<PAGE>
SCHEDULE 13E-4
(RULE 13E-101)
Tender Offer Statement Pursuant to Section 13(e)(1) of the
Securities Exchange Act of 1934 and Rule 13e-4 Thereunder
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Issuer Tender Offer Statement (Pursuant to Section 13(e)(1)
of the Securities Exchange Act of 1934)
Interactive Flight Technologies, Inc.
- -------------------------------------------------------------------------------
(Name of Issuer)
Interactive Flight Technologies, Inc.
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Statement)
Redeemable Class B Warrants
- -------------------------------------------------------------------------------
(Title of Class of Securities)
45838C12-2
- -------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
Michail Itkis, Chief Executive Officer
4041 N. Central, Suite 2000
Phoenix, AZ 85012
(602) 200-8900
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
November 22, 1996
- -------------------------------------------------------------------------------
(Date Tender Offer First Published,
Sent or Given to Security-Holders)
Calculation of Filing Fee
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
- -------------------------------------------------------------------------------
<S> <C>
$129,302,623 $25,860.53
- -------------------------------------------------------------------------------
</TABLE>
* An offer is to made to holders of 10,609,446 Redeemable Class B Warrants to
temporarily reduce the exercise price of such warrants to $7.50 per share. The
transaction valuation is calculated pursuant to Rule 0-11(b)(2) and 0-11(a)(4)
using the average of the high and low sales prices of the Issuer's Class A
Common Stock underlying the warrants on November 20, 1996.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
The fee is offset in its entirety under Rule 0-11(a)(2) by registration fees of
$21,650, $8,019 and $1,490.53, respectively, paid by the issuer in connection
with the filing of its Registration Statement on Form SB-2, Reg. No. 33-86928
(filed December 2, 1994 and amended February 2, 1995, March 1, 1995 and March 8,
1995), its Registration Statement on Form SB-2, Reg. No. 333-02044 (filed March
8, 1996 and amended April 5, 1996) and its Registration Statement on Form S-3,
Reg. No. 333-14013 (filed October 11, 1996 and amended October 18, 1996 and
November 18, 1996).
<PAGE>
ITEM 1. SECURITY AND ISSUER.
--------------------
(a) The issuer is Interactive Flight Technologies, Inc. (the
"Company") and the address of its principal executive offices is 4041 N.
Central, Suite 2000, Phoenix, Arizona 85012.
(b) As of the date hereof there are an aggregate of 10,609,446
Redeemable Class B Warrants (the "Class B Warrants") outstanding. Each Class B
Warrant grants to the holder the right to purchase one share of the Company's
Class A Common Stock, $0.01 par value (the "Common Stock"), at an exercise price
of $9.75, subject to adjustment, at any time until 5:00 P.M., New York City
time, on March 6, 2000. The Company is seeking the exercise of all of the Class
B Warrants through a reduction in the exercise price of the Class B Warrants to
$7.50 per share (the "Exercise Offer") if and only if the exercise of the Class
B Warrant is properly effected prior to 5:00 p.m., New York City time, on
December 24, 1996, unless such date is extended by the Company (the "Expiration
Date"). 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 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 October 23, 1996, the Company has exercised its right pursuant to
the terms of the Warrants to redeem on January 17, 1997 each Class B Warrant not
exercised by January 16, 1997, at 5:00 P.M. New York City time.
(c) For a discussion of the market for and market price of the Common
Stock and Class B Warrants, see page 29 of the Company's Exercise
Offer/Prospectus (the "Exercise Offer/Prospectus") filed as part of Amendment
No. 2 to the Company's Registration Statement on Form S-3 (No. 333-14013) and
included as Exhibit 99(a) hereto, which pursuant to Rule 429 also constitutes an
amendment to the Company's Registration Statements on Form SB-2, Nos. 33-86928
and 333-02044, effective March 7, 1995 and April 12, 1996, respectively. The
Common Stock and Class B Warrants are listed on the NASDAQ Small Cap Market.
(d) This Issuer Tender Offer Statement on Schedule 13E-4 is being
filed by the Company, as issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
-------------------------------------------------
(a) The Company will issue up to an aggregate 10,609,446 shares of
its Class A Common Stock if all of the Class B Warrants are exercised in the
Exercise Offer. Due to the fact that this transaction is an offer to the holders
of the Class B Warrants to exercise their Class B Warrants, there is no source
and total amount of funds or other consideration applicable to the Company. The
Company estimates that its expenses in connection with the Exercise Offer will
be approximately $80,000 (not including the 5% warrant solicitation fee payable
to D.H. Blair Investment Banking Corp. ("Blair"), the underwriter of the
Company's initial public offering) referred to in Item 5 below and described
under the captions "Plan of Distribution" on pages 32-33 of the Exercise
Offer/Prospectus, which will be paid from the proceeds received by the Company
from the exercise of the Class B Warrants.
(b) No part of the consideration or expenses is expected to be
borrowed, directly or indirectly, for purposes of the Exercise Offer.
ITEM 3. PURPOSES OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
--------------------------------------------------------------------
AFFILIATE.
---------
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. For further information on the use of the proceeds received upon
exercise of the Class B Warrants, see "Purpose of Exercise Offer and Use of
Proceeds" at page 27 of the Exercise Offer/Prospectus. Any Class B Warrant that
is exercised will
-2-
<PAGE>
thereupon no longer confer upon the holder any further rights (other than the
right to receive the underlying Common Stock), and such Class B Warrants, upon
such exercise, will become void. With respect to the Exercise Offer, other
than as disclosed below or as disclosed in the Exercise Offer/Prospectus, there
are no plans or proposals which relate to or would result in:
(a) The acquisition by any person of additional securities of the
Company or the disposition of other securities by the Company other than through
the exercise of the Class B Warrants, except as follows: (i) the Company has
registered for resale by certain securityholders (the "Selling Securityholders")
an aggregate of 1,550,000 share of Class A Common Stock and 1,844,250 Class B
Warrants (and the 1,844,250 shares of Class A Common Stock issuable upon
exercise of such Class B Warrants), and sales of such securities, or the
potential of such sales, may have an adverse effect on the market price of the
securities offered hereby, and (ii) pursuant to a Strategic Alliance Agreement
between the Company and Hyatt Ventures, Inc. ("Hyatt") dated as of November 12,
1996, Hyatt (itself or through its affiliates) shall invest or cause to be
invested an aggregate of $1,000,000 in the acquisition of shares of Class A
Common Stock through open market purchases; provided, however, that Hyatt shall
--------
not be obligated to make or cause any such purchases at a price per share in
excess of $14.15.
(b) Any extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries.
(c) Any sale or transfer of a material amount of assets of the
Company or any of its subsidiaries.
(d) Any change in the present board of directors or management of the
Company including, but not limited to, any plans or proposals to change the
number or the terms of directors, to fill any existing vacancy on the board, or
to change any material term of the employment contract of any executive officer,
except for the recent resignation of Steven M. Fieldman and the proposed
expansion of the Board to include two members to be designated by Hyatt
(expected to be John Pritzker and Adam Aron), all as more fully disclosed at
pages 9-11 of the Exercise Offer/Prospectus.
(e) Any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company, except to the extent that the
exercise of the Class B Warrants will provide proceeds to the Company, as
described under "Purpose of Exercise Offer and Use of Proceeds" at page 27 of
the Exercise Offer/Prospectus and reflected in the stockholders' equity in the
table under "Capitalization" at page 28 of the Exercise Offer/Prospectus, or as
otherwise disclosed herein.
(f) Any other material change in the Company's corporate structure or
business.
(g) Any changes in the Company's Certificate of Incorporation or By-
Laws or any other actions which might impede the acquisition of control of the
Company by any person.
(h) Causing a class of equity security of the Company to be delisted
from a national securities exchange or to cease to be authorized to be quoted in
an inter-dealer quotation system of a registered national securities
association.
