-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WZTKYjFGiSGxVuAiizwTRpuKpR8ek/1C3JXEBBylWmZdbwvEHaNNo3vRoOkefjrf r9laRYeornAdQJo49xBexA== 0000950116-99-000756.txt : 19990416 0000950116-99-000756.hdr.sgml : 19990416 ACCESSION NUMBER: 0000950116-99-000756 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROJECTAVISION INC CENTRAL INDEX KEY: 0000848135 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 133499909 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19218 FILM NUMBER: 99594530 BUSINESS ADDRESS: STREET 1: ONE EVERTRUST PLAZA STREET 2: 11TH FLOOR CITY: NEW JERSEY STATE: NJ ZIP: 07302 BUSINESS PHONE: 2019380099 MAIL ADDRESS: STREET 1: ONE EVERTRUST PLAZA STREET 2: 11TH FLOOR CITY: NEW JERSEY STATE: NJ ZIP: 07302 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K -------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 (Mark One) OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission File Number: 34-19218 -------- VIDIKRON TECHNOLOGIES GROUP, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 13-3499909 - ---------------------------------- --------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) One Evertrust Plaza, 11th Floor Jersey City, New Jersey 07302 - ---------------------------------------- -------- (Address of principal executive offices) Zip Code (201) 938-0099 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class ------------------- Common Stock, Par Value $.004 Per Share Redeemable Warrants Series B Preferred Stock Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ ] NO [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] On April 9, 1999, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $1,248,987 based upon the average of the closing bid and asked prices of $1.06 as of April 9, 1999. As of April 9, 1999, 1,178,290 shares of the Registrant's Common Stock were outstanding. Documents Incorporated By Reference Document Where Incorporated - -------- ------------------ None. N/A SPECIAL CAUTINARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-K contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by and information currently available to management. Such forward-looking statements are principally contained in the sections "Part 1 - Item 1 - Business," and "Part 2 - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and include, without limitation, the Company's expectations and estimates as to: the Company's integration of the Vidikron Acquisition; the Company's ability to successfully address Year 2000 issues and the costs and timing of the steps it expects to take; the Company's future financial performance, including its ability to generate sufficient cash flow and meet working capital requirements; the introduction of new products; the market for the Company's products; and the Company's business operations in general. In addition, in those and other portions of this Form 10-K, the words "anticipates," "believes" "estimates," "expects" "plans," "intends" and similar words or phrases, as they relate to the Company and its subsidiaries, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks and uncertainties and that could cause the actual results to differ materially from those expressed in any forward-looking statements made by the Company. The Company does not intend to update these forward-looking statements. 1 PART I Item 1. BUSINESS. General The Company - Effective on December 7, 1998, Vidikron Technologies Group, Inc. (the "Company", formerly known as Projectavision, Inc.) acquired (the "Vidikron Acquisition") substantially all of the video assets of Vidikron Industries S.p.A. ("Vidikron") and all of the issued and outstanding shares of Vidikron's U.S. subsidiary, Vidikron of America, Inc. Upon closing of the Vidikron Acquisition, the Company believes that it became one of the leading marketing and distribution companies in the high-end segment of the home theater industry; obtaining a highly regarded brand name, an array of video products, an established international sales and distribution infrastructure, and an experienced management team. Approximately 60% of the Company's sales are conducted through its wholly owned United States subsidiary, Vidikron of America, Inc., and 40% through its recently formed Italian based subsidiary, Vidikron S.r.L. The Vidikron brand name is one of the premiere brands in the high-end of the home theater market and enjoys significant name recognition worldwide. The Company believes that the Vidikron Acquisition will provide it with greater access to capital for the expansion of it markets as well as for growth and expansion of its current product offerings. The Company recently consolidated its operations at the Jersey City, NJ offices of Vidikron of America, Inc. and has significantly reduced the staff and overhead expenses of its U.S. operations. The Company's European subsidiary Vidikron S.r.L. is located in Misinto, near Milan, Italy. Company Name Change - The Company changed its name to Vidikron Technologies Group, Inc. upon receiving stockholder approval at the annual meeting held on February 19, 1999. By changing its name, the Company believes that it can better position its various product offerings and expand and improve its sales and marketing activities. The Company intends to further leverage the Vidikron brand name, which the Company believes is well respected throughout the world, by extending Vidikron's product offerings to include other video products such as plasma screens, accessories, rear screen television, and cinema projectors, as well as possibly entering other markets, including the audio market. The Company may also seek to make selective add-on acquisitions to further leverage its recognized brand name presence in the high-end video market. Products - The Company offers a wide array of high-end video products for the home theater market utilizing Cathode Ray Tube (CRT), Liquid Crystal Display (LCD) and Digital Light Processing (DLP(R)) technologies (DLP(R) is a registered trademark of Texas Instruments). The Company intends to employ a multi-brand strategy marketing its products under both the Vidikron and Projectavision brand names. The Vidikron brand is focused exclusively on the premier high-end home theater and the Company believes the Projectavision brand name is positioned to exploit the commercial data projector and lower tiered home theater markets. A number of the Company's Vidikron brand products are manufactured by Novavision. Novavision is an Italian company controlled by the former owners of Vidikron, who, in connection with the Vidikron Acquisition became executives of the Company and members of its Board of Directors. Novavision is located on the same premises as the Company's facilities in Misinto. The Company leases the facilities from the same former owners of Vidikron. See Item 13 Certain Relationships and Related Transactions. Novavision and the Company's Misinto operations have the distinction of being qualified under ISO 9001. The cabinets for the Company's Helios, Image Two and VPF 50 HD projectors, all Vidikron brand products, are designed under exclusive contract by Pininfarina, designer of the Ferrari automobile. The Company believes that its Vidikron's top-of-the-line Vision series CRT is the pinnacle of high quality home theater projectors. This series of products was created for aficionados seeking the ultimate in home theater and high definition television (HDTV) resolution. The Company offers a whole family of high-end CRT projector products under the Vidikron brand name retailing at prices up to $50,000. The Company also offer a series of LCD based projectors under the Vidikron brand name for the mid-range home theater at prices from $9,500 to $15,000. 2 The Company has a series of DLP products under the Projectavision and Vidikron brand names retailing at prices from $8,000 to $14,000. These DLP products use a two chip light engine developed by Texas Instruments ("TI"). TI informed the Company that it plans to phase out the two chip light engine in favor of a single chip during 1999. The Company's DHT product is configured to run on the two-chip engine. The Company plans on meeting with TI to secure enough of the two chip engines to meet product commitments and will transition to a single chip engine for future products. The switch in engines will upgrade the DLP product to the new high definition television (HDTV) standards and reduce the products cost to manufacture. However, the transition will also necessitate significant changes to the design, tooling and molds of the current DLP product causing the Company to write down the value of its molds at December 31, 1998 (See Note II to the Notes to Consolidated Financial Statements). The Company believes that these products will extend the market potential from high-end home theater to commercial data presentation projectors, including a unique Digital Home Theater (DHT) that doubles as a stand-alone 60" rear screen projector and a front projector with SVGA computer monitor capabilities. The Company completes its current product offering with a series of high-end video processors, plasma screens, and a wide array of accessories from projector screens to mechanical lifts for ceiling mounted products, all of which are marketed under the Vidikron brand name. Growth of Home Theater Industry - Over the last decade, consumer interest in home theaters and large screen televisions has increased dramatically, fueled by consumer demand for big picture and big sound plus an ever expanding universe of movies, sporting events and other programming available via cable television, direct broadcast satellite, laser disc, VCRs, and most recently, digital video disc (DVD). All of the Company's products can display digital TV signals and six of the Company's eight projectors are HDTV (High Definition Television) compatible. As a result of this demand, the Company believes that its products are well positioned to exploit the expected growth of home theaters. The home theater industry encompasses numerous products, and the Company currently offers two types of products: (i) front projection systems and (ii) rear projection television (big screen TVs). Proprietary Technology - The unique, dual-use design of the Company's Projectavision brand DHT utilizes the Company's proprietary technology and engineering innovations. The Company holds a number of patents for its innovative technologies in the U.S. and in various foreign countries. The Company is aware of the development by other companies of innovative flat panel and television systems. These technologies do not use a CRT or video projection to produce an image, but instead rely on other technologies including plasma, thin film electro-luminescence, solid-state lasers, light pipe systems, vibrating mirror systems, cold cathode screens, PLZT, FED (field emission display) and others. The Company believes that flat-panel displays using certain of these technologies ultimately may be usable as receivers, and, if so, may be competitive with the Company's technologies. Partnerships and Alliances - The Company sources a number of its products and components. The Company customizes its products internally via its proprietary designs and externally through the unique high-end industrial design of Pininfarina, one of the Company's significant alliance partners. This external industrial design gives its Vidikron brand products the distinctive Vidikron style that the Company believes sets it apart from its competitors. All of the Company's strategic alliances, including Pininfarina, and its OEM agreements with manufacturing, marketing and distribution partners are critical to the Company's success and, the Company believes, provide it with a distinct advantage over its competition. The Company currently has business alliances with C-MAC Electronic Systems and the Hamilton Group. Tandy Corporation is a field service supplier for the Company's Projectavision brand products and the Company has an OEM relationship with Texas Instruments, Electrohome, Matsushita, Sanyo, Fujitsu and Faroudja Laboratories. Because of the Company's various relationships and alliances, the Company has access to virtually all major projection television technologies. Leading Edge Positioning - The Company believes that it has positioned itself at the leading edge of the home theater industry by continually sourcing and developing new products and technologies. In order to provide the quality for which Vidikron is known, the higher end products are custom installed and technically adjusted on the customer's premises. Therefore, all distributors have to participate in on-site technical classes with respect to the Company's Vidikron brand products. The Company continues to solidify its position as a leading edge developer and marketer of high-end video display home theater products through a program of updating products and maintaining a regimen of technological instructions with its dealers. 3 Focused Acquisition Strategy - The Company believes there are opportunities for selective acquisitions in the highly fragmented video display and home theater industry. As a result, the Company presently intends to undertake a focused acquisition strategy and seeks to acquire products and technologies that provide a good strategic fit with, or natural extension of, its core product offerings such as compatible audio and accessories (screen companies) plus picture enhancement companies (line-doublers). Focus for 1999 - The primary objective for 1999 will be to profitably integrate the businesses represented by the Vidikron and Projectavision brands and to extend the Company's product offerings and markets. The focus of this market-driven company will be on the quality of the sale, not just the quantity, and streamlining operations with a prime focus on customer service and unparalleled product quality. Sales and Distribution The Company distributes its products in over 46 countries worldwide. The Company's products are distributed in the U.S. through specialty audio/video retail stores and custom audio/video installers. The Company employs 26 independent sales/representative firms for its U.S. distribution. Additionally, the Company has international distribution in South America, the Far East, Australia and New Zealand. The Company's Italian based subsidiary, Vidikron S.r.L., handles all distribution in Europe and the Near Eastern Countries. Projection Systems The Company has front and rear projection television products. The front projection television products use either Cathode Ray Tube (CRT), Liquid Crystal Display (LCD) screens or Digital Light Processing (DLP) technology developed by Texas Instruments. The rear projection television offering is comprised of its Projectavision brand DHT product which uses DLP technology. Front Projection The front projection market is dominated by CRT & LCD based products. CRT Displays The major suppliers of CRT based front video projectors include Sony, NEC, Electrohome, Ltd., Zenith Electronics, Runco International ("Runco") and Barco Inc. ("Barco"). Sony, NEC and Barco are the leaders in the data category and the Company's Vidikron brand, Sony and Runco are strongly positioned in the high-resolution CRT home theater. Although the Company believes it is a strong competitor in its market niche with a recognized product, competition may have greater resources, financial and otherwise, in a very competitive market, and there is no guarantee that the Company will be able to effectively compete and grow or retain its market share. LCD Displays Over the last few years, the number of LCD projector companies has risen dramatically. Many large electronics firms with LCD manufacturing experience and large consumer electronics firms with office products divisions decided that the LCD projector market offered attractive opportunities. Sharp Corporation was the leader in LCD projection, introducing LCD-based front projectors in 1989. Toshiba Corp. entered the U.S. market in 1996. In addition, companies such as Sony, Panasonic Broadcast and Television Systems Co. and Philips Consumer Electronic Company ("Philips") have revamped their small LCD projector product lines and sales efforts to become major players. The total number of companies offering LCD front projectors under their own brand name increased from 10 in 1992 to 34 in 1996. The Company is looking to expand its market share in this area against strongly entrenched competitors that are better financed and with greater resources and the Company may not be able to effectively compete with these other entities. 