blair, unless Blair
declines to make such solicitation. Blair has agreed to assist the Company in
effecting the Exercise Offer. Upon any exercise of the Class B Warrants
commencing March 7, 1996, the Company will pay Blair a fee of 5% of the
aggregate Warrant exercise price, if (i) the market price of the Company's
Class A Common Stock on the date the Warrants are exercised is greater than
the then exercise price of the Warrants; (ii) the exercise of the Warrants was
solicited by a member of the NASD as designated in writing on the Warrant
Certificate subscription form; (iii) the Warrants are not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrants;
and (v) the solicitation of exercise of the Warrant was not in violation of
Rule 10b-6 promulgated under the Exchange Act.
Rule 10b-6 may prohibit Blair from engaging in any market making activities
with regard to the Company's securities for the period from nine business days
(or such other applicable period as Rule 10b-6 may provide) prior to any
solicitation by Blair of the exercise of the Class B Warrants until the later
of the termination of such solicitation activity or the termination (by waiver
or otherwise) of any right that Blair may have to receive a fee for the
exercise of the Class B Warrants following such solicitation. As a result,
Blair may be unable to provide a market for the Company's securities during
the Exercise Offer.
The Company will also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
forwarding copies of this Exercise Offer/Prospectus to the beneficial owners
of Class B Warrants held in their names or in forwarding tenders for their
customers.
The expenses of making the Exercise Offer to be incurred by the Company are
estimated at approximately $80,000 (not including the 5% fee payable to
Blair).
WARRANT REDEMPTION
Under the Warrant Agreement, the Class B Warrants are subject to redemption
by the Company for $.05 per Warrant, upon at least 30 days' written notice, if
the average closing bid price of the Class A Common Stock exceeds $13.65 per
share (subject to adjustment) for 30 consecutive business days ending within 5
days of the date of the notice of redemption. This condition was satisfied
during the 30 business day period which commenced , 1996, and ended
, 1996. Accordingly, by notice to Holders dated , 1996, the
Company exercised its right to redeem the Class B Warrants on January 20, 1997
(the "Redemption Date"). As a result, the right of Holders to exercise their
Class B Warrants to purchase shares of the Class A Common Stock of the Company
will terminate at 5:00 p.m., New York Time on January 17, 1997 (i.e., the last
business day prior to the Redemption Date). After such time, Holders will have
no rights except to receive $.05 for each Class B Warrant upon surrender
thereof.
Alt 2-14
<PAGE>
PURPOSE OF EXERCISE OFFER AND USE OF PROCEEDS
The purpose of the Exercise Offer is to raise additional capital by
encouraging holders of the Class B Warrants to make an investment in the
Company. In the event that 100%, 75% and 50% of the outstanding Class B
Warrants are exercised in the Exercise Offer, the estimated net proceeds to
the Company would be $75,375,147, $56,511,360 and $37,647,573, respectively,
after deducting fees and estimated expenses and without giving effect to the
exercise of remaining Warrants, if any, subsequent to completion of the
Exercise Offer.
The Company anticipates that, in the absence of the Exercise Offer, the
Company's current cash reserves, together with the funds to be received from
its current contracts (described above), will be sufficient to fund the
Company's currently-budgeted operations through December 1996. Beyond such
date, however, the Company will require significant additional financing to
continue its operations. Accordingly, the Exercise Offer represents, in the
opinion of the Company, a critical opportunity to raise the needed significant
capital, particularly in light of the fact that there is no assurance that the
Company will be able to secure significant capital through other sources.
The net proceeds to the Company from the exercise of the Class B Warrants
will be added to the Company's working capital and will be available for any
general corporate uses. The Company intends to utilize the net proceeds from
the Exercise Offer to implement its plan of operation, including performing
its current contracts; marketing the Entertainment Network to additional
airlines and performing under any contracts executed with such airlines; and
continuing the development of the Entertainment Network.
Assuming that 100%, 75% and 50% of the Class B Warrants are exercised in the
Exercise Offer, and without giving effect to the subsequent exercise of
remaining Class B Warrants, if any, prior to the Redemption Date, the Company
currently estimates that net proceeds therefrom, together with its current
cash reserves and anticipated funds to be received from its current contracts,
will be sufficient to fund its currently-budgeted operations until
approximately October 1998, December 1997 and March 1997, respectively.
However, in the event the Company receives any additional purchase orders from
airlines for any significant number of Entertainment Networks in excess of
those currently contracted for, the foregoing estimate of the Company's
liquidity is likely to be significantly shortened, since the Company
anticipates that any future agreement with airlines, particularly foreign
airlines, will contain extended payment terms similar to those of its current
contracts and require the Company to fund equipment purchases for additional
Entertainment Networks prior to obtaining any payments from such airlines. As
a result, or in the further event of delays in product development or
regulatory approvals, cost overruns or other unanticipated expenses commonly
associated with a company in an early stage of development, the Company may
require additional capital. In addition, the Company will need additional
financing following such periods if it has not obtained a significant number
of additional purchase commitments from airlines and, even if such commitments
are obtained, to fund equipment purchases and installations prior to
collection of related receivables from airline customers. In the event such
financing is not obtained, the Company may be materially adversely affected
and may have to cease or substantially reduce operations.
The foregoing represents the Company's best estimate of its utilization of
the net proceeds from the Exercise Offer and its capital requirements and
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. This estimate is based on
certain assumptions, including that development, testing, regulatory,
manufacturing and installation activities can be completed at budgeted costs.
The estimates are also based upon the current status of the Company's business
operations, its current plans, and current economic, regulatory and industry
conditions. Future events, as well as changes in economic, regulatory or
competitive conditions or the Company's business and the results of the
Company's sales and marketing activities, may make shifts in the allocation of
funds necessary or desirable. In addition, the Company may utilize funds
allocated to working capital for acquisitions of new products or product lines
or other companies and to fund inventory purchases and installations prior to
collection of receivables. The Company does not currently have any agreements,
commitments or arrangements with respect to any proposed acquisitions and
there can be no assurance that any acquisition will be consummated. See
"Forward-Looking Information."