(i) A class of equity security of the Company, other than the Class B
Warrants, becoming eligible for termination of registration pursuant to Section
12(g)(4) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), since the Company's securities other than the Class B Warrants, will
continue to be registered under Section 12(g) of the Exchange Act. If pursuant
to the Exercise Offer, all of the Class B Warrants were exercised, the Company
would so terminate their registration. 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 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 October 23, 1996, the
-3-
<PAGE>
Company has exercised its right pursuant to the terms of the Warrants to redeem
on January 17, 1997 each Class B Warrant not exercised by January 16, 1997, at
5:00 P.M. New York City time. Thus, to the extent that any Class B Warrants are
not exercised pursuant to the Exercise Offer or thereafter prior to January 17,
1997, the Company will redeem the Warrants on January 17, 1997 and will so
terminate their registration.
(j) The suspension of the Company's obligation to file reports
pursuant to Section 15(d) of the Exchange Act.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
------------------------------------
Other than as disclosed above, no transaction by the Company,
executive officer or director of the Company, any person controlling the
Company, or any associate or subsidiary of such person in the Class B Warrants
was effected during the past 40 business days.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH RESPECT
--------------------------------------------------------------------
TO THE ISSUER'S SECURITIES.
--------------------------
There is no contract, arrangement, understanding or relationship
relating, directly or indirectly, to the Exercise Offer between the Company
(including its executive officers and directors) and any person with respect to
any securities of the Company, except with respect to the payment of a fee of 5%
of the exercise price to Blair under certain circumstances in connection with
the exercise of the Class B Warrants, as described under the captions "Plan of
Distribution" 32-33, respectively, of the Exercise Offer/Prospectus.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
-----------------------------------------------
Blair will receive a fee of 5% of the exercise price of the Class B
Warrants under certain circumstances, as described under the captions "Plan of
Distribution" at pages 32-33, respectively, of the Exercise Offer/Prospectus.
Because Blair acted as underwriter in the Company's initial public offering in
which the Class B Warrants (then part of Units) were sold, the Company
understands that a substantial portion of the Class B Warrants are held by
customers of Blair, and the Company expects that Blair will make significant
solicitation efforts in the Exercise Offer.
ITEM 7. FINANCIAL INFORMATION.
---------------------
(a) Audited and unaudited financial information concerning the
Company are incorporated by reference into the Prospectus/Exercise Offer on page
3 thereof in the Section entitled "Documents Incorporated by Reference."
(b) Certain pro forma data disclosing the effect of the exercise of
the Class B Warrants in the Exercise Offer are set forth under "Summary and Pro
Forma Financial Data" at page 30 "Capitalization" at page 28 of the Exercise
Offer Prospectus.
-4-
<PAGE>
ITEM 8. ADDITIONAL INFORMATION.
----------------------
Except as disclosed in the Exercise Offer/Prospectus, and except as
would not be material to a decision by a holder of the Class B Warrants as to
whether or not to exercise them, there are no:
(a) Present or proposed contracts, arrangements, understandings or
relationships between the Company and its executive officers, directors or
affiliates;
(b) Applicable regulatory requirements which must be complied with or
approvals which must be obtained in connection with the Exercise Offer;
(c) Applications of the margin requirements of Section 7 of the
Exchange Act of the regulations thereunder;
(d) Material pending legal proceedings relating to the Exercise
Offer; or
(e) Additional information necessary to make the required statements
herein, in light of the circumstances under which they are made, not materially
misleading.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
--------------------------------
99(a) Exercise Offer/Prospectus filed as part of the Company's
Registration Statement on Form S-3, as amended (No. 333-14013).
99(b) Form of Letter of Transmittal
99(c) Notice of Guaranteed Delivery
99(d) Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees
99(e) Letter from Nominees to Clients
-5-
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: November 21, 1996
/s/ John Alderfer
---------------------------------------------
John Alderfer, Chief Financial Officer
and Treasurer
-6-
<PAGE>
EXHIBIT 99(a)
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 10,609,446 CLASS B WARRANTS
FOR EXERCISES BEFORE 5:00 PM ON DECEMBER 24, 1996
ISSUANCE OF UP TO 10,609,446 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 December 24, 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 October 23, 1996, the Company has exercised
its right pursuant to the terms of the Warrants to redeem (the "Warrant
Redemption") on January 17, 1997 (the "Redemption Date"), each Class B Warrant
not exercised by January 16, 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 16, 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 DECEMBER 24, 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 DECEMBER 24, 1996. FURTHER, ANY CLASS B
WARRANTS NOT EXERCISED BY JANUARY 16, 1997, AT 5:00 P.M. NEW YORK CITY
TIME, WILL CEASE TO BE EXERCISABLE AND WILL THEREAFTER BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER WARRANT.
This Exercise Offer/Prospectus also relates to the issuance of up to
10,609,446 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 12.
----------------
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 75% 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 November 20, 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 November 15, 1996, the closing sale price of
the Class A Common Stock on Nasdaq was $11.50 per share, and the closing sale
price of the Class B Warrants on Nasdaq was $3.875 per Class B Warrant.
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."
2
<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 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.
3
<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 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.
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.
4
<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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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."
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.
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 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 $75,512,303, $56,614,227
and $37,716,151, 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.
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SUMMARY OF THE OFFERING
<TABLE>
<C> <S>
Securities Offered............... 10,609,446 shares of Class A Common Stock underlying
outstanding Class B Warrants.
Expiration Date.................. December 24, 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 17, 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...... 8,102,060 shares(1)
After the Exercise Offer......... 18,711,506 shares(1)(2)
Class B Warrants Outstanding:
Prior to the Exercise Offer...... 10,609,446 Class B Warrants
After the Exercise Offer......... (3)
Closing Sale Price Prior to
Announcement of Exercise Offer
and Warrant Redemption
(October 16, 1996).............. Class A Common Stock: $11.375 per share
Class B Warrants: $4.25 per Class B Warrant
Current Closing Sale Price
(November 15, 1996)............. Class A Common Stock: $11.50 per share
Class B Warrants: $3.875 per Class B Warrant
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."
</TABLE>
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<TABLE>
<S> <C>
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) 10,609,446 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) 2,274,200 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 1,584,200 shares of Class A
Common Stock are outstanding. See "Concurrent Offerings" and "Description
of Securities."
(2) Assumes the issuance of 10,609,446 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, 2,652,362 and 5,304,723 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 17, 1997, unless
exercised prior thereto.
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RECENT DEVELOPMENTS
STRATEGIC ALLIANCE WITH HYATT VENTURES, INC.
On November 12, 1996, the Company entered into a Strategic Alliance
Agreement (the "Alliance Agreement") to form a strategic alliance with Hyatt
Ventures, Inc. ("Hyatt"), an affiliate of Hyatt Corporation. Under the terms
of the Alliance Agreement, Hyatt, for itself and through certain of its
affiliates (collectively, the"Hyatt Group"), will use its commercial efforts
to assist the Company in marketing, selling and distributing the Entertainment
Network. The Alliance Agreement also provides that the Hyatt Group will help
develop and coordinate entrepreneurial and institutional financing sources for
the Company.
The Hyatt Group will purchase up to $1 million of the Company's Class A
Common Stock in the open market, at prices not to exceed $14.15 per share, and
will receive warrants to purchase Class A Common Stock comprising up to ten
percent of the fully-diluted outstanding Class A and Class B Common Stock
(after giving effect to the exercise of these warrants). These warrants will
be issued in specified increments as future airline contracts are executed by
the Company. Hyatt will also have the right to designate no less than two
nominees to the Board of Directors of the Company, and may designate
additional nominees if the size of the Board of Directors is increased. Hyatt
has designated John Pritzker, President of Hyatt Ventures, Inc., and Adam
Aron, Chairman and Chief Executive Officer of Vail Resorts, to be its
representatives on the Board. The Hyatt nominated directors will receive
options to purchase an aggregate of 250,000 shares of Class A Common Stock for
$9.875 per share.