4 Rear Projection CRT-based products dominate the rear projection television market. Chip-based systems, like Projectavision's DHT, were introduced in 1997. The Company has yet to establish its market niche in this category and will seek to do so during 1999. Existing competition, which includes a number of large, well-established companies may prove too resourceful for the Company to effectively compete. Personnel As of March 15, 1999, the Company employed forty-eight (48) people, all of whom provide management, sales, engineering, technical and administrative services on a full-time basis. The Company also has consulting arrangements with a number of engineers who assist the Company in research and development. The Company believes that its employee relations are satisfactory. Item 2. PROPERTIES The Company presently leases approximately 14,000 square feet of office and warehouse space for executive facilities and operations respectively at one Evertrust Plaza and at 150 Bay Street, Jersey City, New Jersey and leases approximately 8,000 square feet of office and warehouse space at Via Dei Guasti, Misinto, Italy. The office and warehouse space in Misinto is leased from the former owners of Vidikron who, in connection with the Vidikron acquisition, became executive officers of the Company and members of its Board of Directors. The combined annual lease expense for all of the Company's facilities is approximately $ 222,000. The lease for the Company's former premises at Two Penn Plaza, Suite 640, New York, NY terminated on December 31, 1998. Item 3. LEGAL PROCEEDINGS In December 1998, a stockholder of the Company initiated an action in Supreme Court, State of New York, alleging common law fraud, negligence and breach of fiduciary duty claims against the Company and its Directors. In February, 1999, the Company and the Defendant Directors moved to dismiss this action based upon undisputed documentary evidence and based upon an assertion that the Complaint failed to state a cause of action. The Plaintiffs' responsive papers are due in April, 1999 and reply papers are due to be submitted by the Company and the Defendant Directors in May 1999. Based upon discussions with counsel, the Company's management believes that the motion to dismiss is well-founded. In the event, however, that the motion were not granted the Company's management believes that it has meritorious defenses and will vigorously defend the claims if they are not dismissed pursuant to the motion. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted on The Nasdaq Stock Market under the following symbol: Common Stock: VIDI 5 The Company's Series B Preferred Stock was quoted on Nasdaq until March 1998 under the following symbol. Series B Preferred Stock VDIP At the Company's Annual Meeting of stockholders on February 19, 1999 the stockholders passed a resolution authorizing the Company's Board of Directors to effect a forty-for-one reverse stock split. In February 1999 the Company`s Board of Directors unanimously approved a forty-for-one reverse stock split effective March 2, 1999. Accordingly, all quoted prices for the Company's common stock and per share amounts have been restated herein to reflect the March 1999 forty-for-one reverse stock split. The Common Stock of the Company is quoted on The Nasdaq Small Cap Market. There is currently no public trading market for any of the Company's Preferred Securities. The high and low bid quotations for the Common Stock and Series B Preferred Stock for each full quarterly period for the fiscal year ending December 31, 1997 and the Common Stock for each full quarterly period for the fiscal year ending December 31, 1998 and for the first quarter of 1999 through March 29, 1999 are listed below: COMMON STOCK SERIES B PREFERRED STOCK 1997 Calendar Quarter Quoted Bid Price (1) Quoted Bid Price - --------------------- ---------------- ---------------- High Low High Low ---- --- ---- --- First Quarter $141.25 $77.50 $3.75 $2.25 Second Quarter $108.75 $65.00 $3.00 $2.00 Third Quarter $86.25 $57.50 $2.75 $2.00 Fourth Quarter $82.50 $30.00 $2.00 $1.06 COMMON STOCK 1998 Calendar Quarter Quoted Bid Price - --------------------- ---------------- High Low ---- --- First Quarter $62.25 $25.00 Second Quarter $46.25 $6.25 Third Quarter $23.75 $2.50 Fourth Quarter $15.00 $1.25 COMMON STOCK 1999 Calendar Quarter Quoted Bid Price - --------------------- ---------------- High Low ---- --- First Quarter (through March 29, 1999) $2.50 $0.63 (1) All prices reflect a forty-for-one reverse split effective March 2,1999. On April 9, 1999 the closing bid and asked prices of Common Stock as reported on the NASDAQ system were $1.00 and $1.13 per share, respectively. On March 6, 1998, the last day prices were quoted for the Series B Preferred Stock, the closing bid and asked prices of Series B Preferred Stock on the NASDAQ system were $0.94 and $0.94, respectively. On April 9, 1999 there were 417 holders of record of Common Stock and 1,178,290 shares of Common Stock issued and outstanding, and there were 9 holders of record of Series B Preferred Stock and 351,258 shares of Series B Preferred Stock issued and outstanding. No cash dividends have been paid by the Company, and management does not anticipate paying cash dividends in the foreseeable future. Item 6. SELECTED FINANCIAL DATA The selected financial information set forth below is derived from the more detailed financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This information should be read in conjunction with such financial statements and related notes. 6 Statements of Operations Data
For the Years Ended December 31, --------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Revenues $ -0- $ 200,000 $ 150,000 $ 1,017,645 $ 3,020,874 Research and Development 827,660 608,651 2,389,329 1,240,578 1,677,647 Net Loss (5,632,283) (6,471,638) (10,880,893) (8,289,920) (9,312,278) Basic and Diluted Net Loss per Share Attributable to Common Stockholders $ (18.80) $ (20.40) $ (39.79) $ (25.48) $ (17.04) Average Number of Shares Outstanding 297,391 315,167 339,668 449,222 679,422 Balance Sheet Data December 31, --------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Working capital $ 6,659,132 $ 3,341,425 $ 3,421,387 $ 1,016,223 $ (4,992,121)(1) Total assets 9,850,523 4,168,415 10,132,488 10,412,357 19,230,400 Total liabilities 236,473 485,710 3,690,443 4,475,394 15,127,044 (1) Long Term Debt 1,600,000 900,000 9,710,776 (1) Accumulated deficit (14,015,013) (20,641,044) (34,157,268) (45,604,454) (57,179,688) Stockholders' equity 9,614,050 3,682,705 6,442,045 5,686,963 4,103,356 (1) (1) On February 19,1999 $6.0 million in Notes were converted into Preferred Stock. Computation of Per Share Loss For the Years Ended December 31, --------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Average number of shares outstanding 297,391 315,167 339,668 449,222 679,422 Net Loss $ (5,632,283) $(6,471,638) $(10,880,893) $ (8,289,920) $ (9,312,278) Dividends on Preferred Stock - - (2,635,331) (3,157,266) (2,262,929) Net Loss attributable to Common $ (5,632,283) $(6,471,638) $(13,516,224) $(11,447,176) $(11,575,207) Stockholders Basic and Diluted Net Loss per Share Attributable to Common Stockholders $(18.80) $(20.40) $(39.79) $(25.48) $(17.04) ---------------------------------------------------------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management discussion and analysis should be read in conjunction with the financial statements and notes thereto in Item 14 hereof. Year 2000 Substantially all of the Company's business computer systems were acquired after the year 2000 issue became widely publicized. Consequently, the Company has endeavored to ensure that computer systems acquired were Year 2000 compliant at the time of their purchase. The Company believes that it has been substantially successful in that goal. The Company does not anticipate that the costs of final testing of its systems to assure Year 2000 compliance will exceed $ 25,000. 7 The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity, and financial condition. Due to the general uncertainty of the Year 2000 problem, resulting in part form the uncertainty of the Year 2000 readiness of third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity, or financial condition. The Company is in the process of verifying that all key suppliers are year 2000 compliant and has ascertained that at least one major supplier is Year 2000 compliant. The Company at present has no individual customer which could have a material adverse effect on the Company's operations should such customer not be Year 2000 compliant. In addition, the Company intends to evaluate the Year 2000 readiness of any future significant customers or suppliers. Recent Accounting Developments During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes rules for the reporting of comprehensive income (loss) and its components. The Company's comprehensive income (loss) consists of results from operations and foreign currency translation adjustments and is presented in the consolidated statement of changes in stockholders' equity. Since this statement applies only to the presentation of comprehensive income (loss), it does not have any impact on the Company's financial position, results of operations, or cash flows. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This standard requires enterprises to report certain information about their operating segments in a complete set of financial statements to stockholders; to report certain enterprise-wide information about products and services, activities in different geographic areas, and reliance on major customers and to disclose certain segment information in their interim financial statements. The basis for determining an enterprise's operating segments is the manner in which financial information is used internally by the enterprise's chief operating decision-maker. The Company operates in one business segment: manufacturing, distribution and marketing of home theater products. During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for fiscal periods beginning after June 15, 1999. The Company is currently evaluating the impact, if any, of this statement. Liquidity and Capital Resources As of December 31, 1998, the Company had cash and cash equivalents of $2,280,107 and negative working capital of $4,492,121. The negative working capital arose from the $6,000,000 in Notes payable classified as a current liability. These notes were automatically, by terms set forth in the Company's proxy statement with respect to its Annual Meeting of Stockholders held on February 19, 1999 converted into preferred stock in the Company on February 19, 1999. The Company had outstanding as of December 31, 1998 a loan of $1,247,400 bearing interest of 10.45%, which was scheduled to mature on June 30, 1999. This loan was assumed by the Company in connection with the Vidikron Acquisition. On December 28, 1998 the lender sent notice of their intention to accelerate the loan due to the breach of a change in control covenant. The Company is in negotiations with the lender and is seeking to substitute a new facility to pay down this obligation. Although discussions are currently taking place with another lender, there can be no assurances that the Company will be successful in attracting a substitute lender. Failure to find a substitute lender could have a material adverse effect on the Company. To date, the Company has funded its operations primarily from sales of capital stock and convertible debt. In February 1998, the Company completed a private placement of preferred stock of $2.85 million. In May 1998 the Company completed a second private placement of preferred stock of $2.4 million and a private placement of common stock of $500,000. In December 1998 the Company completed a private placement of convertible Notes totaling $6 million in connection with financing the Vidikron Acquisition. 8 In January 1997, the Company completed a private placement of preferred stock of $3.5 million. In July 1997 the Company completed a second private placement of preferred stock of $1.0 million, and in December 1997 the Company completed two more private placements of preferred stock totaling $2.25 million. In addition, the sale of government securities was used to fund working capital and to purchase production tooling for the Digital Home Theater. As of December 31, 1998, the Company had available for Federal income tax purposes net operating and capital loss carry-forwards of approximately $39.8 million. The Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), may impose certain restrictions on the amount of net operating loss carry-forwards which may be used in any year by the Company. Results of Operations 1998 Compared With 1997 The Company had revenues of $3,020,874 for the year ended December 31, 1998 compared to revenues of $1,017,645 for the year ended December 31, 1997, an increase of $2,003,229 or 196.8%. Approximately $1,214,215, or 40%, of the revenue in 1998 was attributable to sales of Vidikron brand products subsequent to the Vidikron Acquisition. Cost of goods sold of $2,481,763 was $1,491,719 or 150.7% higher than the previous year and was adversely affected by a write-off of $373,372 in inventory associated with the first generation DHT projector. Gross profit for the year ended December 31, 1998 was $539,111 compared to $27,601 for the previous year, an increase of $511,510, a nineteen-fold improvement. Operating expenses for the year ended December 31, 1998 were $12,196,175 compared to operating expenses for the previous year of $8,228,546, which included $ 483,448 attributable to Vidikron, an increase of $3,967,629, or 48.2%. General and administrative expenses of $8,083,222, which included $344,742 attributable to Vidikron, grew by $3,505,334, or 76.5%, from the previous year principally due to the write down of tooling of $2.9 million for the DHT tooling and molds and advances of $785,000 made to a supplier. Salaries of $1,664,432, which included $132,306 attributable to Vidikron, were $145,737 or 9.6% higher than the year ended December 31, 1997. Depreciation for 1998 was $682,040, an increase of $73,685, or 12.1%, over 1997. Research and development for 1998 was $1,677,647, an increase of $437,069, or 35.2%, over 1997. Patent and license expenses decreased $194,196 to $88,834 from 1997 to 1998 as the Company was winding down its patent application program. Other income for the year ended December 31, 1998 was $2,344,786, an increase of $2,333,760 over year ended December 31, 1997 The primary reason for the increase was the sale of approximately 43 million shares of Manhattan Scientific, Inc. (formerly Tamarack Storage Devices, Inc.) stock for $2,500,000. This stock had been written down to $150,000 in prior years. Interest income of $41,408 in 1998 was offset by interest expense of $46,622. A net loss of $9,312,278 for the year ended December 31, 1998 was $1,022,358, or 12.3%, greater than the previous year. The Company also recorded $2,262,929 in dividends (i) on the Series B Preferred Stock (ii) on the amortization of the discount on the conversion feature the Series D, E, F and G Convertible Preferred Stock and (iii) for warrants issued in connection with the Series F and G Convertible Preferred Stock. 1997 Compared With 1996 The Company had revenues of $1,017,645 for the year ended December 31, 1997 compared to revenue for the previous year of $150,000, an increase of 678%. All of the revenue in 1997 was from the sale of the Digital Home Theater, whereas in 1996 all revenue was royalty income. Cost of goods sold in 1997 was $990,044. Gross profit for the year ended December 31, 1997 was $ 27,601. 9 Operating expenses for the year ended December 31, 1997 were $8,228,546 compared to operating expenses for the previous year of $7,306,908, an increase of $921,638, or 12.6%. General and administrative expenses at $4,577,888, exceeding the previous year's general and administrative expenses by $1,380,847, or 43.2%, due to increased participation in trade shows and to higher advertising and travel expenses. Salaries of $1,518,695 in 1997 grew by $252,408, or 19.9%, over calendar year 1996. Legal fees of $1,347,146 were $329,237, or 32.3%, higher than the previous year due to on-going litigation with a former officer, founder and Director of the Company. Depreciation of $608,355 was $517,071 greater than the previous year because the Company began to depreciate in 1997 the tooling developed to build the Company's Digital Home Theater. Research and development expenses of $1,240,578 for calendar year 1997 was $1,148,751, or 48.1%, less than calendar year 1996.[Why?] Patent and license expense for year-end December 31, 1997 at $283,030 was $79,937, or 22.0%, less than the previous year. The Company also recorded $3,157,266 in dividends on the Series C, D, and E Convertible Preferred Stock in connection with recognizing the discount on the conversion feature, for warrants issued in connection with the issuance of Series D and E Convertible Preferred Stock, and for Series B Preferred Stock Dividends. Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Financial Statements following Item 14 of this Annual Report on Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company are listed below, followed by a brief description of their business experience during the past five years.