The Company further anticipates a need for additional funding beyond the
proceeds of the Exercise Offer, and may attempt to procure such funds either
in the form of debt or equity financing or both. There can be no assurance
that necessary financing will be obtained. See "Risk Factors--Need for
Additional Financing; Potential Cash Shortages."
Alt 2-15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
July 31, 1996, and (ii) pro forma as of July 31, 1996 to reflect the exercise
of 100%, 75% and 50% of the outstanding Class B Warrants in the Exercise
Offer, and the application of the estimated net proceeds therefrom of
$75,375,147, $56,511,360 and $37,647,573, respectively. This table should be
read in conjunction with the Financial Statements and the Notes thereto
incorporated by reference herein.
<TABLE>
<CAPTION>
JULY 31, PRO FORMA(4)(5) PRO FORMA(4)(6) PRO FORMA(4)(7)
1996 JULY 31, 1996 JULY 31, 1996 JULY 31, 1996
------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Stockholders' Equity:
Preferred Stock, $.01
par value; 5,000,000
shares authorized; no
shares issued and
outstanding.......... -- -- -- --
Class A Common Stock,
$.01 par value;
40,000,000 shares
authorized; 8,046,610
shares issued and
Outstanding(1)(2).... 80,466 186,368 159,893 133,417
Class B Common Stock,
$.01 par value;
3,960,000 shares
authorized; 3,960,000
shares issued and
outstanding(1)(3).... 39,600 39,600 39,600 39,600
Additional paid-in
capital.............. 40,395,426 115,664,671 96,827,359 77,990,048
Accumulated deficit... (13,314,404) (13,314,404) (13,314,404) (13,314,404)
Total stockholders'
equity............. 27,201,088 102,576,235 83,712,448 64,848,661
Total
capitalization..... $ 27,201,088 $102,576,235 $ 83,712,448 $ 64,848,661
============ ============ ============ ============
</TABLE>
- --------
(1) The Class A Common Stock and Class B Common Stock are essentially
identical except that each share of Class A Common Stock is entitled to
one vote and each share of Class B Common Stock is entitled to six votes.
Each share of Class B Common Stock is convertible at any time, and will
convert automatically upon its transfer, into one share of Class A Common
Stock. See "Description of Securities--Common Stock."
(2) Excludes (i) 10,590,196 shares of Class A Common Stock issuable upon
exercise of the outstanding Class B Warrants; (ii) 165,000 shares of Class
A Common Stock issuable upon outstanding Class C Warrants; (iii) 165,000
shares of Class A Common Stock issuable upon outstanding Class D Warrants;
(iv) 1,120,000 shares of Class A Common Stock issuable upon exercise of
the Unit Purchase Option and the Class A and Class B Warrants contained
therein; (v) 2,345,000 shares of Class A Common Stock reserved for
issuance under the Company's Stock Option Plan, under which, as of the
date of this Exercise Offer/Prospectus, options to purchase
1,472,700 shares of Class A Common Stock are outstanding. See "Concurrent
Offerings" and "Description of Securities."
(3) Includes 3,200,000 shares of Class B Common Stock owned by officers,
directors and principal stockholders of the Company which are currently
held in escrow until the Company reaches certain specified performance
levels ("Escrow Shares").
(4) Gives pro forma effect to the exercise of Class B Warrants in the Exercise
Offer net of (i) expenses of the offering estimated to be approximately
$80,000 and (ii) a fee payable to Blair equal to 5% of the aggregate
Warrant exercise price. See "Plan of Distribution." Excludes 27,719 shares
of Class A Common Stock issued between July 31, 1996 and August 31, 1996.
(5) Assumes exercise of 100% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 18,636,806 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer.
(6) Assumes exercise of 75% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 15,989,257 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
(7) Assumes exercise of 50% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 13,341,708 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
Alt 2-16
<PAGE>
PRICE RANGE OF SECURITIES
The Company's Class A Common Stock and Class B Warrants have traded on the
Nasdaq SmallCap Market under the symbols FLYT and FLYTZ, respectively, since
March 7, 1995, the date of the Company's initial public offering. The
following table sets forth the high and low last sale prices for the Company's
securities for the periods commencing March 7, 1995 as reported by the Nasdaq
SmallCap Market. These prices do not reflect retail mark-ups, markdowns or
commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CLASS A COMMON STOCK
March 7, 1995 through April 30, 1995......................... $ 5 1/2 $4 1/2
May 1, 1995 through July 31, 1995............................ 6 1/4 4 7/8
August 1, 1995 through October 31, 1995...................... 10 5/8 5
November 1, 1995 through January 31, 1996.................... 12 1/4 7 1/2
February 1, 1996 through April 30, 1996...................... 12 3/4 9 1/4
May 1, 1996 through July 31, 1996............................ 16 1/8 8 3/8
August 1, 1996 through October , 1996.....................
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
CLASS B WARRANTS
March 7, 1995 through April 30, 1995......................... $ 5/8 $ 1/2
May 1, 1995 through July 31, 1995............................ 1 1/8 1/2
August 1, 1995 through October 31, 1995...................... 4 1/2 1 1/8
November 1, 1995 through January 31, 1996.................... 6 5/8 3 5/8
February 1, 1996 through April 30, 1996...................... 7 7/8 3 1/8
May 1, 1996 through July 31, 1996............................ 8 5 1/8
August 1, 1996 through October , 1996.....................