Hyatt has the right under the Alliance Agreement to invest in each of up to
six joint ventures in order to raise up to one-third of the financing required
by the Company for specified airline projects and up to two such joint
ventures relating to non-airline projects (each, a "Joint Venture"). The
Alliance Agreement further provides that, at any time following completion of
the installation of all Entertainment Networks initially contemplated to be
financed and sold by a specified airline Joint Venture (or at a similar
mutually agreed upon milestone with respect to any non-airline Joint Venture),
Hyatt shall have the right to convert between fifty percent and one hundred
percent of its initial equity interest in such Joint Venture into shares of
Class A Common Stock. This conversion would be at a rate based on the then
market price of a share of Class A Common Stock and a valuation of Hyatt's
equity interest in the Joint Venture on the conversion date (as mutually
agreed by the parties or, absent such agreement, as determined by an
independent appraiser using a discounted cash flow method). Such a conversion
may not be fully exercised if, after giving effect thereto, the aggregate
ownership of Class A Common Stock by Hyatt or the Hyatt Group (excluding
shares of Class A Common Stock acquired under the above-described warrants or
above-described $1 million open market purchases) would exceed twenty percent
of the aggregate number of shares of voting securities of the Company then
outstanding, calculated on a fully diluted basis.
Hyatt received four demand registration rights and unlimited "piggyback"
registration rights for all shares of Class A Common Stock acquired under the
Alliance Agreement (other than shares purchased in the open market).
As a fee for its services in negotiating the transaction with Hyatt,
Houlihan Lokey Howard & Zukin (an investment banking firm in which James
Zukin, a director of the Company, has an ownership interest) received warrants
to purchase up to 150,000 shares of Class A Common Stock for $9.875 per share.
RESIGNATION OF DIRECTOR
On November 2, 1996, Steven M. Fieldman, formerly a director of the Company
and the Company's Vice President--Business Development, resigned as an
officer, employee and director of the Company. The Company has retained Mr.
Fieldman as a consultant until August 27, 1999 in exchange for a fee of
$55,000 per year. In connection with this resignation, the Company has agreed
that, notwithstanding Mr. Fieldman's resignation, all of his outstanding
employee or director stock options will continue to vest and be exercisable in
accordance with
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their respective terms, except that vesting of 300,000 options granted August
27, 1996 will be partially accelerated. Mr. Fieldman has further agreed not to
sell any shares of capital stock of the Company until January 31, 1997, and
that he will vote his stock on all matters in proportion to the vote of the
other stockholders.
APPROVAL OF EXTENSION OF EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER
On August 27, 1996, the Board of Directors and the Compensation Committee
approved the execution of a new three year Employment Agreement for Michail
Itkis, the Company's Chief Executive Officer. Under the new agreement, Mr.
Itkis will receive a base salary of $250,000 per year, plus an annual bonus to
be determined annually by the Compensation Committee or the Board. On the same
date, the Board also approved the grant of 300,000 stock options to Mr. Itkis,
which will have an exercise price of $9.875 per share and will vest one-third
immediately, one-third in August 1997 and one-third in August 1998.
APPOINTMENT OF NEW CHIEF FINANCIAL OFFICER AND TREASURER
Effective October 12, 1996, the Company appointed John Alderfer to act as
its Chief Financial Officer and Treasurer, replacing Robert Aten in such
positions. Under the terms of his Employment Agreement, Mr. Aten received
severance payments totalling $90,390 as a result of his replacement.
Pursuant to Mr. Alderfer's Employment Agreement he will receive a base
salary of $200,000 per year plus an annual bonus to be determined by the
Compensation Committee or the Board (with a target bonus of 20% of his base
salary). Mr Alderfer also received options to purchase 175,000 shares of Class
A Common Stock for $11.375 per share, which will vest in 1/3 increments on
each of the first three anniversaries of the date of his employment agreement.
FORTUNET LICENSE AGREEMENT
The Company has a license to certain technology from FortuNet, Inc.
("FortuNet"), a gaming equipment manufacturer that distributes video gaming
networks to casinos and other gaming establishments. On November 7, 1996, the
Company entered into an amended and restated version of this license agreement
(the "Restated License Agreement") with FortuNet whereby FortuNet granted the
Company an exclusive, perpetual, worldwide license to reproduce, distribute,
publicly perform and display, prepare derivative works, exploit, modify, make,
have made, use, sell, transfer or install any products or services both in
domestic and foreign airlines and flights (the "Exclusive Field of Use") and a
non-exclusive license to conduct such activities outside the Exclusive Field
of Use, other than in bingo halls. In exchange, FortuNet will receive an
annual fee of $100,000 for a period of six years from the date of the Restated
License Agreement and has been issued a warrant to purchase up to 50,000
shares of Class A Common Stock, for $10.75 per share, exercisable for a five-
year period from the date of the Restated License Agreement. In addition, in
connection with the execution of the Restated License Agreement, Yuri Itkis,
the President of FortuNet and a director of the Company, agreed to terminate
his consulting agreement with the Company and entered into the Amendment to
the Amended and Restated Shareholders' Agreement described more fully below.
See "--Amendment to Shareholders' Agreement."
AMENDMENT TO SHAREHOLDERS' AGREEMENT
On November 12, 1996, the Company, Yuri Itkis, Michail Itkis, Boris Itkis
and Hyatt entered into Amendment No. 2 (the "Amendment") to the Amended and
Restated Shareholders' Agreement, dated October 6, 1994 (the "Shareholders'
Agreement"). Under the Amendment, Hyatt became a party to the Shareholders'
Agreement, and Steven Fieldman and Lance Fieldman ceased to be parties to the
Shareholders' Agreement. The Amendment further provides that Michail Itkis and
Yuri Itkis shall each be entitled to designate one nominee to the Company's
Board of Directors and that Hyatt shall be entitled to designate two nominees
to the Company's Board of Directors. See "--Strategic Alliance with Hyatt
Ventures, Inc." No other parties have any continuing right to nominate a
director under the Shareholders' Agreement. The Amendment also terminated
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<PAGE>
those provisions in the Shareholders' Agreement that restricted the sale,
transfer or assignment of the parties' stock in the Company. Finally, the
Amendment also terminated certain provisions which governed meetings of the
Board of Directors (and the vote required to approve proposals at such
meetings). Consequently, all such matters are now governed by the Company's
Bylaws and the laws of the State of Delaware, as applicable. As amended, the
Shareholders' Agreement will now terminate on November 12, 1998.
CLASS B WARRANT REDEMPTION
By notice dated October 23, 1996, the Company exercised its right to redeem
on January 17, 1997, for $.05 per share, all Class B Warrants not exercised
prior to 5:00 P.M. on January 16, 1997. In addition, concurrently herewith,
the Company has made the Exercise Offer under which it has offered to all
holders of Class B Warrants to reduce the exercise price of their Class B
Warrants to $7.50 per share for exercises on or prior to December 24, 1996.
See "Description of Capital Stock and Warrants."
11
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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 Class A
Warrant 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
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out of revenue generated by passenger use of the installed network on the
aircraft. As a result, the Company 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.
There can be no assurance that the contemplated Class B Warrant Exercise Offer
will be successful or, if successful, will raise sufficient capital to meet
these needs.
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
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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 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
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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 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
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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.
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,
Toshiba 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
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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.
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. 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 Class B Stockholders and Hyatt; Potential Anti-takeover
Provisions. Holders of the Company's Class B Common Stock control
approximately 75% 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, certain of its principal
stockholders and Hyatt have entered into a stockholders' agreement (the
"Stockholders' Agreement") pursuant to which such stockholders have agreed 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 and Hyatt.
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. 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 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.
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Outstanding Warrants and Options. The Company has outstanding (i) 10,609,446
Class B Warrants (including the Selling Securityholder Warrants) to purchase
10,609,446 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 November 15, 1996, the Company had 2,274,200 shares of Class A Common Stock
reserved for issuance upon exercise of options granted under the Company's
Stock Option Plan, and 1,584,200 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. This condition has been met, and by notice dated October 23, 1996, the
Company has exercised its right to redeem the Class B Warrants on January 17,
1997. This 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.
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
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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 2,274,200 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
November 15, 1996, 1,584,200 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.
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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 OCTOBER 23, 1996, THE COMPANY HAS EXERCISED ITS
RIGHT TO REDEEM FOR $.05 ANY CLASS B WARRANT WHICH IS NOT EXERCISED PRIOR TO
JANUARY 16, 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 10,609,446
Class B Warrants, for exercises before December 24, 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 December 24, 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.
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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 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
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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 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 TUESDAY, DECEMBER 24, 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
22
<PAGE>
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 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
23
<PAGE>
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 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 the date hereof, 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 January 21, 1997. 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."