Term Name Age Position Expires - ---- --- -------- ------- Marvin Maslow 61 Chairman of the Board 1999 of Directors Phillip Siegel 56 Vice Chairman of the Board 2001 of Directors Martin Holleran 56 President, Chief Executive Officer and Director 2000 Emilio Baj Macario 53 Director 2002 Tomaso Barbini 38 Director 2000 Martin D. Fife 71 Director 2000 E. Bruce Fredrikson, Ph.D. 61 Director 2001 Claudio Guazzoni 36 Director 2002 Flavio Peralda 47 Director 2002
10 Marvin Maslow. Mr. Maslow, a co-founder of the Company, has served as Chairman of the Board of Directors of the Company since its inception. Mr. Maslow also served as the Company's Chief Executive Officer from inception through September 30, 1996, when he voluntarily resigned as Chief Executive Officer of the Company, endorsing the appointment by the Board of Mr. Martin Holleran as Chief Executive Officer of the Company. Mr. Maslow also served as an officer and a director of DKY, Inc. ("DKY"), the Company's predecessor in interest from October 1988 until June 12, 1990, when DKY was merged into the Company. Mr. Maslow also served as Chief Financial Officer of the Company from its inception until the consummation of its initial public offering in August, 1990. Mr. Maslow is also a Director [and an Officer] of Manhattan Scientific, Inc., which was formerly the Company's majority owned subsidiary Tamarack Storage Devices, Inc. and was spun off in July 1998. Phillip Siegel. Mr. Siegel is an independent business consultant. He joined the Company's Board of Directors on February 19, 1999 and was elected to Vice Chairman of the Board on March 25, 1999. Mr. Siegel served as Vice President and Chief Financial Officer of Health Management Systems, Inc., a health care information systems company, from May 1996 until March 1998. He was an independent business consultant from February 1993 until May 1996. He served as a senior executive officer of Presidential Life Insurance Company from December 1989 until February 1993, most recently as its Senior Vice President. During 1988, Mr. Siegel served as Chief Operating Officer and Chief Financial Officer of Sherwood Group and Sherwood Securities. Mr. Siegel is an Independent General Partner of Fiduciary Capital Partners, L.P. and Fiduciary Capital Pension Partners, L.P. and is a Director of WestPoint Stevens, Inc. (and Chairman of the Audit Committee). Martin J. Holleran. Mr. Holleran has served as President of the Company since November, 1993. On September 30, 1996, Mr. Holleran became Chief Executive Officer of the Company, at which time, he retained the title of President but resigned as the Chief Operating Officer of the Company, a position which he had also held since November, 1993. From 1992 until 1993, Mr. Holleran was President and Chief Operating Officer of Emerson Radio. Prior thereto, Mr. Holleran served as President and Chief Executive Officer of Thomson Consumer Electronics Marketing and Sales Company ("Thomson") from 1988 to 1992. Mr. Holleran was also a Director of Manhattan Scientific, Inc. which was formerly the Company's majority owned subsidiary Tamarack Storage Devices, Inc. and was spun off in January 1998, until February 12, 1999. Emilio Baj Macario. Mr. Baj Macario is the Managing Director of Vidikron S.r.L. and had been Managing Director of Vidikron Industries S.p.A. for the 10 years immediately prior to the Vidikron Acquisition. From 1985 to 1990 Dr. Baj Macario was Managing Director of C.I.D. which was an exclusive distributor of JVC consumer goods in Italy. Prior to 1985 he held various senior positions with Panasonic Consumer Electronics. Tomaso Barbini. Mr. Barbini is Vice Chairman of Rothschild Italia, where he has been working since 1992. Prior to joining Rothschild he worked for four years at UBS. Martin D. Fife. Mr. Fife a founder of the Company, has served on the Board of Directors since its inception. In addition, Mr. Fife was the Secretary of the Company from its inception until January 1993. Mr. Fife served as an officer and a director of DKY from August 1988 until July 12, 1990 when DKY was merged into the Company. Mr. Fife has been the Chairman of the Board of Directors of Skysat Communication Network Corporation, a public company, since its inception in July 1992. Since 1987, Mr. Fife has been Chairman of the Board of Magar Inc., a company of which he is a founder specializing in financial products and the development of early stage companies. From 1985 to 1989, Mr. Fife was President of Intergold USA, Inc., a Company involved in the sale and processing of precious metals. From 1986 to 1989, Mr. Fife was President of Agremp Holdings Incorporated, an operator of storage elevators. Since April 1992, Mr. Fife has been a director of the Nova Group, a company engaged in the recycling of industrial plastics. Since 1974, Mr. Fife has served as a director or trustee of several investment companies advised by the Dreyfus Corporation, a registered investment adviser, and currently serves as a director or trustee of the following thirteen investment companies: The Dreyfus Fund Incorporated, Dreyfus Liquid Assets, Inc., Dreyfus Municipal Income, Inc., Dreyfus New York Municipal Income, Inc., Dreyfus California Municipal Income, Inc., Dreyfus Worldwide Dollar Money Market Fund, Inc., Dreyfus Short-Term Fund, Inc., Dreyfus Short-Term Income Fund, Inc., Dreyfus Asset Allocation Fund, Inc., Dreyfus Growth Allocation Fund, Inc., Dreyfus Institutional Short-Term Treasury Fund, Dreyfus Short-Intermediate Government Fund and Dreyfus Short-Intermediate Municipal Bond Fund. 11 E. Bruce Fredrikson. Mr. Fredrikson is Professor of Finance at Syracuse University School of Management. He was chairman of the finance department from 1978 to 1981 and has served in various teaching positions at the University since 1966. Mr. Fredrikson is an Independent General Partner of Fiduciary Capital Partners, L.P. and Fiduciary Capital Pension Partners, L.P. He is a Director of Track Data Corporation and Innodata Corporation and Chairman of the Audit Committee of these two companies. Claudio M. Guazzoni. Mr. Guazzoni co-founded The Zanett Securities Corporation in 1993 where he is currently employed. He previously worked for Salomon Brothers from 1985 until 1991. Mr. Guazzoni is a Director of SmartServe OnLine, Inc. Flavio Peralda. Mr. Peralda the President of Vidikron S.r.L. was Founder/Chairman and President of Vidikron Industries S.p.A. for the past 20 years immediately prior to the Vidikron Acquisition. Board Classification and Committees The Company adopted a classified Board of Directors in February 1990. The Board of Directors presently consists of nine members divided into three classes. The Company currently has one (1) Director whose term expires in 1999, three (3) Directors whose term expires in 2000, two (2) Directors whose term expires in 2001 and three (3) Directors whose term expire in 2002. Having a classified Board of Directors may be viewed as inhibiting a change in control of the Company and having possible anti-takeover effects. Officers of the Company serve at the discretion of the Board of Directors. The Company has an Audit Committee and a Compensation Committee. The Audit Committee Among other things, the Audit Committee (i) reviews the internal control procedures and accounting procedures of the Company; (ii) consults with the Company's independent auditors; (iii) reviews the reports submitted by the Company's independent auditors; (iv) reviews with the Company's management compliance reporting and accounting; and (v) makes reports and recommendations to the Board of Directors, as it deems appropriate regarding, among other matters appointment of independent auditors. The Audit Committee is presently comprised of E. Bruce Fredrikson (the Chairman) and Claudio M. Guazzoni. The Audit Committee held one (1) meeting during 1998. The Compensation Committee The Compensation Committee establishes and administers salaries, bonuses and other incentive plans in order to attract persons to serve as, and to retain, motivate and reward qualified persons serving as, directors, executive officers and key employees of the Company. The Compensation Committee is presently comprised of Claudio M. Guazzoni (the Chairman), E. Bruce Fredrikson and Martin D. Fife. The Compensation Committee held one (1) meeting in 1998. Each member of the Board of Directors who is not an officer or employee of the Company receives an annual fee of $8,000 per year, plus $1,000 for each scheduled Board meeting and $ 500 for each committee meeting attended for serving as Director. As of March 25, 1999 each Director can elect in advance to take equity in the Company in lieu of cash fees. The equity will be priced at 85% of the average closing bid price for the ten days preceding the applicable meeting. The Company reimburses its Directors for out-of-pocket expenses incurred in connection with meetings of the Board of Directors or committee meetings attended. There are no family relationships among any Directors or officers. All Directors attended at least 75% of the meetings in 1998. 12 Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of its Common Stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission") and the National Association of Securities Dealers, Inc. Officers, directors and greater than ten percent stockholders are required by the Commission to furnish the Company with copies of all Section 16(a) forms that they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no reports on Form 5 were required for those persons, the Company believes that during 1998 all filing requirements applicable to its officers, directors and greater than ten percent stockholders were complied with. Executive Compensation The following table sets forth the cash compensation paid by the Company to executive officers of the Company for the year ended December 31, 1998 whose total annual salary and bonus exceeded $100,000: SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards Payouts (a) (b) (c) (d) (e) (f) (g) (h) (i) Other All Annual Restricted Other Compen- Stock LTIP Compen- Name and sation Awards Options/ Payouts sation Principal Position Year Salary($) Bonus($) $ $ SARs(#) $ $ - ------------------ ---- --------- -------- ------- ---------- -------- ------- ------- Marvin Maslow, 1998 $150,000 $ -0- $63,676(6) $ -0- $ -0- Chairman of the Board 1997 $150,000 $ -0- $41,676 $ -0- -0- $ -0- $ -0- Of Directors 1996 $150,000 $ -0- $40,141 $ -0- 25,000(1) $ -0- $100,000(2) Martin Holleran, 1998 $220,000 $ -0- $24,154 $ -0- 784,624(3) $ -0- $ -0- President, Chief 1997 $220,000 $ -0- $24,115 $ -0- -0- $ -0- $ -0- Executive Officer 1996 $180,000 $ -0- $ 9,403 $ -0- 25,000(4) $ -0- $100,000(5) And Director Sherman Langer (7) 1998 $165,000 $ -0- $ -0- $ -0- -0- $ -0- $ -0- Senior Vice President 1997 $165,000 $ -0- $ -0- $ -0- -0- $ -0- Of Marketing and 1996 $130,000 $30,000 $ -0- $ -0- $ 2,500 $ -0- $ -0- Sales And Director
(1) On March 12, 1996, the Company cancelled 4,688 unvested stock options granted in 1994 having an exercise price of $215.00 per share and granted Mr. Maslow 25,000 non-qualified stock options having an exercise price of $175.00 per share, which exercise price was subsequently reduced to $120.00 on January 9, 1997. (2) Represents a one-time cost-of-living adjustment made to Mr. Maslow's July 1990 employment agreement with the Company. (3) On December 8, 1998 Mr. Holleran was granted options representing 7% of the company's issued and outstanding common stock, on a fully diluted basis, after giving effect to the transactions approved at the Company's Meeting of Stockholder held on February 19, 1999. (4) On March 12, 1996, the Company cancelled 3,125 unvested stock options granted in 1994 having an exercise price of $215.00 per share and granted Mr. Holleran 25,000 non-qualified stock options having an exercise price of $175.00 per share, which exercise price was subsequently reduced to $120.00 on January 9,1997. On December 8, 1998, Mr. Holleran returned all of these stock options to the company. 13 (5) Represents a one-time cost-of-living adjustment made to Mr. Holleran's 1993 employment agreement with the Company. (6) Includes $25,000 received from Manhattan Scientific, Inc. (See Item 13 Certain Relationships and Related Transactions) (7) Mr. Langer resigned as of March 16, 1999. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