</TABLE>
The closing sales prices of these securities as of , 1996 (two
days prior to announcement of the Exercise Offer and Warrant Redemption) as
reported by the Nasdaq SmallCap Market were $ per share of Class A Common
Stock and $ per Class B Warrant.
The closing sales prices of these securities as of , 1996 as
reported by the Nasdaq SmallCap Market were $ per share of Class A Common
Stock and $ per Class B Warrant.
As of , 1996, there were record holders of Class A Common Stock
and record holders of Class B Warrants.
Alt 2-17
<PAGE>
SUMMARY AND PRO FORMA FINANCIAL DATA
The summary and pro form a financial data set forth below are derived from,
and are qualified by reference to, the audited Financial Statements
incorporated by reference elsewhere in this Exercise Offer/Prospectus and
should be read in conjunction with those Financial Statements and the notes
thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
----------------------
PERIOD FROM
FEBRUARY 1, 1994
(INCEPTION) THROUGH YEAR ENDED
OCTOBER 31, 1994 OCTOBER 31, 1995 1995 1996
------------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. -- -- -- $2,920,835
Research and
development expenses. $175,872 $2,380,194 $1,836,607 $2,910,603
Marketing and
administrative
expenses............. 218,770 2,442,415 1,571,485 5,051,234
Interest and debt
expense.............. 7,640 851,218 851,218 --
Net loss.............. (402,282) (5,331,278) (4,027,138) (7,580,847)
Net loss per share.... (.49) (1.86) (1.64) (1.42)
Weighted average
common shares(1)..... 816,200 2,859,384 2,448,205 5,325,487
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED UNAUDITED
AT PRO FORMA(2)(3) PRO FORMA(2)(4) PRO FORMA(2)(5)
OCTOBER 31, AT OCTOBER 31, AT OCTOBER 31, AT OCTOBER 31,
1995 1995 1995 1995
----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............ $6,902,956 $82,278,103 $63,414,316 $44,550,529
Total assets.......... 9,314,802 84,689,949 65,826,162 46,962,375
Total liabilities..... 745,730 745,730 745,730 745,730
Accumulated deficit... (5,733,560) (5,733,560) (5,733,560) (5,733,560)
Total stockholders'
equity (deficit)..... 8,569,072 83,944,219 65,080,432 46,216,645
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED UNAUDITED
PRO FORMA(2)(3) PRO FORMA(2)(4) PRO FORMA(2)(5)
AT JULY 31, AT JULY 31, AT JULY 31, AT JULY 31,
1996 1996 1996 1996
----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $25,045,254 $100,420,401 $81,556,614 $62,692,827
Total assets.......... 29,019,580 104,394,727 85,530,940 66,667,153
Total liabilities..... 1,818,492 1,818,492 1,818,492 1,818,492
Accumulated deficit... (13,314,404) (13,314,404) (13,314,404) (13,314,404)
Total stockholders'
equity............... 27,201,088 102,576,235 83,712,448 64,848,661
</TABLE>
- --------
(1) Excludes the 3,200,000 Escrow Shares.
(2) Gives pro forma effect to the exercise of Class B Warrants in the Exercise
Offer, net of (i) expenses of the offering estimated to be approximately
$80,000, and (ii) a fee payable to Blair equal to 5% of the aggregate
Warrant exercise price. See "Plan of Distribution." Excludes 27,719 shares
of Class A Common Stock issued between July 31, 1996 and August 31, 1996.
(3) Assumes exercise of 100% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 18,636,806 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer.
(4) Assumes exercise of 75% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 15,989,257 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
(5) Assumes exercise of 50% of the outstanding Class B Warrants pursuant to
the Exercise Offer, and 13,341,708 shares of Class A Common Stock
outstanding subsequent to the Exercise Offer, but does not give effect to
the exercise or redemption of any Class B Warrants following the
completion of the Exercise Offer.
Alt 2-18
<PAGE>
TRANSFER AGENT AND WARRANT AGENT
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants, and is acting as Warrant Agent in the Exercise Offer.
BUSINESS COMBINATION PROVISIONS
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who
have acquired at least 15% of a corporation's stock. Under the law, a
corporation may not engage in any business combination with any interested
stockholder for a period of three years from the date such person became an
interested stockholder unless certain conditions are satisfied. The statute
contains provisions enabling a corporation to avoid the statute's
restrictions.
The Company has not sought to "elect out" of the statute and, therefore,
upon completion of this offering and the registration of its shares of Class A
Common Stock under the Exchange Act, the restrictions imposed by such statute
will apply to the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain of the anticipated
federal income tax consequences of the purchase, ownership, exercise and
disposition of the Warrants and the Class A Common Stock. No representation is
made regarding the continued applicability of the current federal income tax
laws or of the current interpretation thereof, and no attempt is made to
consider any applicable state, local or foreign tax laws. Furthermore, the
summary is intended for investors who will hold the Warrants or the Class A
Common Stock as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). The tax consequences to any particular investor may be
affected by matters not discussed below.
Determination of Basis. For federal income tax purposes, the basis of a
share of Class A Common Stock received on exercise of a Class B Warrant will
equal the Holder's basis in the Class B Warrant, plus the amount paid on
exercise of the Class B Warrant. This summary is not intended for a holder of
Warrants who is a dealer in warrants or in the property that would be received
upon exercise of a Warrant, or a holder who received a Warrant as compensation
for services. In general, the Holder's tax basis in each Class B Warrant is
the purchase price paid for the Class B Warrant. If the Class B Warrant was
purchased as part of a Unit, the purchase price of a Unit must be allocated
among the Class A Common Stock and the Class A and Class B Warrants comprising
such Unit in proportion to their relative fair market values at the time of
issuance. Normally this allocation would be made on the basis of the trading
values of each element of a Unit immediately after the purchase, but the
allocation must nevertheless be independently made by each investor whether or
not such separate trading values are readily determinable. The amount
allocated to each element of the Unit will constitute the tax basis of that
element.