24
<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
November 20, 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
25
<PAGE>
from time to time. Any determination by the Company concerning the events
described herein will be final and binding.
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 approximately $5,000.
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 September 9, 1996, and ended
October 18, 1996. Accordingly, by notice to Holders dated October 23, 1996,
the Company exercised its right to redeem the Class B Warrants on January 17,
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 16, 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.
26
<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 $75,512,303, $56,614,227 and $37,716,151, 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."
27
<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
$75,512,303, $56,614,227 and $37,716,151, 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).... 80,466 186,561 160,037 133,513
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.............. 40,395,426 115,801,634 96,930,082 78,058,530
Accumulated deficit... (13,314,404) (13,314,404) (13,314,404) (13,314,404)
------------ ------------ ------------ ------------
Total stockholders'
equity............. 27,201,088 102,793,391 83,815,315 64,917,239
------------ ------------ ------------ ------------
Total
capitalization..... $ 27,201,088 $102,793,391 $ 83,815,315 $ 64,917,239
============ ============ ============ ============
</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) 10,609,446 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) 2,274,200 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
1,584,200 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 18,683,775 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 16,031,414 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 13,379,052 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.
28
<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 31, 1996...................... 15 3/4 9
November 1, 1996 through November 15, 1996................... 11 1/2 10
<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 31, 1996...................... 7 1/2 3 1/4
November 1, 1996 through November 15, 1996................... 4 3/8 3 1/4
</TABLE>
The closing sales prices of these securities as of October 16, 1996 (two
days prior to announcement of the Exercise Offer and Warrant Redemption) as
reported by the Nasdaq SmallCap Market were $11.375 per share of Class A
Common Stock and $4.25 per Class B Warrant.
The closing sales prices of these securities as of November 15, 1996 as
reported by the Nasdaq SmallCap Market were $11.50 per share of Class A Common
Stock and $3.875 per Class B Warrant.
As of November 15, 1996, there were 41 record holders of Class A Common
Stock and 22 record holders of Class B Warrants.
29
<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 $82,415,259 $63,517,183 $44,619,107
Total assets.......... 9,314,802 84,827,105 65,929,029 47,030,953
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 84,081,375 65,183,299 46,285,223
</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 $100,557,557 $ 81,659,481 $62,761,405
Total assets.......... 29,019,580 104,531,883 85,633,807 66,735,731
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............... 27,201,088 102,713,391 83,815,315 64,917,239
</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 18,683,775 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 16,031,414 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 13,379,052 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.
30
<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 10,609,446, 7,957,085, or
5,304,723 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 $102,713,391,
$83,815,315, or $64,917,239 respectively, or $4.54, $4.19, or $3.75 per share,
respectively. This represents an immediate increase in such net tangible net
book value of $2.27, $1.92, or $1.48 per share, respectively, to existing
stockholders and an immediate dilution of $2.96, $3.31, 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 1.92 1.48
Pro forma net tangible book value after this offering...... 4.54 4.19 3.75
----- ----- -----
Dilution of net tangible book value to new investors....... $2.96 $3.31 $3.75
===== ===== =====
</TABLE>
The foregoing excludes 1,584,200 shares that are issuable upon the exercise
of outstanding employee options under the Company's Stock Option Plan as of
November 15, 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 43.2% $ 44,129,000 35.7% $5.47
New investors........... 10,609,446 56.8 79,570,845 64.3 $7.50
---------- ----- ------------ -----
Total................... 18,683,775 100.0% $123,699,845 100.0%
========== ===== ============ =====
75% Existing stockholders... 8,074,329 50.4% $ 44,129,000 42.5% $5.47
New investors........... 7,957,085 49.6 59,678,138 57.5 $7.50
---------- ----- ------------ -----
Total................... 16,031,414 100.0% $103,807,138 100.0%
========== ===== ============ =====
50% Existing stockholders... 8,074,329 60.4% $ 44,129,000 52.6% $5.47
New investors........... 5,304,723 39.6 39,785,423 47.4 $7.50
---------- ----- ------------ -----
Total................... 13,379,052 100.0% $ 83,914,423 100.0%
========== ===== ============ =====
</TABLE>
31
<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 its March 1995 initial public offering (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. The
Company also paid underwriting fees and selling commissions totalling
approximately $1 million, a substantial portion of which was received by
Blair.
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.
Blair received a fee of approximately $1.34 Million for acting as the
Company's solicitation agent for the exercise of Class A Warrants during the
Company's May 1996 Class A Warrant Exercise Offer. In addition, Blair will act
as solicitation agent for the exercise of Class B Warrants in connection with
the contemplated Class B Warrant Exercise Offer and, assuming exercise of all
Class B Warrants in the offer, Blair will receive a fee of approximately $3.98
million.
32
<PAGE>
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 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
Pursuant to the Registration Statement of which this Prospectus forms a
part, 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 1,844,250 Class B Warrants (and the 1,844,250 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.
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
33
<PAGE>
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 December 24, 1996, unless such date is extended by the Company. Following
such date through January 16, 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 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 October 23, 1996, the
Company has exercised its right pursuant to the terms of the Warrants to
redeem on January 17, 1997 each Class B Warrant not exercised by
January 16, 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.
34
<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 exercise or the redemption of the
Warrants. 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"). 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. The tax consequences to any particular
investor may be affected by matters not discussed below.
Consequences to Holder on Exercise 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. 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.
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. 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 constitutes the tax basis of that
element.
Consequences to Holder on Redemption of a Warrant. 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 is not
treated as a distribution of earnings and profits as a dividend), 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 capital gain or
loss.
35
<PAGE>
Such capital gain will be long-term or short-term 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.
36
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by 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.
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.
37
<PAGE>
EXHIBIT 99(b)
LETTER OF TRANSMITTAL
TO EXERCISE CLASS B WARRANTS
OF
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
PURSUANT TO THE EXERCISE OFFER/PROSPECTUS DATED NOVEMBER 20, 1996
_________________
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
OFFER TO REDUCE THE EXERCISE PRICE
OF CLASS B WARRANTS TO $7.50
TO HOLDERS OF
THE COMPANY'S CLASS B WARRANTS
FOR EXERCISES BEFORE
DECEMBER 24, 1996
- --------------------------------------------------------------------------------
THE OFFER WILL EXPIRE ON TUESDAY, DECEMBER 24, 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 TUESDAY, DECEMBER 24, 1996. IN ADDITION, THE CLASS B WARRANTS WILL
CEASE TO BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME,
AND ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT TIME WILL BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
- --------------------------------------------------------------------------------
The Warrant Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
1-(800) 937-5449 (toll free)
By Facsimile By Mail or Hand Delivery:
(718) 236-2976 Reorganization Department
40 Wall Street
Confirm Facsimile 46th Floor
by Telephone: New York, NY 10005
1-(800) 937-5449 (toll free)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED
This Letter of Transmittal is to be completed by holders (the "Holders") of
Class B Warrants (defined below) either if certificates for Class B Warrants are
to be forwarded herewith or, unless an Agent's Message (as defined in the
Prospectus/Exercise Offer) is utilized, if exercises are to be made by book-
entry transfer to an account maintained by American Stock Transfer & Trust
Company (the "Warrant Agent") at the Depository Trust Company ("DTC"), Pacific
Securities Trust Company ("PSDTC") or Philadelphia Depository Trust Company
("PDTC") (each a "Book-Entry Transfer Facility" and collectively referred to as
the "Book-Entry Transfer Facilities"), pursuant to the procedures set forth
under the caption "The Exercise Offer and Warrant Redemption-Procedure for
Exercising Class B Warrants-Book-Entry Transfer" in the Exercise
Offer/Prospectus, dated November 20, 1996 (the "Prospectus/Exercise Offer").
Holders who exercise Class B Warrants by book-entry transfer are referred to
herein as "Book-Entry Holders."