(a) (b) (c) (d) (e) Value of Unexercised Number of In-the-Money Options/SARs Options/SARs At Fiscal At Fiscal Year End (#) Year End (#) Shares Name and Acquired on Value Exercisable Exercisable Principal Position Exercise (#) Realized ($) Unexercisable Unexecisable - ------------------ ------------ ------------ ------------- ------------ Marvin Maslow -0- N/A 34,375 Exercisable 0/0 Chairman of the Board Of Directors Martin Holleran, -0- N/A 261,541 Exercisable 0/0 President and Chief Executive Officer Sherman Langer -0- N/A 3,800 Exercisable 0/0 Senior Vice President Of Marketing and Sales and Director Jules Zimmerman -0- N/A 3,000 Exercisable 0/0 Chief Financial Officer And Director Martin Fife, -0- N/A 375 Exercisable 0/0 Vice Chairman of the Board of Directors
Executive Employment Agreements The Company entered into an employment agreement in July 1990 with Marvin Maslow to serve as Chief Executive Officer of the Company. Mr. Maslow's employment agreement, which was to initially expire in July, 1995, was automatically extended in January 1995 by its terms for an additional 30 months. That employment agreement was terminated and replaced with a new executive employment agreement effective March 1, 1997 when Mr. Maslow resigned his position as Chief Executive Officer and remained Chairman of the Board. The terms of Mr. Maslow's employment agreement set forth a salary of $150,000 per annum, a $2,000 per month non-accountable expense allowance, lease of an automobile and other perquisites. The term of Mr. Maslow's new employment agreement is six (6) years with a two-year extension, and it contains change in control provisions. The Company entered into a three (3) year employment agreement with Mr. Martin Holleran in November 1993 to serve as the Company's President and Chief Operating Officer at a salary of $180,000 per year. Upon the expiration of this agreement (which was orally extended by the parties subsequent to its term), the Company entered into a new executive employment agreement with Mr. Holleran effective March 1, 1997. At that time Mr. Holleran resigned his position as Chief Operating Officer and assumed the position of Chief Executive Officer. The terms of Mr. Holleran's employment agreement set forth a salary of $220,000 per annum plus lease of an automobile and other perquisites. The term of Mr. Holleran's new executive employment agreement is six (6) years with a two-year extension, and it contains change in control provisions. 14 Effective December 8, 1998, the Company entered into a one (1) year employment agreement with Mr. Flavio Peralda initially to act as Attorney for Vidikron S.r.L. and a two (2) year employment agreement with Emilio Baj Macario also to act as Attorney for Vidikron S.r.L. at salaries of $180,000 per year each. The Company is in the process of converting Vidikron S.r.L. into Vidikron S.p.A. At the time of conversion, Mr. Peralda will become President and Mr. Baj Macario Managing Director of Vidikron S.p.A. in accordance with the terms of their employment agreements. The Company has also entered into an employment agreement with Giovanni Cozzi, President of Vidikron of America, for a period of (4) months at an annual salary of $146,000 and with James Wellnitz, Executive Vice President of Vidikron of America, for one year at a salary of $85,000 per year. Messrs. Cozzi and Wellnitz also receive a percentage of revenue earned in the U.S. At the expiration of Mr. Cozzi's employment agreement he became an employee at will under the same terms and conditions as before. Each of Messrs. Maslow, Holleran, Peralda and Baj Macario have agreed not to compete with the Company during the term of his respective employment agreement and for a period of two years after the termination thereof. Each of Messrs. Cozzi and Wellnitz have agreed not to compete with company during the term of their employment agreement. All of the executive employment agreements contain termination for cause provisions. Effective January 1, 1997, the Company entered into an employment agreement with Mr. Sherman Langer. The term of Mr. Langer's employment agreement was three (3) years and provided for a salary of $165,000 per year and also contains certain change in control provisions. The employment agreement was terminated as of March 16, 1999, by mutual consent. Under the terms of the agreement Mr. Langer resigned as an Officer and Director of the Company with the Company agreeing to pay his salary and benefits for up to six months or until thirty (30) days after Mr. Langer becomes reemployed, which ever comes earlier. Subsequent to the closing of the Company's initial public offering in 1990, the Company retained Jules Zimmerman as Chief Financial Officer of the Company. In connection therewith, the Company entered into a consulting agreement with Mr. Zimmerman and Hickok Associates whereby the Company is billed on an hourly basis for the work performed by Mr. Zimmerman. Hickok Associates discontinued operations as of December 31, 1996. Since that time Mr. Zimmerman has continued to provide his services to the Company as Chief Financial Officer on an hourly basis. Mr. Zimmerman resigned as Chief Financial Officer to the company on February 19, 1999 and as a Director as of March 15, 1999. Indemnification Agreements The Company has entered into an Indemnification Agreement with each of its Directors and any officer, employee, agent or fiduciary designated by the Board of Directors which provides that the Company indemnify the Director or other party thereto to the fullest extent permitted by applicable law. The agreement includes indemnification, to the extent permitted by applicable law, against expenses, including reasonable attorneys' fees, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by the indemnified party in connection with any civil or criminal action or administrative proceeding arising out of the indemnitee's performance of his duties as a Director or officer of the Company. Such indemnification is available if the indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal action, had no reasonable cause to believe his conduct was unlawful. 15 Under the Indemnification Agreement, the entitlement of a Director or officer to indemnification will be determined by a majority vote of a quorum of disinterested Directors, or if such quorum either is not obtainable or so directs, by independent counsel or by the stockholders of the Company, as determined by such disinterested Directors. If a change of control of the Company has occurred, the entitlement of such Director or officer to indemnification shall be determined by independent counsel selected by such Director or officer, unless such Director or officer requests that either the Board or the stockholders make such determination. Each Indemnification Agreement requires the Company to advance litigation expenses at the request of the Director or officer who is a party thereto, whether prior to, or after final resolution of a proceeding, provided that the indemnitee undertakes to repay such advances if it is ultimately determined that he is not entitled to indemnification for his expense. The advance of litigation expenses is therefore mandatory upon satisfaction of certain conditions by such Director or officer. The Company has entered into an Indemnification Agreement with all of its Directors and officers. The Company has obtained officers' and directors' liability insurance, which provides a maximum of $6,000,000 of coverage, subject to a $100,000 deductible payable by the Company except under certain circumstances for securities related matters in which case the deductible is $150,000. Any payments made by the Company under an Indemnification Agreement which are not covered by the insurance policy may have an adverse impact on the Company's earnings. Stock Option Plans and Agreements At the Annual Meeting on February 19, 1999 the stockholders approved the adoption of the Company's 1999 Incentive Stock Option Plan (the "1999 Option Plan") inasmuch as the Company's currently existing 1990 Incentive Stock Option and Allocation Plan (the "1990 Option Plan") will, by its terms in accordance with applicable Federal Income Tax provisions, expire in February 2000. The purpose of the 1999 Option Plan, like the 1990 Plan, is to encourage and enable employees and consultants of the Company and its subsidiaries to acquire a proprietary interest in the Company through the ownership of the Company's Common Stock. The Option Plan is designed to provide employees and consultants with a more direct stake in the Company's future welfare and an incentive to remain with the Company. The 1999 Option Plan is, in most material respects, substantially similar if not identical to the 1990 Option Plan. Like the 1990 Option Plan, the 1990 Option Plan will provide for grants of "Incentive Stock Options," meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and "Non-qualified Stock Options". The 1999 Option Plan will be administered by the Compensation Committee of the Board of Directors (the "Committee") which is comprised of not less than two disinterested directors within the meaning of Rule 16b-3 of the Exchange Act. The Option Plan permits the Committee to determine which employees or consultants or other eligible personnel shall receive options and the times when options are to be granted. The Committee also determines the purchase price of Common Stock covered by each option, the term of each option, the number of shares of Common Stock to be covered by each option and any performance objectives or vesting standards applicable of each option. The Committee also designates whether the options shall be Incentive Stock Options or Non-qualified Stock Options. The Plan has a term of ten (10) years and expires in February 2009. The purchase price per share under each Incentive Stock Option or Non-qualified Stock Option is the "Market Price" (i.e., the average of the high and low reported consolidated bid price for such day) of the Common Stock on the date the option is granted, except that the exercise price for an Incentive Stock Option granted to a 10% stockholder may not be less than 100% of the Market Price of the Common Stock on the date of the grant. The aggregate Market Price of the Common Stock exercisable under Incentive Stock options held by any optionee during any calendar year may not exceed $100,000. Incentive Stock Options granted to employees under the Option Plan have a maximum term of ten years. Options are not transferable except by will or pursuant to the applicable laws of descent and distribution. Notwithstanding the general restriction on transferability, in the sole discretion of the Committee, Non-qualified Stock Options may be made transferable subject to the requirements of Rule 16b-3. 