Consequences to Holder on Exercise, Sale, Lapse or Redemption of a Warrant.
Except as described below, no gain or loss will be recognized upon the
exercise of a Warrant. The holding period of the Class A Common Stock acquired
on the exercise of a Warrant will commence on the day following the date of
exercise. Assuming that the Holder of a Warrant is not a dealer in warrants
and that the property that would have been received on exercise of the Warrant
(i.e., the Class A Common Stock) would have constituted a capital asset in the
hands of the holder of the Warrant, any gain or loss realized on a sale or
exchange of a Warrant (including a loss realized due to a failure of a Holder
to exercise a Warrant prior to its expiration) will generally be treated as a
capital gain or capital loss. For federal income tax purposes, this gain or
loss will be long-term or short-term depending on whether or not the Warrant
has been held for more than one year prior to the time of the sale or
exchange. The holding period of Class A Common Stock purchased upon exercise
of a Warrant will not include the time during which the stockholder held such
Warrant. Under current law, capital gains are taxed at a maximum rate of 28%
for federal income tax purposes while ordinary income is taxed at a maximum
rate of 39.6%. However, capital losses will be allowed only against capital
gains and up to $3,000 of ordinary income in each tax year. Gain or loss will
be measured by the difference between the amount realized on the sale,
exchange or expiration and the Holder's basis in the Warrant.
Alt 2-19
<PAGE>
Upon redemption of the Warrants by the Company, the Holder of a redeemed
Warrant will recognize gain or loss equal to the difference between his or her
basis in the Warrant and the redemption price of the Warrant. If the
redemption of a Warrant constitutes a sale or exchange for federal income tax
purposes, and if the Holder of the Warrant is not a dealer in warrants and the
property that would have been received on exercise of the Warrant (i.e., the
Class A Common Stock) would have constituted a capital asset in the hands of
the Holder of the Warrant, then any gain or loss realized by the Holder will
be long-term or short-term capital gain or loss depending on whether or not
the Warrant had been held for more than one year prior to its redemption.
Changes in Law. The tax consequences referred to in the preceding paragraphs
are based on the current provisions of the Code. There can be no assurance,
however, that any such provisions may not change in the future, either
retroactively or prospectively, resulting in changes in such tax consequences.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS NOT
TAX ADVICE. ACCORDINGLY, EACH HOLDER OR POTENTIAL PURCHASER OF THE COMPANY'S
SECURITIES SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
UNITS, THE WARRANTS AND THE CLASS A COMMON STOCK, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND OF CHANGES IN APPLICABLE
TAX LAWS.
Alt 2-20
<PAGE>
DILUTION
The net tangible book value of the Company as of July 31, 1996 was
$27,201,088 or $2.27 per share. Net tangible book value per share represents
the amount of total tangible assets less total liabilities of the Company,
divided by the number of shares of Common Stock outstanding. Assuming that
100%, 75% and 50% of the Class B Warrants are exercised in the Exercise Offer,
after giving effect to the resulting sale of the 10,590,196, 7,942,647, or
5,295,098 shares of Common Stock, respectively (and after deduction of
estimated commissions and offering expenses), the pro forma net tangible book
value of the Company at July 31, 1996 would have been $102,576,235,
$83,712,448, or $64,848,661 respectively, or $4.54, $4.20, or $3.75 per share,
respectively. This represents an immediate increase in such net tangible net
book value of $2.27, $1.93, or $1.48 per share, respectively, to existing
stockholders and an immediate dilution of $2.96, $3.30, or $3.75 per share,
respectively, to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS B WARRANTS
EXERCISED IN THE
EXERCISE OFFER
-----------------
100% 75% 50%
----- ----- -----
<S> <C> <C> <C>
Assumed offering price..................................... $7.50 $7.50 $7.50
Net tangible book value before this offering............. 2.27 2.27 2.27
Increase attributable to new investors................... 2.27 1.93 1.48
Pro forma net tangible book value after this offering...... 4.54 4.20 3.75
----- ----- -----
Dilution of net tangible book value to new investors....... $2.96 $3.30 $3.75
===== ===== =====
</TABLE>
The foregoing excludes 1,472,000 shares that are issuable upon the exercise
of outstanding employee options under the Company's Stock Option Plan as of
October 17, 1996. To the extent that these and other options, stock awards or
warrants that may be issued are exercised in the future, there will be further
dilution to new investors.
The following table summarizes, on a pro forma basis as of August 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Class A Common Stock purchased from the Company,
the total consideration paid to the Company, and the average consideration
paid per share (before deduction of underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
CLASS B WARRANTS SHARES PURCHASED TOTAL CONSIDERATION PRICE
EXERCISED IN THE ------------------ -------------------- PER
EXERCISE OFFER NUMBER PERCENT AMOUNT PERCENT SHARE
---------------- ---------- ------- ------------ ------- -------
<C> <S> <C> <C> <C> <C> <C>
100% Existing stockholders... 8,074,329 43.3% $ 44,129,000 35.7% $5.47
New investors........... 10,590,196 56.7 79,426,470 64.3 $7.50
---------- ----- ------------ -----
Total................... 18,664,525 100.0% $123,555,470 100.0%
========== ===== ============ =====
75% Existing stockholders... 8,074,329 50.4% $ 44,129,000 42.6% $5.47
New investors........... 7,942,647 49.6 59,569,853 57.4 $7.50
---------- ----- ------------ -----
Total................... 16,016,976 100.0% $103,698,853 100.0%
========== ===== ============ =====
50% Existing stockholders... 8,074,329 60.4% $ 44,129,000 52.6% $5.47
New investors........... 5,295,098 39.6 39,713,235 47.4 $7.50
---------- ----- ------------ -----
Total................... 13,369,427 100.0% $ 83,842,235 100.0%
========== ===== ============ =====
</TABLE>
Alt 2-21
<PAGE>
PLAN OF DISTRIBUTION
Pursuant to the Warrant Agreement, the Company has agreed not to solicit
Warrant exercises other than through Blair, unless Blair declines to make such
solicitation. Blair has agreed to assist the Company in effecting the Exercise
Offer. The Company will pay Blair a fee of 5% of the aggregate Warrant
exercise price, if (i) the market price of the Company's Class A Common Stock
on the date the Warrants are exercised is greater than the then exercise price
of the Warrants; (ii) the exercise of the Warrants was solicited by a member
of the NASD as designated in writing on the Warrant Certificate subscription
form; (iii) the Warrants are not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrants; and (v) the solicitation
of exercise of the Warrant was not in violation of Rule 10b-6 promulgated
under the Exchange Act.