Holders of Class B Warrants whose certificates for such Class B Warrants
(the "Warrant Certificates") are not immediately available or who cannot deliver
their Warrant Certificates, 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 all other required documents to the Warrant
Agent on or prior to the Expiration Date or who cannot complete the procedures
for book-entry transfer on a timely basis, must exercise their Class B Warrants
according to the guaranteed delivery procedures set forth under the caption "The
Exercise Offer and Warrant Redemption-Procedures for Exercising Class B
Warrants-Guaranteed Delivery" in the Exercise Offer/Prospectus. See Instruction
2. Delivery of documents to a Book-Entry Transfer Facility does not constitute
delivery to the Warrant Agent.
NOTE: SIGNATURES MUST BE PROVIDED ON PAGE 8. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.
-2-
<PAGE>
[_] CHECK HERE IF CLASS B WARRANTS ARE BEING EXERCISED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE WARRANT AGENT
WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Exercising Institution:________________________________________________
Check Box of Book-Entry Transfer Facility:
[_] The Depository Trust Company
[_] Pacific Securities Trust Company
[_] Philadelphia Depository Trust Company
Account Number:________________________ Transaction Code Number:______________
[_] CHECK HERE IF CLASS B WARRANTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE WARRANT AGENT AND COMPLETE THE
FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED
DELIVERY.
Name(s) of Registered Holder(s):_______________________________________________
Window Ticket Number (if any):_________________________________________________
Date of Execution of Notice of Guaranteed Delivery:____________________________
Name of Institution which Guaranteed Delivery:_________________________________
-3-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION OF CLASS B WARRANTS EXERCISED
- -------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) WARRANT CERTIFICATE(S) AND
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) WARRANT(S) EXERCISED
ON WARRANT CERTIFICATE(S)) (ATTACHED ADDITIONAL LIST, IF NECESSARY)
- -------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF WARRANTS
REPRESENTED NUMBER OF
CERTIFICATE BY WARRANT WARRANTS
NUMBER(S) CERTIFICATES EXERCISED*
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total Warrants
- -------------------------------------------------------------------------------------------------------------
*Unless otherwise indicated, it will be assumed that all Warrants described above are being
exercised. See Instruction 4.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
Ladies and Gentlemen:
The undersigned hereby exercises the Class B redeemable stock purchase
warrants (the "Class B Warrants") of Interactive Flight Technologies, Inc. a
Delaware corporation (the "Company"), as described on page 4 of this Letter of
Transmittal, at an exercise price of $7.50 per Class B Warrant, upon the terms
and subject to the conditions set forth in the Exercise Offer/Prospectus, dated
November 20, 1996 (the "Exercise Offer/Prospectus"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with the
Exercise Offer/Prospectus, constitutes the "Offer"). The undersigned
understands that upon exercise of each such Class B Warrant the undersigned
shall receive one (1) share (the "Underlying Stock") of the Company's Class A
common stock, par value $0.01 per share (the "Class A Common Stock").
Subject to, and effective upon, acceptance for exercise of the Class B
Warrants included herewith in accordance with the terms and subject to the
conditions of the Offer, the undersigned hereby (i) exercises and transfers to,
or upon the order of, the Company all right, title and interest in and to all
the Class B Warrants that are being exercised hereby, and (ii) constitutes and
irrevocably appoints the Warrant Agent the true and lawful agent, attorney-in-
fact and proxy of the undersigned to the full extent of the undersigned's rights
with respect to such Class B Warrants with full power of substitution and re-
substitution (such power of attorney and proxy being deemed to be an irrevocable
power coupled with an interest), to (a) deliver Warrant Certificates and
transfer ownership of such Class B Warrants on the account books maintained by
the Book-Entry Transfer Facilities, together with all accompanying evidences of
transfer and authenticity, to or upon the order of the Company, upon issuance by
the Warrant Agent, as the undersigned's agent, of the applicable Underlying
Stock, (b) present such Class B Warrants for transfer, and effect such transfer,
on the books of the Company, and (c) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Class B Warrants, all in accordance
with the terms of the Offer.
The undersigned hereby represents and warrants that the undesigned has full
power and authority to exercise, assign and transfer the Class B Warrants
exercised hereby and that, when the same are accepted for exercise by the
Company, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
the same will not be subject to any adverse claim. The undersigned, upon
request, will execute and deliver any additional documents deemed by the Warrant
Agent or the Company to be necessary or desirable to complete the exercise,
assignment and transfer of the Class B Warrants exercised hereby. In addition,
if there shall occur any anti-dilution 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, the Company, in its sole discretion, may make such adjustments in the
exercise price of the Class B Warrants or the securities issuable upon exercise
thereof as it deems appropriate.
All authority herein conferred or herein agreed to be conferred shall not
be affected by, and shall survive, the death or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned. Except as stated in the Exercise Offer/Prospectus, this exercise
is irrevocable.
The undersigned understands that exercises of Class B Warrants pursuant to
any one of the procedures described under the caption "The Exercise Offer and
Warrant
-5-
<PAGE>
Redemption-Procedures for Exercising Class B Warrants" in the Exercise
Offer/Prospectus and in the Instructions hereto will constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Offer.
Unless otherwise indicated herein under "Special Issuance Instructions,"
please issue the applicable Underlying Stock and/or return any Warrant
Certificates not exercised or accepted for exercise in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the applicable Underlying Stock and/or return any
Warrant Certificates not exercised or accepted for exercise (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature. In the event that both the "Special Issuance
Instructions" and the "Special Delivery Instructions" are completed, please
issue and the applicable Underlying Stock and/or return any Warrant Certificates
not exercised or accepted for exercise in the name(s) of, and deliver said
applicable Underlying Stock and/or return certificates to, the person or persons
so indicated. Holders exercising Class B Warrants by book-entry transfer may
request that any Class B Warrants not accepted for exercise be returned by
crediting such account maintained at such Book-Entry Transfer Facility as such
Holder may designate by making an appropriate entry under "Special Issuance
Instructions." The undersigned recognizes that the Company has no obligation
pursuant to the "Special Issuance Instructions" to issue any applicable
Underlying Stock in the name of a different registered Holder if the Company
does not accept for exercise any of the such Class B Warrants.
-6-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------- --------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
<S> <C>
To be completed ONLY if Warrant To be completed ONLY if Warrant
Certificates not exercised or not accepted Certificates not exercised or not accepted for
for exercise and/or the applicable Underlying exercise and/or the applicable Underlying Stock
Stock are to be issued in the name of someone are to be sent to someone other than the
other than the undersigned, or if Class B undersigned, or to the undersigned at an address
Warrants exercised by book-entry transfer other than that shown on the front cover.
which are not accepted for exercise are to be
returned by credit to an account maintained at
a Book-Entry Transfer Facility other than that
designated on the front cover.
Issue Underlying Stock and/or certificates to: Mail Underlying Stock and/or certificates to:
Name:_______________________________________ Name:_____________________________________________
(PLEASE PRINT) (PLEASE PRINT)
Address:____________________________________ Address:__________________________________________
____________________________________________ __________________________________________________
____________________________________________ __________________________________________________
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
____________________________________________ __________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.) (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
- ------------------------------------------------- --------------------------------------------------
</TABLE>
NOTE: SIGNATURE MUST BE PROVIDED ON FOLLOWING PAGE.
-7-
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE
- --------------------------------------------------------------------------------
________________________________________________________________________________
Signature(s) of Owner(s)
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on the
Warrant Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the necessary information.
See Instruction 5.)
Name(s):_______________________________________________________________________
_______________________________________________________________________________
(Please Print)
Capacity (Full Title):_________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:________________________________________________
Tax Identification or Social Security No.:_____________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED-SEE INSTRUCTIONS 1 AND 5)
Authorized Signature:__________________________________________________________
Name:__________________________________________________________________________
Name of Firm:__________________________________________________________________
Address:_______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:________________________________________________
Dated:_________________________________________________________________________
- --------------------------------------------------------------------------------
-8-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required (i) if this Letter of Transmittal is signed by the
registered holder (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Class B Warrants) of the Class B Warrants
exercised hereby, unless such holder has completed the box entitled "Special
Issuance Instructions" on page 7 hereof, or (ii) if such Class B Warrants are
exercised for the account of a firm that is a bank, broker, dealer, credit
union, savings association or other entity which is a member in good standing of
the Securities Transfer Agent's Medallion Program (an "Eligible Institution").