16 In the event that an employee is terminated for any reason other than death, Disability, Retirement for Cause (as such terms are defined in the Option Plan), to the extent that the employee had the right to exercise an option, such option will be exercisable until the earlier of the expiration date of the option, or within 30 days of the date of such termination. Options held on the date of Disability or Retirement, whether or not exercisable on such date, are exercisable within one year of the date of Disability or Retirement. Options held by an employee at the date of death, whether or not exercisable on the date of death, are exercisable by the beneficiary of the employee within one year from the date of death. The Committee may, in its sole discretion, cause any option to be forfeited upon an employees termination for Cause (as defined in the Option Plan). In the event of a Change of Control (as such term is defined in the Plan) of the Company, all outstanding options will vest and appropriate provisions shall be made for the protection of options by substitution on an equitable basis of appropriate stock of the Company or appropriate stock of the merged, consolidated or otherwise reorganized corporation, as the case may be. The Board of Directors is permitted to suspend, terminate, modify or amend the Option Plan, provided that any amendment that would (I) materially increase the aggregate number of shares, (ii) materially increase benefits accruing to employees, or (iii) materially modify the eligibility requirements for participation shall be subject to stockholder approval, provided, however, that stockholder approval is not required for adjustments to the Option Plan or to the number of shares available thereunder which are deemed appropriate by the Committee to prevent dilution or expansion of rights. The Company's 1999 Option Plan would have available options exercisable for shares of common Stock of the Company in an amount equal to twenty percent (20%) of the company's issued and outstanding shares after giving effect to the transactions approved at the February 19, 1999 stockholders meeting. Performance Graph Comparison of Five-Year Cumulative Total Returns Performance Report for Vidikron Technologies Group, Inc. Prepared by the Center for Research in Security Prices Produced on 04/14/1999 including data to 12/31/1998 Company Index: CUSIP Ticker Class Sic Exchange 74339110 PJTV 3660 NASDAQ Fiscal Year-end is 12/31/1998 market Index; Nasdaq Stock Market (US Companies) Peer Index: NASDAQ Stocks (SIC 3660-3669 US Companies) Communications Equipment Date Company Index Market Index Peer Index 12/31/1993 100.000 100.000 100.000 01/31/1994 80.682 103.035 100.788 02/28/1994 62.500 102.073 98.085 03/31/1994 61.364 95.798 91.886 04/29/1994 61.364 94.554 95.175 05/31/1994 45.455 94.785 85.228 06/30/1994 55.682 91.319 79.834 07/29/1994 47.727 93.192 84.114 08/31/1994 50.000 99.135 93.740 09/30/1994 46.591 98.881 93.278 10/31/1994 52.273 100.824 105.370 11/30/1994 45.455 97.479 104.840 12/30/1994 39.205 97.752 113.428 01/31/1995 31.818 98.309 109.964 02/28/1995 29.545 103.509 118.085 03/31/1995 30.682 106.579 123.902 04/28/1995 23.295 109.937 131.144 05/31/1995 21.591 112.775 132.896 06/30/1995 28.409 121.914 157.365 07/31/1995 27.273 130.876 175.814 08/31/1995 30.114 133.531 177.400 09/29/1995 42.614 136.601 187.897 10/31/1995 51.136 135.813 173.262 11/30/1995 34.091 139.004 186.370 12/29/1995 43.182 138.265 175.935 01/31/1996 40.909 138.944 171.886 02/29/1996 43.182 144.233 183.654 03/29/1996 36.932 144.708 181.159 04/30/1996 20.455 156.710 215.722 05/31/1996 26.136 163.906 243.372 06/28/1996 32.955 156.517 234.122 07/31/1996 26.705 142.559 188.855 08/30/1996 35.227 150.547 202.873 Comparison of Five-Year Cumulative Total Returns Performance Report for Vidikron Technologies Group, Inc. Prepared by the Center for Research in Security Prices Produced an 04/14/1999 including data to 12/31/1998 Date Company Index Market Index Peer Index 09/30/1996 36.364 162.062 213.700 10/31/1996 34.091 160.271 201.541 11/29/1996 30.682 170.179 208.784 12/31/1996 23.295 170.025 195.178 01/31/1997 27.557 182.109 207.294 02/28/1997 25.000 172.037 181.620 03/31/1997 23.864 160.804 164.429 04/30/1997 18.182 165.831 157.669 05/30/1997 17.330 184.696 197.998 06/30/1997 17.898 190.353 203.921 07/31/1997 13.352 210.432 224.948 08/29/1997 17.330 210.179 227.641 09/30/1997 17.614 222.580 233.837 10/31/1997 14.773 211.020 221.992 11/28/1997 13.636 212.164 219.291 12/31/1997 8.807 208.532 208.891 01/30/1998 10.369 215.158 195.827 02/27/1998 6.818 235.389 206.211 03/31/1998 10.227 244.025 215.148 04/30/1998 6.818 248.054 227.390 05/29/1998 4.545 234.261 212.203 06/30/1998 2.273 250.681 225.827 07/31/1998 3.409 247.694 221.964 08/31/1998 1.136 198.800 142.261 09/30/1998 0.852 226.450 140.172 10/30/1998 0.852 236.226 159.730 11/30/1998 0.852 260.132 174.648 12/31/1998 0.568 293.832 191.299 The index level for all series was set to 100.0 on 12/31/1993 17 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, as of April 9, 1999, known to the Company regarding beneficial ownership of the Company's Common Stock by: (i) any holder of more than five percent of the outstanding shares; (ii) the Company's directors; and (iii) the directors and officers of the Company as a group:
Shares Percentage Shares Percentage Of (%) of of (%) of Common Total Preferred Total Stock Common Stock Preferred Name Owned(1)(2) Stock(3) Owned Stock - ---- ----------- ---------- --------- ---------- Marvin Maslow (5) 34,958 1.3% 25,000 7.1% Manhattan Scientifics Inc. 641 5th Avenue Suite 36-F New York, NY 10022 Martin D. Fife (4) 8,750 -0- -0- -0- 405 Lexington Avenue New York, NY 10174 Martin Holleran (6) 784,624 28.5% -0- -0- Vidikron Technologies Group Inc. One Evertrust Plaza 11th Floor Jersey City, NJ 07302 Phillip Siegel (7) 100,000 3.6% -0- -0- (Vidikron Technologies Group, Inc.) Tomaso Barbini (8) 50,000 1.8% -0- -0- (Vidikron Technologies Group, Inc.) E. Bruce Fredrikson (8) 50,000 1.8% -0- -0- (Vidikron Technologies Group, Inc.) Claudio Guazzoni (8) 50,000 1.8% -0- -0- (Vidikron Technologies Group, Inc.) Emillio Baj Macario (9) 493,333 17.9% -0- -0- Vidikron Industries S.p.A. Via Dei Guasti, 29 20020 Misinto (Milano) C.so Venezia, 16-20121 Milano, Italy Flavio Peralda (9) 493,333 17.9% -0- -0- Vidikron Industries S.p.A. Via Dei Guasti, 29 20020 Misinto (Milano) C.so Venezia, 16-20121 Milano, Italy All Directors, Nominees and Officers Group (consisting of 9 persons) (4)(5)(6)(7)(8)(9) 2,749,955 57.2% 25,000 7.1%
(1) Except as otherwise indicated, all shares of Common Stock are beneficially owned, and sole investment and voting power is held, by the persons named. (2) Gives effect to the reverse stock split of forty (40) for one (1) in March of 1999. (3) Outstanding Common Stock does not include any shares of Common Stock issuable upon the exercise of any outstanding options or warrants, or the conversion of any convertible preferred securities. The convertible preferred securities are convertible into common stock. Should they be converted the common stock would increase to approximately 10.5 million shares. (4) Includes 8,750 non-qualified options granted to and beneficially owned by Mr. Fife to acquire 8,750 shares of Common Stock. Does not include (i) 100 shares of non-voting Series A Preferred Stock issued to Mr. Fife in connection with the early financing of the Company. (5) Includes (i) 34,375 shares of Common Stock subject to 34,375 non-qualified stock options. Does not include 4,038 shares of Common Stock owned by Mr. Maslow's adult child. Mr. Maslow disclaims beneficial ownership of the shares of Common Stock owned by his adult child. Mr. Maslow received 25,000 shares of Series B Preferred Stock on May 15, 1992 for services rendered in the second quarter of 1992. (6) Includes non-qualified options granted to and beneficially owned by Mr. Holleran to acquire shares of the Company's Common Stock. 18 (7) Includes incentive stock options granted to and beneficially owned by Mr. Siegel to acquire shares of the Company's Common Stock. (8) Includes non-qualified stock options granted to and beneficially owned by Messrs. Barbini, Fredrikson and Guazzoni to acquire shares of the Company's Common Stock. (9) Represents shares issued to Grangeover, an Isle of Mann Entity, as partial consideration for the transfer to the Company of certain trademarks and intellectual property rights in connection with the Vidikron Acquisition. Messrs. Peralda and Baj Macario are empowered to vote the shares issued to this entity, but disclaim any beneficial ownership. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company leases space from Mssrs. Baj Macario and Peralda, two of the Company's officers and directors, and purchases certain components used in the manufacture of certain projectors and certain manufactured projectors from Novavision, S.p.A., a company owned by Mssrs. Baj Macario and Peralda. For the year ended December 31, 1998, the lease expense was $6,181. The lease was negotiated as an arms length transaction at the time of the Vidikron Acquisition and the transfer price for manufactured goods is subject to competitive bids. Mssrs. Baj Macario and Peralda also hold a power of attorney from Grangeover, an Isle of Mann entity, to vote the Company's common stock owned by Grangeover. In January of 1998 the Company merged its majority owned subsidiary, Tamarack Storage Devices Inc., into a bulletin board shell company, changed the name of the merged entity to Manhattan Scientifics, Inc. ("MSI") and simultaneously therewith effected an offering of $1,000,000 of common stock of MSI in a Rule 504 offering. Upon the consummation of this transaction, after giving effect to the merger and the Rule 504 offering, the Company owned approximately 77% of the issued and outstanding common shares of MSI. On or about the same time MSI issued 7,500,000 options each to Messrs. Maslow and Holleran to acquire MSI common stock at an exercise price of $0.20 per share. Marvin Maslow is an officer and director of MSI and Mr. Holleran is a director of MSI. In July 1998, as part of the Company's sale of approximately 43.1 million shares of MSI common stock to an institutional investor, the institutional investor required that it receive 10,000,000 of the 15,000,000 options owned by these two officers and directors and that the exercise price be reduced to $0.05 per share. Each of the two officers and directors surrendered options for 5,000,000 shares of MSI common stock and each had the exercise price of their remaining options for 2,500,000 shares of MSI common stock similarly reduced to $0.05 per share. In 1998, Mr. Maslow received $25,000 in compensation from MSI. On February 12, 1999 Mr. Holleran resigned as a director of MSI. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements The following consolidated financial statements of the Company are incorporated herein by reference to Part II, Item 8:
Independent Auditors' Report F - 1 Consolidated Balance Sheets at December 31, 1997 and 1998 F - 2 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997, 1998 F - 3 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997, 1998 F - 4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997, 1998 F - 5 Notes to Consolidate Financial Statements F - 6