As of October 1, 1996, there were seven market makers in the Company's
securities. Rule 10b-6 may prohibit Blair from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Rule 10b-6 may provide)
prior to any solicitation by Blair of the exercise of Class B Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that Blair may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, Blair may
be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable.
In connection with the IPO the Company sold to Blair or its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 280,000
Units substantially identical to the Units sold in the IPO, except that the
warrants included therein are not subject to redemption by the Company unless,
on the redemption date, the Unit Purchase Option has been exercised and the
underlying warrants are outstanding. The Unit Purchase Option is exercisable
during the three year period commencing March 7, 1997 at an exercise price of
$6.00 per Unit, subject to adjustment in certain events, and the Unit Purchase
Option and the underlying securities are not transferable for a period of
three years from March 7, 1995 except to officers of the Underwriter or to
members of the selling group. The Unit Purchase Option includes a provision
permitting Blair or its designees to elect a cashless exercise. The Company
has agreed to register during the four-year period commencing March 7, 1996,
on two separate occasions, the securities issuable upon exercise thereof under
the Securities Act, the initial such registration to be at the Company's
expense and the second at the expense of the holders. The Company has also
granted certain "piggy-back" registration rights to holders of the Unit
Purchase Option.
Blair has the right to designate one director to the Company's Board of
Directors for a period of five years from the completion of the IPO. Such
designee may be a director, officer, partner, employee or affiliate of Blair.
As of the date of this Exercise Offer/Prospectus, Blair had not designated a
director to serve on the Board of Directors.
During the five-year period from March 7, 1995, in the event Blair
originates a financing or a merger, acquisition or transaction to which the
Company is a party, Blair will be entitled to receive a finder's fee in
consideration for origination of such transaction. The fee is based on a
percentage of the consideration paid in the transaction ranging from 7% of the
first $1,000,000 to 2 1/2% of any consideration in excess of $9,000,000.
Blair acted as Placement Agent for the Bridge Financing in October and
November 1994 for which it received a Placement Agent fee of $310,000 and a
non-accountable expense allowance of $93,000.
The Commission is conducting an investigation concerning various business
activities of Blair. The investigation appears to be broad in scope, involving
numerous aspects of Blair's compliance with the Federal securities laws and
compliance with the Federal securities laws by issuers whose securities were
underwritten by Blair, or in which Blair made over-the-counter markets,
persons associated with Blair, such issuers and other persons. The Company has
been advised by Blair that the investigation has been ongoing since at least
1989 and that it is cooperating with the investigation. Blair cannot predict
whether this investigation will ever result in any type of formal enforcement
action against Blair or, if so, whether any such action might have an adverse
effect
Alt 2-22
<PAGE>
on the Company's securities. An unfavorable resolution of the Commission's
investigation could have the effect of limiting such firm's ability to make a
market in the Company's securities, which could affect the liquidity or price
of such securities.
CONCURRENT OFFERINGS
The Company has registered for resale by certain securityholders (the
"Selling Securityholders") an aggregate of 1,550,000 shares of Class A Common
Stock and 1,825,000 Class B Warrants (and the 1,825,000 shares of Class A
Common Stock issuable upon exercise of such Class B Warrants). Sales of such
securities, or the potential of such sales, may have an adverse effect on the
market price of the securities offered hereby.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Irell & Manella LLP, Los Angeles, California.
Alt 2-23
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER , 1996
ALTERNATE OFFERING
#3 PAGES
PROSPECTUS
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
1,550,000 SHARES OF CLASS A COMMON STOCK
1,550,000 REDEEMABLE CLASS B WARRANTS AND
1,550,000 SHARES OF CLASS A COMMON STOCK ISSUABLE
UPON EXERCISE OF THE REDEEMABLE CLASS B WARRANTS
This Prospectus relates to up to 1,550,000 shares of Class A Common Stock,
$.01 par value ("Class A Common Stock") and up to 1,550,000 Redeemable Class B
Warrants (the "Class B Warrants") of Interactive Flight Technologies, Inc., a
Delaware corporation (the "Company"), held by 51 holders (the "Selling
Securityholders"), and up to 1,550,000 additional shares of Class A Common
Stock issuable upon exercise of such Class B Warrants. The 1,550,000 Class B
Warrants held by the Selling Securityholders are sometimes referred to herein
as the "Selling Securityholder Warrants" and, together with the 1,550,000
shares of Class A Common Stock held by the Selling Security Holders and the
1,550,000 shares of Class A Common Stock issuable upon exercise of the Selling
Securityholder Warrants, the "Selling Securityholder Securities." The Selling
Securityholder Warrants and the 1,550,000 shares of Class A Common Stock held
by the Selling Securityholders were acquired upon exercise of redeemable class
A warrants ("Class A Warrants") which were issued to the Selling
Securityholders in exchange for warrants they received in a private placement
by the Company in October and November 1994 (the "Bridge Financing"). See
"Selling Securityholders" and "Plan of Distribution." Each Class B Warrant
entitles the holder to purchase one share of Class A Common Stock, at an
exercise price of $9.75, subject to adjustment, at any time until March 6,
2006. However, concurrently herewith, the Company is offering (the "Exercise
Offer") to the holders of the Company's outstanding Class B Warrants to reduce
the exercise price of the outstanding Class B Warrants to $7.50 per share in
each case if and only if a holder exercises his or her Class B Warrants prior
to 5:00 P.M., New York City time, on , 1996, unless such date is extended by
the Company. Following such date through January 17, 1997, a holder will
continue to have the right to exercise his or her Class B Warrants (in
accordance with the terms thereof) at the re-set exercise price of $9.75 per
share. The Class B Warrants are subject to redemption by the Company for $.05
per Warrant, upon 30 days' written notice, if the average closing bid price of
the Class A Common Stock exceeds $13.65 share (subject to adjustment) for 30
consecutive business days ending within 5 days of the date of the notice of
redemption.This condition has been met, and by notice dated [ ], 1996, the
Company has exercised its right pursuant to the terms of the Warrants to redeem
on January 20, 1997 each Class B Warrant not exercised by January 17, 1997, at
5:00 P.M. New York City time.