In all other cases, all signatures on this Letter of Transmittal must be
guaranteed by an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used either if Warrant Certificates are to be forwarded
herewith or, unless an Agent's Message (as defined in the Exercise
Offer/Prospectus) is utilized, if exercises of Class B Warrants are to be made
pursuant to the procedures for exercise by book-entry set forth under the
caption "The Exercise Offer and Warrant Redemption-Procedures for Exercising
Class B Warrants-Book-Entry Exercise" in the Exercise Offer/Prospectus. Warrant
Certificates or timely confirmation (a "Book-Entry Confirmation") of a book-
entry exercise of such Class B Warrants in the Warrant Agent's account at a
Book-Entry Transfer Facility, as well as a Letter of Transmittal (or a facsimile
hereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in the case of a book-entry delivery, together
with a certified or bank check payable to "Interactive Flight Technologies,
Inc." in the amount of $7.50 per share exercised in the Offer and any other
documents required by the Letter of Transmittal, must be received by the Warrant
Agent at its address set forth herein prior to the Expiration Date. Holders
whose Warrant Certificates are not immediately available or who cannot deliver
their Warrant Certificates, together with a certified or bank check payable to
"Interactive Flight Technologies, Inc." in the amount of $7.50 per share
exercised in the Offer and all other required documents to the Warrant Agent
prior to the Expiration Date or who cannot complete the procedures for delivery
by book-entry exercise on a timely basis may exercise their Class B Warrants by
properly completing and duly executing a Notice of Guaranteed Delivery pursuant
to the guaranteed delivery procedures set forth under the caption "The Exercise
Offer and Warrant Redemption-Procedures for Exercising Class B Warrants-
Guaranteed Delivery" in the Exercise Offer/Prospectus. Pursuant to such
procedure: (i) such exercise must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Warrant Agent on or prior to the Expiration Date; and (iii) the
Warrant Certificates (or a Book-Entry Confirmation) representing all exercised
Class B Warrants with a Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees (or, in the
case of a book-entry delivery, an Agent's Message), together with a certified or
bank check payable to "Interactive Flight Technologies, Inc." in the amount of
$7.50 per share exercised in the Offer and any other documents required by the
Letter of Transmittal, must be received by the Warrant Agent within five New
York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of
such Notice of Guaranteed Delivery, as provided under the caption "The Exercise
Offer and Warrant Redemption-Procedures for Exercising Class B Warrants-
Guaranteed Delivery" in the Exercise Offer/Prospectus. If Warrant Certificates
are forwarded separately to the Warrant Agent, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) must accompany each such
delivery.
-9-
<PAGE>
The method of delivery of Warrant Certificates, the Letter of Transmittal
and all other required documents is at the option and sole risk of the
exercising Holder and the delivery will be deemed made only when actually
received by the Warrant Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed to ensure timely delivery.
No alternative, conditional or contingent exercise will be accepted. All
exercising Holders, by execution of this Letter of Transmittal or facsimile
hereof, waive any right to receive any notice of the acceptance of their Class B
Warrants for exercise.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
Warrant Certificate numbers and/or the number of Class B Warrants and any other
required information should be listed on a separate schedule attached hereto and
separately signed on each page thereof in the same manner as this Letter of
Transmittal is signed.
4. PARTIAL EXERCISES. (Not applicable to Holders who exercise by book-
entry transfer.) If fewer than all Class B Warrants evidenced by any
certificate submitted are to be exercised, fill in the number of Class B
Warrants which are to be exercised in the box entitled "Number of Class B
Warrants Exercised." In such case, new certificate(s) for the remainder of the
Class B Warrants that were evidenced by your old certificate(s) will be sent to
you, unless otherwise provided in the appropriate box marked "Special Issuance
Instructions" and/or "Special Delivery Instructions" on this Letter of
Transmittal, as soon as practicable after the Expiration Date. All Class B
Warrants represented by Warrant Certificates delivered to the Warrant Agent will
be deemed to have been exercised unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL. If this Letter of Transmittal is
signed by the registered holder(s) of the Class B Warrants exercised hereby, the
signatures must correspond exactly with the name(s) as written on the face of
the Warrant Certificate(s), without alteration, enlargement or any change
whatsoever.
If any of Class B Warrants exercised hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any exercised Class B Warrants are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of Warrant
Certificates.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and proper evidence satisfactory to the Company of their
authority so to act must be submitted.
When this Letter of Transmittal is signed by the registered owner(s) of the
Class B Warrants listed and transmitted hereby, no endorsements of Warrant
Certificates are required unless payment is to be made to, or certificates for
Class B Warrants not exercised or accepted for exercise are to be issued in the
name of, a person other than the registered owner(s). Signatures on such
Warrant Certificates must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Class B Warrants listed, the Warrant Certificates
must be endorsed or accompanied by appropriate
-10-
<PAGE>
transfer powers, in either case signed exactly as the name or names of the
registered owner(s) appear(s) on the Warrant Certificates. Signatures on such
Warrant Certificates must be guaranteed by an Eligible Institution.
6. TRANSFER TAXES. Except as set forth in this Instruction 6, the
Company will pay or cause to be paid any transfer taxes with respect to the
transfer and exercise of exercised Class B Warrants pursuant to the Offer. If,
however, issuance of the applicable Underlying Stock is to be made to, or if
certificates for Class B Warrants not accepted for exercise are to be registered
in the name of, any person other than the registered holder, or if exercised
Warrant Certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any transfer taxes
(whether imposed on the registered holder or such person) payable on account of
the transfer to such person will be the obligation of the Holder, unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE WARRANT CERTIFICATES LISTED IN THIS
LETTER OF TRANSMITTAL.
7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the applicable
Underlying Stock is to be issued in the name of and/or certificates for
unexercised Class B Warrants are to be returned to a person other than the
signer of this Letter of Transmittal or if the applicable Underlying Stock are
to be sent and/or such certificates are to be returned to someone other than the
signer of this Letter of Transmittal or to an address other than that shown on
the front cover hereof, the appropriate boxes on this Letter of Transmittal
should be completed. Holders exercising Class B Warrants by book-entry transfer
may request that Class B Warrants not accepted for exercise be credited to such
account maintained at such Book-Entry Transfer Facility as such Holder may
designate hereon. If no such instructions are given, such Class B Warrants not
accepted for exercise will be returned by crediting the account at the Book-
Entry Transfer Facility designated above. See Instruction 1.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to the Warrant Agent at its address set forth below. Requests
for additional copies of the Offer to Purchase and this Letter of Transmittal
may be directed to the Warrant Agent or to brokers, dealers, commercial banks or
trust companies.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Class B Warrants has been lost, destroyed or stolen, the Holder
should promptly notify the Warrant Agent. The Holder will then be instructed as
to the steps that must be taken in order to replace the certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost or destroyed certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY HEREOF) OR AN
AGENT'S MESSAGE TOGETHER WITH (I) WARRANT CERTIFICATES OR CONFIRMATION OF BOOK-
ENTRY TRANSFER, (II) A CERTIFIED OR BANK CHECK PAYABLE TO "INTERACTIVE FLIGHT
TECHNOLOGIES, INC." IN THE AMOUNT OF $7.50 PER SHARE EXERCISED IN THE OFFER, AND
(III) ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE WARRANT AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
Facsimile copies of the Letter of Transmittal, properly completed and duly
exercised, will be accepted. The Letter of Transmittal, Warrant Certificates, a
certified or bank check payable to "Interactive Flight Technologies, Inc." in
the amount of $7.50 per share exercised in the Offer and
-11-
<PAGE>
any other required documents should be sent or delivered by each Holder or his
broker, dealer, commercial bank, trust company or other nominee to the Warrant
Agent as follows:
The Warrant Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
1-(800) 937-5449 (toll free)
By Facsimile: By Mail or Hand Delivery:
(718) 236-2976 Reorganization Department
40 Wall Street
Confirm Facsimile by Telephone: 46th Floor
1-(800) 937-5449 (toll free) New York, NY 10005
Questions and requests for assistance may be directed to the Warrant Agent
at its address and telephone number listed above. Additional copies of the
Exercise Offer/Prospectus, this Letter of Transmittal and other Offer materials
may be obtained from the Warrant Agent as set forth above, and will be furnished
promptly at the Company's expense. You may also contact your broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Offer.