19 (a) (2) Financial Statement Schedules Schedule II Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the information required is included in the financial statements and notes thereto. (a) (3) Exhibits The following is a list of exhibits filed as part of the Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Exhibit No. - ----------- 10.52 Acquisition Agreement and Related Agreements with Vidikron Industries, S.p.A. 27 Financial Data Schedule 20 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly executed on this 15th day of April, 1999. VIDIKRON TECHNOLOGIES GROUP, INC. By: /s/ Martin Holleran --------------------------------- Martin Holleran, President Chief Executive Officer and Director In accordance with the Exchange Act this report has been signed below by the following persons in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- - ----------------------- Chairman of the Board April 15, 1999 Marvin Maslow of Directors /s/ Phillip Siegel Vice Chairman of the Board April 15, 1999 - ----------------------- of Directors Phillip Siegel /s/ Martin Holleran President, Chief April 15, 1999 - ----------------------- Executive Officer and Director Martin Holleran /s/ Stuart D. Barlow Vice President of Finance April 15, 1999 - ----------------------- (principal financial officer) Stuart D. Barlow /s/ Emilio Baj Macario - ----------------------- Director April 15, 1999 Emilio Baj Macario /s/ Tomaso Barbini - ----------------------- Director April 15, 1999 Tomaso Barbini /s/ Martin D. Fife - ----------------------- Director April 15, 1999 Martin D. Fife /s/ E. Bruce Fredrikson - ----------------------- Director April 15, 1999 E. Bruce Fredrikson /s/ Claudio Guazzoni - ----------------------- Director April 15, 1999 Claudio Guazzoni /s/ Flavio Peralda - ----------------------- Director April 15, 1999 Flavio Peralda
Item 14(c) Part IV Exhibit Index Exhibit Number Description - -------------- ----------- 3.1 Amendment to Certificate of Incorporation changing the name of the Company to Vidikron Technologies Corp., Inc. 3.1.1 Amendment to Certificate of Incorporation amending authorized capital 10.53 Amended Acquisition Agreement and Related Agreements with Vidikron Industries, S.p.A. 10.54 Employment Agreement of Emilio Baj Macario 10.55 Employment Agreement of Flavio Peralda 21 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Vidikron Technologies Group. Inc.: We have audited the accompanying consolidated balance sheets of Vidikron Technologies Group, Inc. and its subsidiaries (the "Company") (formerly Projectavision, Inc.) as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated the financial statements present fairly, in all material respects, the financial position of the companies at December 31, 1998 and 1997 and the results of their operations and their cash flows for the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. New York, NY April 8, 1998 F-1 VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------- December 31, December 31, ASSETS 1997 1998 CURRENT ASSETS: Cash and cash equivalents $ 1,331,925 $ 2,280,107 Accounts receivable 377,608 1,934,426 Inventory 1,857,604 4,617,680 Investments - 500,000 Other current assets 1,001,629 299,575 ------------ ------------ Total Current Assets 4,568,766 9,631,788 PROPERTY AND EQUIPMENT Furniture, fixtures and equipment 127,128 643,009 Tooling 5,907,288 2,134,237 Computers and software 259,048 320,270 Assets under capital leases 47,989 47,989 Leasehold improvements 185,030 8,824 ------------ ------------ 6,526,483 3,154,329 Less: Accumulated depreciation and amortization 851,250 290,662 ------------ ------------ Property and equipment, net 5,675,233 2,863,667 GOODWILL - Net of accumulated amortization of $25,043 - 5,985,094 TRADEMARKS - Net of accumulated amortization of $3,769 - 599,216 OTHER ASSETS 168,358 150,635 ------------ ------------ TOTAL ASSETS $ 10,412,357 $ 19,230,400 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,466,676 $ 3,597,729 Accrued liabilities 1,070,638 1,297,500 Notes payable - 7,889,197 Bank debt - 1,681,579 Convertible debt - 140,000 Current portion of capital lease obligations 15,229 17,904 ------------- ------------- Total Current Liabilities 3,552,543 14,623,909 ------------- ------------- LONG-TERM LIABILITIES Long-term portion of capital lease obligations 22,851 4,947 Other long-term liabilities 250,000 498,188 Convertible debt 900,000 - ------------- ------------- Total Long-term Liabilities 1,172,851 503,135 ------------- ------------- TOTAL LIABILITIES 4,725,394 15,127,044
COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Preferred stocks Series A Preferred Stock, $.01 par value 100 shares authorized, 100 shares issued ($100,000 liquidation preference) - - Series B Preferred Stock, $.01 par value 434,667 shares authorized, 351,258 shares outstanding as of December 31, 1998 ($1,756,290 liquidation preference) 3,512 3,512 Series D Preferred Stock, $100 par value 60,000 shares authorized; 51,000 shares issued as of December 31, 1997 and 36,900 shares issued as of December 31, 1998; ($3,690,000 liquidation preference) 5,100,000 3,690,000 Series E Preferred Stock, $1000 par value 1,650 shares authorized; 1,650 shares issued as of December 31, 1997 and 1,510 shares issued as of December 31, 1998; ($1,510,000 liquidation preference) 1,650,000 1,510,000 Series F Preferred Stock, $1000 par value 2,850 shares authorized; 2,850 shares issued as of December 31, 1998; ($2,850,000 liquidation preference) 2,850,000 Series G Preferred Stock, $1000 par value 2,400 shares authorized; 2,400 shares issued as of December 31, 1998; ($2,400,000 liquidation preference) 2,400,000 Common stock $.004 par value - 1,250,000 shares authorized; 499,725 and 1,146,327 issued and outstanding in 1997 and 1998 respectively 1,999 4,585 Cumulative Translation Adjustment - (21,353) Additional paid-in capital 44,535,906 50,846,300 Accumulated Deficit (45,604,454) (57,179,688) ------------- ------------ Total Stockholders' Equity 5,686,963 4,103,356 ------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,412,357 $19,230,400 ============= ============ The consolidated financial statements reflect a 40-to-1 reverse stock split. See notes to consolidated financial statements.
F-2 VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, -------------------------------------------------------------------- 1996 1997 1998 REVENUE $ 150,000 $ 1,017,645 $ 3,020,874 COST OF SALES - 990,044 2,481,763 ------------ ------------ ------------ GROSS PROFIT 150,000 27,601 539,111 OPERATING EXPENSES General and administrative 3,197,041 4,577,888 8,083,222 Salaries 1,266,287 1,518,695 1,664,432 Depreciation and amortization 91,284 608,355 682,040 Research and development 2,389,329 1,240,578 1,677,647 Patent and license expense 362,967 283,030 88,834 ------------ ------------ ------------ Total Operating Expenses 7,306,908 8,228,546 12,196,175 ------------ ------------ ------------ LOSS FROM OPERATIONS (7,156,908) (8,200,945) (11,657,064) ------------ ------------ ------------ OTHER INCOME (EXPENSE) Recovery of allowances on advances 109,166 - - Gain on sale of investment - - 2,350,000 Interest income 458,979 167,855 41,408 Interest expense (352,049) (117,524) (46,622) Interest expense - Amortization of debt expense (3,868,016) (39,306) - ------------ ------------ ------------ Other income/(expense) - Net (3,651,920) 11,025 2,344,786 ------------ ------------ ------------ Loss before Equity in Loss of Unconsolidated Affiliate (10,808,828) (8,189,920) (9,312,278) Equity in Loss of Unconsolidated Affiliate (72,065) (100,000) - ------------ ------------ ------------ Net Loss (10,880,893) (8,289,920) (9,312,278) Dividends on Preferred Stock (2,635,331) (3,157,266) (2,262,929) ------------ ------------ ------------ Net Loss Attributable to Common Stockholders $(13,516,224) $(11,447,186) $(11,575,207) -=========== ============ ============ Net Loss per Share Attributable to Common Stockholders $ (39.79) $ (25.48) $ (17.04) ============ ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 339,668 449,222 679,422 ============ ============ ============
The consolidated financial statements reflect a 40-to-1 reverse stock split. See notes to consolidated financial statements . F-3 VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------- CUMULATIVE SERIES A SERIES B SERIES C TRANSLATION PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK ADJUSTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 100 385,982 $3,859 NET LOSS ISSUANCE OF COMMON STOCK FOR PREFERRED STOCK DIVIDENDS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ISSUANCE OF SERIES C PREFERRED STOCK 7,500 8 SERIES C PREFERRED STOCK PLACEMENT FEE CASH DIVIDEND ON SERIES C PREFERRED STOCK EXERCISE OF STOCK OPTIONS AMORTIZATION OF DISCOUNT ON 8% DEBENTURES AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES --------------------------- ------- -------------- ----------- ------------ ------- BALANCE, DECEMBER 31, 1996 $ - 100 $ - 385,982 $3,859 7,500 $ 8 NET LOSS CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK (34,724) (347) SERIES C PREFERRED STOCK CONVERSION (7,500) (8) ISSUANCE OF SERIES D PREFERRED STOCK ISSUANCE OF SERIES E PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS FINANCING COST FOR SERIES D PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF COMMON STOCK FOR SERVICES CONVERSION OF 8% DEBENTURES INTO COMMON STOCK --------------------------- ------- -------------- ----------- ------------ ------- BALANCE, DECEMBER 31, 1997 0 100 0 351,258 3,512 0 0 NET LOSS CUMULATIVE TRANSLATION ADJUSTMENT (21,353) TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS CONVERSION OF SERIES D PREFERRED STOCK FINANCING COST FOR SERIES D PREFERRED STOCK CONVERSION OF SERIES E PREFERRED STOCK ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER ISSUANCE OF SERIES F PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS ISSUANCE OF SERIES G PREFERRED STOCK FINANCING COST FOR SERIES G PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER ISSUANCE OF COMMON STOCK ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR SERVICES --------------------------- ------- -------------- ----------- ------------ ------- BALANCE, DECEMBER 31, 1998 ($21,353) 100 $ 0 351,258 $ 3,512 0 $ 0 =========================== ======= ============== =========== ============ =======
The consolidated financial statements reflect a 40-to-1 reverse stock split. See notes to consolidated financial statements. F-4
VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ SERIES D SERIES E SERIES F SERIES G PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 0 $ - 0 $ - 0 $ - 0 $ - NET LOSS ISSUANCE OF COMMON STOCK FOR PREFERRED STOCK DIVIDENDS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ISSUANCE OF SERIES C PREFERRED STOCK SERIES C PREFERRED STOCK PLACEMENT FEE CASH DIVIDEND ON SERIES C PREFERRED STOCK EXERCISE OF STOCK OPTIONS AMORTIZATION OF DISCOUNT ON 8% DEBENTURES AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES -------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1996 0 - 0 - 0 - 0 - NET LOSS CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK SERIES C PREFERRED STOCK CONVERSION ISSUANCE OF SERIES D PREFERRED STOCK 51,000 5,100,000 ISSUANCE OF SERIES E PREFERRED STOCK 1,650 1,650,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS FINANCING COST FOR SERIES D PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS ISSUANCE OF COMMON STOCK FOR SERVICES CONVERSION OF 8% DEBENTURES INTO COMMON STOCK -------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 51,000 5,100,000 1,650 1,650,000 0 0 0 0 NET LOSS CUMULATIVE TRANSLATION ADJUSTMENT TOTAL COMPREHENSIVE LOSS CONVERSION OF 8% DEBENTURES INTO COMMON STOCK ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS CONVERSION OF SERIES D PREFERRED STOCK (14,100) (1,410,000) FINANCING COST FOR SERIES D PREFERRED STOCK CONVERSION OF SERIES E PREFERRED STOCK (140) (140,000) ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER ISSUANCE OF SERIES F PREFERRED STOCK 2,850 2,850,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS ISSUANCE OF SERIES G PREFERRED STOCK 2,400 2,400,000 FINANCING COST FOR SERIES G PREFERRED STOCK AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER ISSUANCE OF COMMON STOCK ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. ISSUANCE OF COMMON STOCK FOR SERVICES --------- ------------ ------- ----------- ------- ----------- ------ --------- BALANCE, DECEMBER 31, 1998 36,900 $3,690,000 1,510 $1,510,000 2,850 $2,850,000 2,400 $2,400,000 ========= ============ ======= ==========- ======= =========== ====== =========
The consolidated financial statements reflect a 40-to-1 reverse stock split. See notes to consolidated financial statements.
VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ----------------------------------------------------------------------------------------------------------------------------------- ADDITIONAL ACCUMULATED COMMON STOCK PAID IN DEFICIT SHARES AMOUNT CAPITAL TOTAL -------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1995 309,720 $ 1,239 $ 24,318,651 $(20,641,044) $ 3,682,705 NET LOSS (10,880,893) (10,880,893) ISSUANCE OF COMMON STOCK FOR PREFERRED STOCK DIVIDENDS 941 4 154,389 (154,393) 0 CONVERSION OF 8% DEBENTURES INTO COMMON STOCK 44,324 177 3,020,298 3,020,475 ISSUANCE OF SERIES C PREFERRED STOCK 7,499,992 7,500,000 SERIES C PREFERRED STOCK PLACEMENT FEE (500,000) (500,000) CASH DIVIDEND ON SERIES C PREFERRED STOCK (123,750) (123,750) EXERCISE OF STOCK OPTIONS 750 3 24,372 24,375 AMORTIZATION OF DISCOUNT ON 8% DEBENTURES 3,333,333 3,333,333 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 2,357,188 (2,357,188) 0 ISSUANCE OF WARRANTS AND OPTIONS FOR SERVICES 385,800 385,800 --------- ------- ------------- ------------ ------------- BALANCE, DECEMBER 31, 1996 355,735 1,423 40,594,023 (34,157,268) 6,442,045 NET LOSS (8,289,920) (8,289,920) CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK 868 3 344 0 SERIES C PREFERRED STOCK CONVERSION 122,042 489 (481) 0 ISSUANCE OF SERIES D PREFERRED STOCK 5,100,000 ISSUANCE OF SERIES E PREFERRED STOCK 1,650,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES C PREFERRED STOCK 478,248 (478,248) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES D PREFERRED STOCK 1,700,000 (1,700,000) 0 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES E PREFERRED STOCK 550,000 (550,000) 0 ISSUANCE OF WARRANTS TO SERIES D PREFERRED STOCKHOLDERS 232,620 (232,620) 0 FINANCING COST FOR SERIES D PREFERRED STOCK (75,000) (75,000) ISSUANCE OF WARRANTS TO SERIES E PREFERRED STOCKHOLDERS 48,900 (48,900) 0 ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS 1,669 6 147,492 (147,498) 0 ISSUANCE OF COMMON STOCK FOR SERVICES 1,250 5 96,870 96,875 CONVERSION OF 8% DEBENTURES INTO COMMON STOCK 18,161 73 762,890 762,963 --------- ------- ------------- ------------ ------------- BALANCE, DECEMBER 31, 1997 499,725 1,999 44,535,906 (45,604,454) 5,686,963 NET LOSS (9,312,278) (9,312,278) CUMULATIVE TRANSLATION ADJUSTMENT (21,353) ------------- TOTAL COMPREHENSIVE LOSS (9,333,631) CONVERSION OF 8% DEBENTURES INTO 43,851 175 866,915 867,090 COMMON STOCK ISSUANCE OF COMMON STOCK FOR SERIES B PREFERRED STOCK DIVIDENDS 8,739 34 140,451 (140,485) 0 CONVERSION OF SERIES D PREFERRED STOCK 98,897 396 1,409,604 0 FINANCING COST FOR SERIES D PREFERRED STOCK (317,490) (317,490) CONVERSION OF SERIES E PREFERRED STOCK 20,741 83 139,917 0 ISSUE SHARES TO SERIES E PREFERRED STOCKHOLDER 5,000 20 17,980 18,000 ISSUANCE OF SERIES F PREFERRED STOCK 2,860,000 AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES F PREFERRED STOCK 950,000 (950,000) 0 ISSUANCE OF WARRANTS TO SERIES F PREFERRED STOCKHOLDERS 67,500 (67,500) 0 ISSUANCE OF SERIES G PREFERRED STOCK 2,400,000 FINANCING COST FOR SERIES G PREFERRED STOCK (168,000) (168,000) AMORTIZATION OF DISCOUNT (DIVIDEND) ON SERIES G PREFERRED STOCK 1,028,571 (1,028,571) 0 ISSUANCE OF WARRANTS TO SERIES G PREFERRED STOCKHOLDERS 76,400 (76,400) 0 ISSUE SHARES TO SERIES G PREFERRED STOCKHOLDER 62,500 260 224,750 225,000 ISSUANCE OF COMMON STOCK 103,333 414 499,586 500,000 ISSUANCE OF COMMON STOCK TO ACQUIRE TRADEMARKS AND MINORITY INTEREST IN VIDIKRON OF AMERICA, INC. 300,000 1,208 1,148,000 1,150,000 ISSUANCE OF COMMON STOCK FOR SERVICES 3,541 14 225,410 225,424 --------- ------- ------------- ------------ ------------- BALANCE, DECEMBER 31, 1998 1,146,327 $ 4,585 $50,846,300 ($57,179,688) $4,103,356 --------- ------- ------------- ------------ -------------
The consolidated financial statements reflect a 40-to-1 reverse stock split. See notes to consolidated financial statements. VIDIKRON TECHNOLOGIES GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------- Full Year Ended December 31, -------------------------------------------------------- 1996 1997 1998 OPERATING ACTIVITIES Net loss $ (10,880,893) $ (8,289,920) $ (9,312,278) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,959,300 647,661 682,040 Issuance of common stock for services - 96,875 225,424 Other noncash operating expenses - 115,690 243,000 Provision for allowances on advances (109,166) - - Equity in loss of unconsolidated affiliate 72,065 - - Gain recognized on the sale of investments - - (2,350,000) Write off of fixed assets - - 2,781,934 Asset and liability management Changes in accounts receivable (597,659) 15,255 (1,556,818) Changes in inventory - (377,608) (2,760,076) Changes in other operating assets - (1,857,604) 569,777 Changes in accounts payable - 1,897,914 1,131,053 Changes in other liabilities 1,441,770 - 459,821 ----------------- ------------------ ------------------ Net cash used in operating activities (6,114,583) (7,751,737) (9,886,123) ----------------- ------------------ ------------------ INVESTING ACTIVITIES Capital expenditures (4,322,105) (1,839,007) (727,330) Payment for purchase of Vidikron, net of cash acquired - - (4,026,251) Investment in and advances to unconsolidated affiliate - (150,000) - Proceeds from sale of investments - - 2,500,000 Purchases and redemption of government securities (3,437,386) 3,437,386 - ----------------- ------------------ ------------------ Net cash (used in)/provided by investing activities (7,759,491) 1,448,379 (2,253,581) ----------------- ------------------ ------------------ FINANCING ACTIVITIES Proceeds from notes payable 10,000,000 - - Private placement costs (500,000) - - Repayment of convertible debt (4,958,250) (100,000) - Issuance of debt - - 7,823,376 Issuance of preferred stock 7,500,000 6,750,000 5,250,000 Issuance fees for preferred stock (500,000) (75,000) (485,490) Issuance of common stock - - 500,000 Series C Preferred Stock Dividend (123,750) - - Proceeds from stock options excercised 24,375 - - ----------------- ------------------ ------------------ Net cash provided by financing activities 11,442,375 6,575,000 13,087,886 ----------------- ------------------ ------------------ INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (2,431,699) 271,642 948,182 CASH AND CASH EQUIVALENTS-BEGINING OF PERIOD 3,491,982 1,060,283 1,331,925 ----------------- ------------------ ------------------ CASH AND CASH EQUIVALENTS-END OF PERIOD $ 1,060,283 $ 1,331,925 $ 2,280,107 ================= ================== ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest $ 352,049 $ 1,834 $ 6,400 ================= ================== ==================
The consolidated financial statements reflect a 40-to-1 reverse stock split. See notes to consolidated financial statements. F-5 VIDIKRON TECHNOLOGIES GROUP, INC. SUPPLEMENTTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES - -------------------------------------------------------------------------------- In 1996, the Company issued 941 shares of its common stock with a value of $154,393 as payment for the dividend on its Series B convertible preferred stock. In addition, the Company issued 44,324 shares of its common stock and paid $4,958,250 in cash in exchange for retiring $8.4 million of convertible debt. Also, the Company issued 750 shares of its common stock in connection with the exercise of stock options. In 1997, the Company issued 1,669 shares of its common stock with a value of $147,492 as payment for the dividend on its Series B convertible preferred stock. In addition, the Company issued 122,042 shares of its common stock to retire the entire issue of 7,500 shares of Series C convertible preferred stock. The Company also issued 1,250 shares of its common stock for services rendered by an officer and director of the Company. Finally, the Company issued 18,161 shares of common stock in connection with retiring $0.6 million of convertible debt, leaving a face value on the debt of $ 900,000. In 1998, the Company issued 8,739 shares of its common stock with a value of $140,451 as payment for the dividend on its Series B convertible preferred stock. The Company issued 98,897 shares of its common stock to retire 14,100 shares of Series D convertible preferred stock. The Company issued 20,741 shares of its common stock to retire 140 shares of Series E convertible preferred stock The Company issued 43,851 shares of common stock in connection with retiring $760,000 of convertible debt, leaving a face value on the debt of $140,000. 3,750 warrants with a value of $ 67,500 were issued in connection with the Series F Convertible Preferred Stock, and 6,250 warrants with a value of $ 76,400 were issued in connection with the Series G convertible preferred stock. 5,000 shares were issued under the terms and conditions pertaining to the Series F convertible preferred stock, and 62,500 shares were issued under the terms and conditions pertaining to the Series G convertible preferred stock. 103,333 shares of common stock were sold for gross proceeds of $500,000. 3,541 shares of common stock were issued for services. 258,333 shares were issued to acquire the Vidikron trademark, and 41,667 shares were issued to acquire the minority interest in Vidikron of America, Inc. F-6 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - Vidikron Technologies Group, Inc. (the "Company," formerly Projectavision, Inc.), a Delaware corporation, was incorporated on September 9, 1988. The Company was originally formed to complete the development of a unique proprietary solid state projection television and related video display technology. With the Company completing the acquisition of certain assets and assumption of certain liabilities of Vidikron Industries, S.p.A. in December 1998, the Company added a recognized name and now sells high-end home theater projection televisions and accessories worldwide. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories - Inventories are stated at the lower of cost or market. Costs have been determined based on either the first-in, first out (FIFO) or the average cost method. Property and Equipment - Property and equipment is stated at cost and depreciated on the straight-line basis over the estimated useful lives of the respective assets. The estimated useful service lives of the assets are as follows: Furniture, fixtures and equipment 7 years Tooling 5 years Computers and software 5 years Leasehold improvements lesser of 3 years or remaining term of lease
Goodwill and Trademarks - Goodwill is amortized over 15 years and trademarks over their 10-year life. Investments - The Company places its temporary cash with high credit quality financial institutions and, by policy, limits the amount of credit exposure with any one financial institution. Revenue Recognition - Revenues are recorded at the time of shipment of products or performance of services. Revenue for the year ended December 31, 1996 consisted of royalty income from licensing agreements which is recognized when earned. Revenue for the years ended December 31, 1997 and 1998 consisted of product sales. Net Loss Per Share - Net loss per share is computed based on the weighted number of shares outstanding during the period after deducting dividends on preferred stock. The effect of other potentially dilutive securities is not included because their effect is anti-dilutive. The fully diluted number of shares at December 31, 1996, 1997, and 1998 are 355,735, 499,726 and 1,146,327 respectively. Income Taxes - Deferred income taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates, as well as any net operating or capital loss, or tax credit carry forwards that are expected to reduce taxes payable in future years. Stock-Based Compensation - In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," ("FASB 123")which requires a fair value method for recognizing compensation cost as measured at the grant date based on the fair value of the award which is recognized over the service period. Pursuant to FASB 123, companies are encouraged, but are not required, to adopt the fair value method of accounting for employee stock-based transactions. The Company will continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but will disclose in a note to the financial statements pro forma net income and per share amounts as if the Company had applied FASB 123. Recent Accounting Pronouncements - During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes rules for the reporting of comprehensive income (loss) and its components. The Company's comprehensive income (loss) consists of results from operations and foreign currency translation adjustments and is presented in the consolidated statement of changes in stockholders' equity. Since this statement applies only to the presentation of comprehensive income (loss), it does not have any impact on the Company's financial position, results of operations, or cash flows. F-7 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This standard requires enterprises to report certain information about their operating segments in a complete set of financial statements to stockholders; to report certain enterprise-wide information about products and services, activities in different geographic areas, and reliance on major customers and to disclose certain segment information in their interim financial statements. The basis for determining an enterprise's operating segments is the manner in which financial information is used internally by the enterprise's chief operating decision-maker. Although the Company sells a variety of products, it is one business segment. During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for fiscal periods beginning after June 15, 1999. The Company is currently evaluating the impact of this statement. Operations - The Company has incurred operating losses since its formation in 1988, and has incurred net losses of $10,880,893, $8,189,920, and $ 9,312,278 in 1996, 1997, and 1998, respectively. In addition, at December 31, 1998, the Company had a working capital deficiency of approximately $ 5 million. Management believes the Company will be able to raise additional financing and generate sufficient cash flow from its operations in 1999 to satisfy obligations as they come due. The Company's cash expenditures will, in management's opinion, be substantially lower in 1999 than in 1998 due to reductions in the Company's cost structure and removal of costs that would have otherwise been duplicated by the former Projectavision and Vidikron. The Company is in discussions with bankers to obtain a new line of credit and anticipates obtaining additional equity contributions from its preferred stockholders. The Company had outstanding as of December 31, 1998 a loan of $1,247,400 bearing interest of 10.45%, which was scheduled to mature on June 30, 1999. This loan was assumed by the Company in connection with the Vidikron Acquisition. On December 28, 1998 the lender sent notice of their intention to accelerate the loan due to the breach of a change in control covenant. The Company is in negotiations with the lender and is seeking to substitute a new facility to pay down this obligation. 