-----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
-----------
The Class A Common Stock and the Company's class B common stock, $.01 par
value (the "Class B Common Stock"), of the Company are essentially identical,
except that the Class B Common Stock has six votes per share and the Class A
Common Stock has one vote per share on all matters upon which stockholders may
vote. The holders of Class B Common Stock, the majority of whom are executive
officers, directors and/or principal stockholders of the Company, control
approximately 65% of the total voting power and therefore are able to elect all
of the Company's directors and control the Company.
The securities offered by the Selling Securityholders by this Prospectus may
be sold from time to time by the Selling Securityholders or by their
transferees. The distribution of the Selling Securityholder Warrants and the
Class A Common Stock offered hereby by the Selling Securityholders may be
effected in one or more transactions that may take place on the over-the-
counter market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders.
The Selling Securityholders, and intermediaries through whom such securities
are sold, may be deemed underwriters within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event all of the Selling Securityholder
Warrants are exercised, the Company will receive gross proceeds of $15,112,500,
less payment of applicable commissions to D.H. Blair Investment Banking Corp
("Blair"). See "Selling Securityholders," "Plan of Distribution" and "Blair
Commission."
The Class A Common Stock and the Class B Warrants are traded on the Nasdaq
SmallCap Market ("Nasdaq"). On October , 1996, the closing sale price of the
Class A Common Stock on Nasdaq was $ per share and the closing sale price
of the Class B Warrants on Nasdaq was $ .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of the Selling Securityholder Securities offered
hereby; however, to the extent that the Selling Securityholder Warrants are
exercised, the Company will receive proceeds equal to the exercise price
thereof multiplied by the number of warrants exercised. If all of the Selling
Securityholder Warrants are exercised, the Company would receive gross
proceeds of $15,112,500, less payment of the Blair Commission. The Company
presently intends to use such proceeds for working capital and general
corporate purposes.
Alt 3-2
<PAGE>
DILUTION
The net tangible book value of the Company as of July 31, 1996 was
$27,201,088 million or $2.27 per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities of the
Company, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 1,550,000 shares of Common Stock underlying
the Selling Securityholder Warrants (and after deduction of estimated
commissions and offering expenses), the pro forma net tangible book value of
the Company at July 31, 1996 would have been $41,512,963 million, or $3.06 per
share. This represents an immediate increase in such net tangible net book
value of $.79 per share to existing stockholders and an immediate dilution of
$6.69 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price.......................................... $9.75
Net tangible book value before this offering.................. $2.27
Increase attributable to new investors........................ .79
-----
Pro forma net tangible book value after this offering........... 3.06
-----
Dilution of net tangible book value to new investors............ $6.69
=====
</TABLE>
The foregoing excludes 1,472,000 shares that are issuable upon the exercise
of outstanding employee options under the Company's Stock Option Plan as of
October 17, 1996. To the extent that these and other options, stock awards or
warrants that may be issued are exercised in the future, there will be further
dilution to new investors.
The following table summarizes, on a pro forma basis as of August 31, 1996,
the differences between existing stockholders and new investors with respect
to the number of shares of Class A Common Stock purchased from the Company,
the total consideration paid to the Company, and the average consideration
paid per share (before deduction of underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 8,074,329 83.9% $44,129,000 74.5% $5.47
New investors................ 1,550,000 16.1 15,112,500 25.5 $9.75
--------- ----- ----------- -----
Total...................... 9,624,329 100.0% $59,241,500 100.0%
========= ===== =========== =====
</TABLE>
Alt 3-3
<PAGE>
SELLING SECURITYHOLDERS
The Selling Securityholders are various investors who received redeemable
Class A Warrants of the Company in exchange for warrants received in the
Company's 1994 Bridge Financing. The Selling Securityholder Securities were
acquired upon exercise of those Class A Warrants.
The following table set forth certain information with respect to each
Selling Securityholder for whom the Company is registering the Selling
Securityholder Securities for resale to the public. The Company will not
receive any of the proceeds from the sale of such securities. Except for the
relationships noted in footnotes (2) and (3) below, to the Company's knowledge
there are no material relationships between any of the Selling Securityholders
and the Company, nor have any such material relationships existed within the
past three years.