-12-
<PAGE>
EXHIBIT 99(c)
NOTICE OF GUARANTEED DELIVERY
FOR
EXERCISE OF CLASS B WARRANTS
OF
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below) if certificates representing
Class B Warrants are not immediately available or time will not permit all
required documents to reach American Stock Transfer & Trust Company (the
"Warrant Agent") on or prior to the Expiration Date (as defined in the Exercise
Offer/Prospectus (as defined below)), or the procedures for delivery by book-
entry exercise cannot be completed on a timely basis. This Notice of Guaranteed
Delivery may be delivered by hand or sent by facsimile transmission or mail to
the Warrant Agent. See the caption "The Exercise Offer and Warrant Redemption-
Procedures for Exercising Class B Warrants-Guaranteed Delivery" in the Exercise
Offer/Prospectus.
The Warrant Agent for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
1-(800) 937-5449 (toll free)
By Facsimile: By Mail or Hand Delivery:
(718) 236-2976 Reorganization Department
40 Wall Street
Confirm Facsimile 46th Floor
by Telephone: New York, NY 10005
1-(800) 937-5449 (toll free)
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
- -------------------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby exercises, upon the terms and subject to the
conditions set forth in the Exercise Offer/Prospectus, dated November 20, 1996
(the "Exercise Offer/Prospectus"), and in the Letter of Transmittal, receipt of
each of which is hereby acknowledged (which together constitute the "Offer"),
the number of Class B Warrants indicated below pursuant to the guaranteed
delivery procedures set forth under the caption "The Exercise Offer and Warrant
Redemption-Procedures for Exercising Class B Warrants-Guaranteed Delivery" in
the Exercise Offer/Prospectus.
Number of Class B Warrants:____________ Name(s) of Record Holder(s):___________
_______________________________________
Address(es):___________________________
Certificate No(s). (if available):_____ _______________________________________
_______________________________________ _______________________________________
If Class B Warrants will be exercised Area Code and Telephone Number(s):_____
by book-entry exercise, check one box.
[ ] The Depository Trust Company _______________________________________
[ ] Pacific Securities Trust Company
[ ] Philadelphia Warrant Agent Trust
Company
Account Number:_____________________ Signature(s):__________________________
Date:_______________________________ _______________________________________
____________________________________ _______________________________________
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the Securities
Transfer Agent's Medallion Program, hereby (a) represents that the exercise of
Class B Warrants effected hereby complies with Rule 14e-4 under the Securities
Exchange Act of 1934, as amended, and (b) guarantees to deliver to the Warrant
Agent, at its address set forth above, the certificate representing all
exercised Class B Warrants, in proper form for transfer, or a Book-Entry
Confirmation (as defined in the Exercise Offer/Prospectus), together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message (as
defined in the Exercise Offer/Prospectus) in the case of a book-entry delivery,
a certified or bank check payable to "Interactive Flight Technologies, Inc." in
the amount of $7.50 per share exercised in the Offer, and any other documents
required by the Letter of Transmittal within five New York Stock Exchange, Inc.
("NYSE") trading days after the date of execution of this Notice of Guaranteed
Delivery.
Name of Firm:_________________________ ____________________________________
(Authorized Signature)
Address:______________________________
______________________________________
(Zip Code) Title:______________________________
Name:_______________________________
(Please type or print)
Area Code and
Telephone Number:_____________________ Date:_______________________________
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR CLASS B WARRANTS WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES FOR CLASS B WARRANTS SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE>
EXHIBIT 99(d)
Interactive Flight Technologies, Inc.
4041 N. Central, Suite 2000
Phoenix, Arizona 85012
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
OFFER TO REDUCE THE EXERCISE PRICE OF
CLASS B WARRANTS TO $7.50
TO HOLDERS OF
THE COMPANY'S CLASS B WARRANTS
FOR EXERCISES BEFORE
DECEMBER 24, 1996
- --------------------------------------------------------------------------------
THE OFFER WILL EXPIRE ON TUESDAY, DECEMBER 24, 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 TUESDAY, DECEMBER 24, 1996. IN ADDITION, THE CLASS B WARRANTS WILL
CEASE TO BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME,
AND ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT TIME WILL BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
- --------------------------------------------------------------------------------
November 22, 1996
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Interactive Flight Technologies, Inc., a Delaware corporation (the
"Company"), is offering, to the holders (the "Holders") of the Company's Class B
Redeemable Stock Purchase Warrants (the "Class B Warrants") 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, 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 December 24, 1996,
unless such date is extended by the Company (such date, or such date as so
extended, being referred to as the "Expiration Date"), upon the terms and
subject to the conditions set forth in the Exercise Offer/Prospectus to
Purchase, dated November 20, 1996 (the "Exercise Offer/Prospectus") and the
related blue Letter of Transmittal. Holders whose certificates for such Class B
Warrants (the "Warrant Certificates") are not immediately available or who
cannot deliver their Warrant Certificates and all other required documents to
the Warrant Agent on or prior to the Expiration Date, or who cannot complete the
procedures for book-entry exercise on a timely basis, must exercise their Class
B Warrants according to the guaranteed delivery procedures set forth under the
caption "The Exercise Offer and Warrant Redemption-Procedures for Exercising
Class B Warrants-Guaranteed Delivery" in the Exercise Offer/Prospectus.
<PAGE>
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Class B Warrants registered in your name or in the
name of your nominee.
The Offer is subject to certain conditions. See "The Exercise Offer and
Warrant Redemption-Certain Conditions of the Exercise Offer" in the Exercise
Offer/Prospectus.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Exercise Offer/Prospectus, dated November 20, 1996.
2. A letter from D.H. Blair Investment Banking Corp., and a related
Notice of Redemption from the Company, pursuant to which ALL CLASS B
WARRANTS NOT EXERCISED PRIOR TO 5:00 P.M. NEW YORK CITY TIME ON JANUARY 16,
1997, WILL BE REDEEMED ON JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
3. The blue Letter of Transmittal to exercise Class B Warrants for
your use and for the information of your clients. Facsimile copies of the
blue Letter of Transmittal may be used to exercise Class B Warrants.
4. The yellow Notice of Guaranteed Delivery to be used to accept the
Offer if certificates for Class B Warrants are not immediately available or
if such certificates, a certified or bank check payable to "Interactive
Flight Technologies, Inc." in the amount of $7.50 per share exercised in
the Offer and all other required documents cannot be delivered to American
Stock Transfer & Trust Company (the "Warrant Agent") by the Expiration Date
or if the procedure for book-entry exercise cannot be completed by the
Expiration Date.
5. A printed form of the letter which may be sent to your clients
for whose accounts you hold Class B Warrants registered in your name or in
the name of your nominee, with space provided for obtaining such clients'
instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to the Warrant Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, DECEMBER 24, 1996, UNLESS
THE OFFER IS EXTENDED. PLEASE ALSO NOTE THAT THE CLASS B WARRANTS WILL CEASE TO
BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME, AND ALL
CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT TIME WILL BE REDEEMED ON JANUARY
17, 1997 FOR $.05 PER CLASS B WARRANT.
2
<PAGE>
In order to accept the Offer, a duly executed and properly completed Letter
of Transmittal and any required signature guarantees, or an Agent's Message (as
defined in the Exercise Offer/Prospectus) in connection with a book-entry
exercise of Class B Warrants, a certified or bank check payable to "Interactive
Flight Technologies, Inc." in the amount of $7.50 per share exercised in the
Offer and any other required documents should be sent to the Warrant Agent, and
Warrant Certificates representing the exercised Class B Warrants should be
delivered to the Warrant Agent, or such Class B Warrants should be exercised by
book-entry in the Warrant Agent's account maintained at one of the Book-Entry
Transfer Facilities (as described in the Exercise Offer/Prospectus), all in
accordance with the instructions set forth in the Letter of Transmittal and the
Exercise Offer/Prospectus.