<TABLE>
<CAPTION>
NUMBER OF CLASS B
WARRANTS AND SHARES
OF CLASS A COMMON
STOCK BENEFICIALLY
OWNED AND MAXIMUM
NUMBER TO BE
SELLING SECURITYHOLDERS SOLD(1)
- ----------------------- -------------------
<S> <C>
Alan S. Abrams.............................................. 12,500
Jeffrey W. Abrams and Josette M. Abrams, JTWROS............. 12,500
Jerome Ansel................................................ 50,000
Michael A. Asch............................................. 12,500
Arthur F. Backal............................................ 6,250
James J. Binns, Esq. IRA Rollover........................... 6,250
Andrew Bressman............................................. 25,000
Michael Cantor.............................................. 18,750
Chesed Congregation......................................... 150,000
Kenneth Cohen and Sherry Cohen, JTWROS...................... 12,500
Isaac Dweck................................................. 50,000
Raymond Drapkin, M.D........................................ 12,500
Jules H. Dreyfuss........................................... 31,250
EBLW Associates............................................. 12,500
Steven M. Fieldman and Marjorie Fieldman, JTWROS(2)......... 25,000
Robert A. Foisie............................................ 50,000
Sandy Frank................................................. 25,000
William Frankel............................................. 12,500
Dr. Harvey Glicker.......................................... 25,000
Donald H. Goldman(3)........................................ 25,000
Morton Goulder.............................................. 25,000
Steven R. Hurlburt.......................................... 37,500
Boris Itkis(2).............................................. 25,000
Michail Itkis and Lauren Snopkowski, JTWROS(2).............. 25,000
Leonard Keller and Eileen Keller, JTWROS.................... 75,000
Robert E. Kirby............................................. 37,500
Harmat Capital Corp......................................... 50,000
David Hoffman and Jerri Hoffman, JTWROS..................... 75,000
Lenny Corp.................................................. 12,500
Phil Lifschitz.............................................. 25,000
Gary Lustberg............................................... 12,500
Harvey Mininberg and Susan Mininberg, JTWROS................ 12,500
Momentum Enterprises Inc. Money Purchase Trust.............. 12,500
Richard A. Nelson and Elaine M. Nelson, JTWROS.............. 50,000
Marc Roberts and Ron Cantor, JTWROS......................... 50,000
The Rubin Family Foundation, Inc............................ 18,750
</TABLE>
Alt 3-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF CLASS B
WARRANTS AND SHARES
OF CLASS A COMMON
STOCK BENEFICIALLY
OWNED AND MAXIMUM
NUMBER TO BE
SELLING SECURITYHOLDERS SOLD(1)
----------------------- -------------------
<S> <C>
E. Donald Shapiro........................................... 6,250
Dr. George Spiegel.......................................... 37,500
Gary J. Strauss............................................. 12,500
Morris Talansky............................................. 50,000
Ervin Tausky................................................ 50,000
Henry G. Warner............................................. 18,750
Henry G. Warner Special No. 2............................... 12,500
Adam R. Wolfensohn.......................................... 18,750
Naomi R. Wolfensohn......................................... 18,750
Sara R. Wolfensohn.......................................... 18,750
Joel Wolff.................................................. 75,000
Aaron Wolfson............................................... 25,000
Abraham Wolfson............................................. 25,000
Morris Wolfson.............................................. 50,000
Seth Zachary................................................ 12,500
---------
Total..................................................... 1,550,000
=========
</TABLE>
- --------
(1) Does not include shares of Class A Common Stock issuable upon exercise of
the Class B Warrants. Except for the individuals set forth in footnotes
(2) and (3), none of the Selling Securityholders beneficially own in
excess of 1% of the outstanding shares of Common Stock.
(2) Each of Steven M. Fieldman, Michail Itkis and Boris Itkis are directors
and, with the exception of Boris Itkis, executive officers of the Company.
(3) Mr. Goldman is a former director and executive officer of the Company.
Alt 3-5
<PAGE>
CONCURRENT OFFERINGS
Pursuant to the registration statement of which this Prospectus forms a
part, the Company has registered (i) up to 10,590,196 shares of Class A Common
Stock of the Company, which are issuable upon exercise of the Company's
outstanding Class B Warrants pursuant to the Company's Exercise Offer in which
it has reduced the exercise price of the Class B Warrants to $7.50 until
, 1996, (ii) the resale of 275,000 Class B Warrants acquired by certain
other selling securityholders in a private placement and the 275,000 shares of
Class A Common Stock underlying such Class B Warrants. Sales of such
securities, or the potential of such sales, may have an adverse effect on the
market price of the securities offered hereby.
Alt 3-6
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Baer Marks & Upham LLP, New York, New York.
Alt 3-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Company in connection with the distribution
of securities being registered are estimated as follows:
<TABLE>
<S> <C>
Accounting Fees and Expenses............................... $ 25,000
Legal Fees and Expenses.................................... 35,000
Miscellaneous Expenses..................................... 20,000
Blair Commission........................................... 3,971,323(1)
----------
Total.................................................... $4,051,323
==========
</TABLE>
- --------
(1) Represents commissions on exercise of all Class B Warrants in the Exercise
Offer.
The Selling Securityholders will be responsible for all selling commissions,
transfer taxes and related charges in connection with the offer and sale of
the Selling Securityholder Securities.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify any person who was or is a party or is threatened to by made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than a suit by
or in the right of the corporation) by reason of the fact that he or she is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as an officer, employee or agent of
another corporation or enterprise. Depending on the character of the
proceeding, a corporation may indemnify against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner he or she reasonably believed
to be in and not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no cause to believe his or
her conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue
or manner as to which such person has been adjudged to be liable to the
corporation unless the Court of Chancery or the court in which such action or
suit was brought determines that despite the adjudication of liability, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court deems proper. Section 145 further provides that to the extent a
director or officer of a corporation has been successful in the defense of any
action, suit or proceeding referred to above or in the defense of any claim
issue or manner therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith. Corporations may also advance expenses incurred in
defending proceedings against corporate agents upon receipt of an undertaking
that the agent will reimburse the corporation if it is ultimately determined
that the agent is not entitled to be indemnified against expenses reasonably
incurred.
The Company's Certificate of Incorporation provides, in effect, that, to the
extent and under the circumstances permitted by Section 145 of the Delaware
General Corporation Law, the Company shall indemnify any person who was or is
a party or is threatened to be made a party to any action, suit or proceeding
of the type described above by reason of the fact that he or she is or was a
director, officer, employee or agent of the Company or is or was serving at
the request of the Company as director, officer, employee or agent of another
corporation or enterprise.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the personal liability of its directors
for violations of their fiduciary duty. This eliminates each director's
liability to the corporation or its stockholders for monetary damages except
(i) for any breach of the director's duty of loyalty; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing
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violation of law; (iii) pursuant to Section 174 of the Delaware General
Corporation Law providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions; or (iv) for any
transaction from which a director derived an improper personal benefit. The
effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any such actions involving gross negligence.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1(1) Revised Form of Underwriting Agreement
3.1(1) Certificate of Ownership and Merger
3.2(1) Amended and Restated Certificate of Incorporation of the Registrant
3.3(1) Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Registrant
3.4(1) By-laws of the Registrant
4.1(1) Form of Bridge Note
4.2(1) Revised Form of Warrant Agreement
4.3(1) Revised Form of Underwriter's Unit Purchase Option
4.4(1) Specimen of Class A Common Stock Certificate
4.5(1) Specimen of Class B Common Stock Certificate
4.6** Specimen of Class B Warrant Certificate
4.7(3) Specimen of Class C Warrant Certificate
4.8(3) Specimen of Class D Warrant Certificate
5.1* Legal Opinion of Irell & Manella LLP
5.2(4) Legal Opinion of Baer Marks & Upham LLP
10.1(1) 1994 Stock Option Plan
10.2* Employment Agreement between Registrant and Steven M. Fieldman dated
as of August 27, 1996
10.3(1) Employment Agreement between Registrant and Michail Itkis dated as of
October 31, 1994
10.4(2) Employment Agreement between the Registrant and Robert J. Aten dated
as of April 1, 1995
10.5(2) Employment Agreement between the Registrant and Lance Fieldman dated
as of May 1, 1995
10.6(1) Amended and Restated Shareholders' Agreement by and among Yuri Itkis,
Michael Itkis, Boris Itkis, Steven M. Fieldman, Donald H. Goldman,
Lance Fieldman and Registrant dated as of October 6, 1994
10.7(1) Intellectual Property License and Support Services Agreement by and
between FortuNet, Inc. and Registrant dated as of October 6, 1994
10.8(1) Amended and Restated Consulting Agreement by and between Registrant
and Yuri Itkis dated as of October 6, 1994
10.9(1) Amended and Restated Escrow Agreement by and between the Registrant,
American Stock Transfer & Trust Company, Yuri Itkis, Michael Itkis,
Boris Itkis, Steven M. Fieldman, Donald H. Goldman and Lance Fieldman
10.10(1) Sublease between Registrant and Key Products Co., Inc.
10.11(2) Lease between Registrant and 44 West 55th Street Associates dated as
of May 1, 1995
10.12(1) Form of Indemnification Agreement
10.13(1) Form of International Sales Representative Agreement
10.14(4) Form of Amendment of Amended and Restated Escrow Agreement
23.1* Consent of Irell & Manella LLP (included in legal opinion filed as
Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Richard A. Eisner & Company LLP
23.4(1) Consent of Baer Marks & Upham LLP (included in Exhibit 5.2)
24.1 Power of Attorney (included on signature page)
99.1** Letter of Transmittal
</TABLE>
- --------
(1) Incorporated by Reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 33-86928.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended October 31, 1995, filed with the Securities
and Exchange Commission on February 13, 1996, File No. 0-25668.
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<PAGE>
(3) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal year ended July 31, 1996, filed with the Securities
and Exchange Commission on September 16, 1996, File No. 0-25668.
(4) Incorporated by Reference from the Registrant's Registration Statement on
Form SB-2, Registration No. 333-02044.
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON
THE 18TH DAY OF OCTOBER, 1996.
INTERACTIVE FLIGHT TECHNOLOGIES,
INC.
By: /s/ Michail Itkis
__________________________________
Michail Itkis
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ * Chief Executive Officer and October 18, 1996
____________________________________ Director
Michail Itkis
/s/ * Director October 18, 1996
____________________________________
Steven M. Fieldman
/s/ * Director October 18, 1996
____________________________________
Yuri Itkis
/s/ * Director October 18, 1996
____________________________________
Boris Itkis
/s/ * Director October 18, 1996
____________________________________
James H. Zukin
/s/ * Director October 18, 1996
____________________________________
General Alexander M. Haig, Jr.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Michail Itkis and Steven M. Fieldman,
jointly and severally, as his true and lawful attorneys-in-fact and agents,
each with full power of substitution for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments and post-effective
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, thereby ratifying
and confirming all that each said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue thereof.
* /s/ Michail Itkis October 18, 1996
____________________________________
Michail Itkis
Attorney-in-fact
/s/ John Alderfer Chief Financial Officer October 18, 1996
____________________________________ (Principal Financial and
John Alderfer Accounting Officer)
</TABLE>
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Interactive Flight Technologies, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectuses.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Las Vegas, Nevada
October 18, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form S-3 of our
report dated November 28, 1994 on our audit of the financial statements of
Interactive Flight Technologies, Inc. as at October 31, 1994, and for the period
February 1, 1994 (commencement of operations) to October 31, 1994. Such report
is modified for an uncertainty relating to the ability of the Company to
continue as a going concern. We also consent to the reference to our firm under
the caption "Experts".
/s/ Richard A. Eisner & Company, LLP
New York, New York
October 17, 1996