If Holders wish to exercise, but it is impracticable for them to forward
their Warrant Certificates or other required documents on or prior to the
Expiration Date or to comply with the book-entry exercise procedures on a timely
basis, an exercise may be effected by following the guaranteed delivery
procedures specified under the caption "The Exercise Offer-Procedures for
Exercising Warrants-Guaranteed Delivery" in the Exercise Offer/Prospectus.
The Company has agreed to pay D.H. Blair Investment Banking Corp. a warrant
solicitation fee of 5% per Class B Warrant exercised in the Offer (subject to
certain limitations). Further, the Company will, upon request, promptly
reimburse you for reasonable expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Company will pay or cause to be paid
any transfer taxes payable on the exercise of Class B Warrants, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed
to, and additional copies of the enclosed material may be obtained from, the
Warrant Agent, at its address and telephone number set forth on the back cover
of the Exercise Offer/Prospectus.
Very truly yours,
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE WARRANT AGENT, OR ANY
AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE
OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
EXHIBIT 99(e)
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
OFFER TO REDUCE THE EXERCISE PRICE OF CLASS B WARRANTS TO $7.50
TO HOLDERS OF
THE COMPANY'S CLASS B WARRANTS
FOR EXERCISES BEFORE
DECEMBER 24, 1996
- --------------------------------------------------------------------------------
THE OFFER WILL EXPIRE ON TUESDAY, DECEMBER 24, 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 TUESDAY, DECEMBER 24, 1996. IN ADDITION, THE CLASS B WARRANTS WILL
CEASE TO BE EXERCISABLE ON JANUARY 16, 1997, AT 5:00 P.M., NEW YORK CITY TIME,
AND ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO THAT TIME WILL BE REDEEMED ON
JANUARY 17, 1997 FOR $.05 PER CLASS B WARRANT.
- --------------------------------------------------------------------------------
November 25, 1996
To Our Clients:
Enclosed for your consideration are the Exercise Offer/Prospectus and the
blue Letter of Transmittal (which together constitute the "Offer") relating to
the offer by Interactive Flight Technologies, Inc., a Delaware corporation (the
"Company"), to the holders (the "Holders") of the Company's Class B Redeemable
Stock Purchase Warrants (the "Class B Warrants") 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, 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 December 24, 1996, unless
such date is extended by the Company as described in the Exercise
Offer/Prospectus (such date, or such date as so extended, being referred to as
the "Expiration Date"), upon the terms and subject to the conditions set forth
in the Exercise Offer/Prospectus, dated November 20, 1996 (the "Exercise
Offer/Prospectus") and the related blue Letter of Transmittal. Holders whose
certificates for such Class B Warrants (the "Warrant Certificates") are not
immediately available or who cannot deliver their Warrant Certificates and all
other required documents to the Warrant Agent on or prior to the Expiration
Date, or who cannot complete the procedures for book-entry exercise on a timely
basis, must exercise their Class B Warrants according to the guaranteed delivery
procedures set forth under the caption "The Exercise Offer and Warrant
Redemption-Procedures for Exercising Class B Warrants-Guaranteed Delivery" in
the Exercise Offer/Prospectus.
WE ARE THE HOLDER OF RECORD OF CLASS B WARRANTS HELD BY US FOR YOUR
ACCOUNT. AN EXERCISE OF SUCH CLASS B WARRANTS CAN BE MADE ONLY BY US AS THE
HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO EXERCISE
CLASS B WARRANTS HELD BY US FOR YOUR ACCOUNT.
<PAGE>
Accordingly, we request instructions as to whether you wish to have us
exercise on your behalf any or all Class B Warrants held by us for your account
pursuant to the terms and conditions set forth in the Offer.
Please note the following:
1. The exercise price is $7.50 per share upon the terms and subject
to the conditions set forth in the Offer.
2. The Offer is being made for the exercise of any and all
outstanding Class B Warrants.
3. The Offer is subject to certain conditions. See "The Exercise
Offer and Warrant Redemption-Certain Conditions of the Exercise Offer" in
the Exercise Offer/Prospectus.
4. Exercising Holders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter
of Transmittal, transfer taxes on the exercise of Class B Warrants pursuant
to the Offer.
5. The Offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on Tuesday, December 24, 1996, unless the Offer is
extended.
6. Exercise of Class B Warrants pursuant to the Offer will in all
cases be accepted only after timely receipt by American Stock Transfer &
Trust Company (the "Warrant Agent") of (a) Warrant Certificates or timely
confirmation of the book-entry exercise of such Class B Warrants into the
account maintained by the Warrant Agent at The Depository Trust Company,
Pacific Securities Trust Company or Philadelphia Depository Trust Company
(collectively, the "Book-Entry Transfer Facilities"), pursuant to the
procedures set forth under the caption "The Exercise Offer and Warrant
Redemption-Procedures for Exercising Class B Warrants-Book-Entry Exercise"
in the Exercise Offer/Prospectus, (b) a Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined in the Exercise
Offer/Prospectus) in connection with a book-entry delivery, (c) a certified
or bank check payable to "Interactive Flight Technologies, Inc." in the
amount of $7.50 per share exercised in the Offer, and (d) any other
documents required by the Letter of Transmittal. Accordingly, issuances of
the securities issuable upon exercise of the Class B Warrants may not be
made to all exercising Holders at the same time depending upon when Warrant
Certificates or confirmations of book-entry transfer of such Class B
Warrants into the Warrant Agent's account at the Book-Entry Transfer
Facility are actually received by the Warrant Agent.
7. Pursuant to the Company's Notice of Redemption dated October 23,
1996, enclosed herewith, ALL CLASS B WARRANTS NOT EXERCISED PRIOR TO 5:00
P.M. NEW YORK CITY TIME ON JANUARY 16, 1997, WILL BE REDEEMED ON JANUARY
17, 1997 FOR $.05 PER CLASS B WARRANT.
2
<PAGE>
If you wish to have us exercise any or all of the Class B Warrants held by
us for your account, please so instruct us by completing, executing, detaching
and returning to us the instruction form set forth on the back page of this
letter. If you authorize the exercise of your Class B Warrants, all such Class B
Warrants will be exercised unless otherwise specified on the next page of this
letter. An envelope to return your instructions to us is enclosed. Your
instructions should be forwarded to us in ample time to permit us to submit an
exercise on your behalf prior to the expiration of the Offer.
THE OFFER IS NOT BEING MADE TO (NOR WILL EXERCISES BE ACCEPTED FROM OR ON
BEHALF OF) HOLDERS OF CLASS B WARRANTS RESIDING IN ANY JURISDICTION IN WHICH THE
MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES, BLUE SKY OR OTHER LAWS OF SUCH JURISDICTION. HOWEVER, THE
COMPANY MAY, IN ITS DISCRETION, TAKE SUCH ACTION AS IT MAY DEEM NECESSARY TO
MAKE THE OFFER IN ANY JURISDICTION AND EXTEND THE OFFER TO HOLDERS OF CLASS B
WARRANTS IN SUCH JURISDICTION.
3
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER
BY INTERACTIVE FLIGHT TECHNOLOGIES, INC. TO REDUCE THE EXERCISE PRICE
OF CLASS B WARRANTS TO $7.50
The undersigned acknowledge(s) receipt of the Exercise Offer/Prospectus,
dated November 20, 1996 (the "Exercise Offer/Prospectus") and the blue Letter of
Transmittal (which document, together with the Exercise Offer/Prospectus,
constitutes the "Offer") in connection with the offer by Interactive Flight
Technologies, Inc., a Delaware corporation (the "Company"), to the holders (the
"Holders") of the Company's Class B Redeemable Stock Purchase Warrants (the
"Class B Warrants") 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, 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 December 24, 1996, unless such date is extended by the Company.
This will instruct you to exercise any or all Class B Warrants which are
held by you for the account of the undersigned, upon the terms and subject to
the conditions set forth in the Offer.
- --------------------------------------------------------------------------------
Number of Class B Warrants to Be
Exercised: ___________ Class B Warrants
Date:_______________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGN HERE
Signature(s)_________________________________________________________________
(Print Name(s))______________________________________________________________
(Print Address(es))__________________________________________________________
(Area Code and Telephone Number(s))__________________________________________
(Taxpayer Identification or
Social Security Number(s))___________________________________________________
- --------------------------------------------------------------------------------
4