2. FAIR VALUE OF FINANCIAL INSTRUMENTS At December 31, 1998, the fair values of cash, cash equivalents, accounts receivable, investments, and accounts payable and accrued liabilities approximated their carrying values because of the short-term nature of these accounts. Convertible debt has a carrying value of $140,000 and a fair value of $175,000. 3. ACCOUNTS RECEIVABLE At December 31, 1997 and 1998 the allowance for bad debt was $11,540 and $212,040, respectively. 4. INVENTORY At December 31, 1997, and 1998 inventories are summarized as follows: Parts ............................. $ 797,297 $1,684,868 Work in Process ................... 678,882 991,235 Finished Goods .................... 381,425 1,941,577 ---------- ---------- Total .................... $1,857,604 $4,617,680 5. UNCONSOLIDATED AFFILIATE/INVESTMENT In 1993, the Company entered into an agreement with Tamarack Storage Devices, Inc. ("Tamarack") under which the Company invested $3,000,000 in the aggregate in Tamarack and had accounted for this investment under the equity method. The goodwill recorded with this investment, which represented the excess of the Company's investment over the underlying net assets of Tamarack, was $1,883,995. The Company issued 800 shares of common stock (valued at $109,120) for advisory services received in connection with the acquisition. In 1994, the Company loaned Tamarack $1,500,000 with interest payable at 6%. In 1995, Tamarack received a commitment from the Company to fund its cash needs through December 31, 1995 to continue its operations as then constituted. Pursuant to this commitment, $94,240 was advanced to Tamarack. The Company recorded a reserve against its investment in Tamarack of $300,000 in 1994, and, at December 31, 1995, the Company reduced its investment in and advances to Tamarack to zero recording an additional reserve of $2,129,252 due to Tamarack's inability, to date, to commercialize its holographic storage technology and its current lack of prospects. In addition, in 1996 the Company classified its investment in Tamarack as available for sale, and, in order to maximize the recovery of its investment, loaned Tamarack an additional $ 100,000 in 1996 and was to have been repaid following receipt of funds from a government agency. This loan was also fully reserved in 1997. After eliminating the intercompany accounts and reflecting previous write-offs, Tamarack's financial statements were not material to the Company and were not consolidated prior to 1998. In January 1998, Tamarack was acquired by Manhattan Scientific, Inc. ("MSI") (formerly Grand Enterprises, Ltd.) a NASDAQ bulletin-board traded company. All of the shares of Tamarack (97% of which were represented by the Company's holdings in Tamarack at the time of the closing) were exchanged for 44 million shares of MSI. Simultaneously therewith, an additional 5 million shares were sold to the public, resulting in aggregate gross proceeds of $1 million. Further, in connection with the transaction, the Company's $1,500,000 loan plus accrued interest thereon was exchanged for 182,525 shares of convertible preferred stock of MSI. Each share of convertible preferred stock is convertible into 50 shares of MSI common stock. The Company also received a warrant to purchase 750,000 shares of MSI common stock at an exercise price of $0.20 per share. The Company's chief executive officer and the chairman of its board of directors serve on the board of directors of MSI. F-8 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 5. UNCONSOLIDATED AFFILIATE/INVESTMENT (continued) In July 1998, the Company sold its common shares in MSI to an institutional investor for $2 million in net proceeds. The Company used the proceeds from the sale of its MSI shares as working capital for general operations, with the gain recognized in the third quarter of 1998. The Company also converted its preferred stock into approximately 9 million MSI common shares. The result of these transactions was to reduce the Company's ownership position in MSI to approximately 12% and, accordingly, at September 30, 1998, MSI was accounted for under the cost method. In October 1998, the Company sold its remaining ownership position in MSI to one of the owners of the Company's preferred stock for $500,000 and recognized a gain. On December 7, 1999 the Company reacquired its ownership position of approximately 9 million MSI common shares as part of the financing obtained from the owners of the Company's preferred stock for the acquisition of the video business from Vidikron Industries, S.p.A. 6. COMMON STOCK In 1997 and 1998 the Company issued 1,250 shares and 3,541 shares of common stock respectively for legal, financial, and design services. These shares were accounted for as an expense equal to the fair market value of the stock, with a corresponding increase to capital stock and additional paid in capital. In April 1997 the Company's stockholders approved a resolution increasing the number of shares authorized from 750,000 to 1,250,000. In February 1999 the stockholders of the Company approved a forty-for-one reverse split, the effect of which has been retroactively stated. 7. PREFERRED STOCK The Series B Convertible Preferred Stock provides for cumulative annual stock dividends payable in common shares of 8 percent of the liquidation value of $5 per share (for a total of $1,756,290) to be paid semiannually and is convertible to one share of common stock, subject to adjustment. In 1997, 34,724 shares of Series B Convertible Preferred Stock were converted into common stock. This stock may be redeemed by the Company if certain conditions are met for $1.00 per share. In 1996, the Company issued 7,500 shares of Series C Preferred Stock for $7,500,000, resulting in net proceeds to the Company of $7,000,000 after fees. The Series C Preferred Stock converts into shares of Common Stock at a 25% discount of the average closing bid price of the Common Stock for the five (5) trading days immediately preceding the date of conversion. The holder of the Series C Preferred Stock has the right to convert into Common Stock as follows: 25% can be converted on or after November 1, 1996; 25% may be converted on or after January 1, 1997; 25% may be converted on or after March 1, 1997; and 25% may be converted on or after May 1, 1997. The Company, in accordance with the terms and conditions of the sale of the Series C Preferred Stock, registered the shares of Common Stock into which the Series C Preferred Stock is convertible in the third quarter of 1996. The Series C Preferred Stock pays dividends semi-annually, seven (7) business days after each of December 31st and June 30th of each year, which may be in cash or shares of Common Stock at the election of the Company. The dividend rate is 3% per annum of the liquidation value of $1,000.00 per share until and through June 30, 1997; 6% per annum from July 1, 1997 through June 30, 1998; and 8% per annum from July 1, 1998 and thereafter. The Company recognized a dividend on the Series C Preferred Stock based on the annualized pro-rata amount of the 25% discount on the conversion into common stock and on the increase in the dividend rate. During 1997, the Series C Preferred Stock was converted into 122,042 shares of Common Stock, which resulted in retiring the issue.
Original Year Ended December 31, 1998 Total to Vest ------------------------------ ------------- Dividend accretion on Series C Preferred Stock $ -- $ 492,650 Amortization of Warrants on Series C Preferred Stock -- 290,000 Amortization of Discount on Series C Preferred Stock -- 2,500,000
F-9 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. PREFERRED STOCK (Continued) In January 1997, the Company issued an aggregate of 35,000 shares of 6% Series D convertible preferred stock to two foreign institutional investors for an aggregate purchase price of $3,500,000, resulting in net proceeds to the Company of $3,500,000. In October, 1997, these 35,000 Series D shares were sold to two other foreign institutional investors. In December 1997, the Company issued an additional 16,000 shares of 6% Series D convertible preferred stock to the same institutional investors for a purchase price of $1,600,000, resulting in net proceeds to the Company of $1,525,000 after fees. Each share of Series D Preferred Stock is convertible, at the option of the holder, into shares of the Company's Common Stock at any time. The Series D Preferred Stock is convertible into Common Stock at a 25% discount to the then current market price of the Company's Common Stock at the time of conversion. After giving effect to the conversion of an aggregate of $1,410,000 of Series D Preferred Stock in 1998, there currently remains $3,690,000 in Series D Preferred Stock outstanding.
Year Ended December 31, 1998 Total to Vest ---------------------------- ------------- Amortization of Warrants on Series D Preferred Stock $ -- $ 232,620 Amortization of Discount on Series D Preferred Stock -- 1,700,000
In July 1997, the Company issued 1,000 shares of 8% Series E convertible preferred stock to one foreign institutional investor for a purchase price of $1,000,000, resulting in net proceeds to the Company of $1,000,000. In December 1997, the Company issued an additional 650 shares of 8% Series E convertible preferred stock to the same foreign institutional investor for a purchase price of $650,000, resulting in net proceeds to the Company of $650,000. Each share of Series E Preferred Stock is convertible, at the option of the holder, into shares of the Company's Common Stock at any time. The Series E Preferred Stock is convertible into Common Stock at a 25% discount to the then current market price of the Company's Common Stock at the time of conversion. After giving effect to the conversion of an aggregate of $140,000 of Series E Preferred Stock in 1998, there currently remains $1,510,000 in Series E Preferred Stock outstanding.
Year Ended December 31, 1998 Total to Vest ---------------------------- ------------- Amortization of Warrants on Series E Preferred Stock $ -- $ 48,900 Amortization of Discount on Series E Preferred Stock -- 550,000
In February 1998, the Company issued 2,850 shares of 8% Series F convertible preferred stock to one institutional investor for a purchase price of $ 2,850,000, [Doesn't tie to cap. Table] resulting in net proceeds to the Company of $ 2,532,510 after fees. The preferred stock is convertible into the Company's Common Stock at $40.00 per share in five equal installments every thirty days starting in August 1998. The Series F Preferred Stock is convertible into Common Stock at a 25% discount to the then current market price of the Company's Common Stock at the time of conversion. The Company had the right to repurchase the preferred shares at a 12.5% premium over the issue price within 90 days and at a 25% premium after 90 but before 180 days from the issue date.
Year Ended December 31, 1998 Total to Vest ---------------------------- ------------- Amortization of Warrants on Series F Preferred Stock $ 67,500 $ 67,500 Amortization of Discount on Series F Preferred Stock 950,000 950,000
In May of 1998, the Company issued 2,000 shares of 8% Series G convertible preferred stock to one foreign institutional investor for a purchase price of $2,000,000, resulting in net proceeds to the Company of $1,860,000 after fees. In June 1998 the Company completed another private placement of preferred stock to a second foreign institutional investor for gross proceeds of $400,000, [Doesn't tie to cap. Table] resulting in net proceeds of $376,000. The Series G Preferred Stock is convertible into Common Stock at a 30% discount to the then current market price of the Company's Common Stock at the time of conversion.
Year Ended December 31, 1998 Total to Vest ---------------------------- ------------- Amortization of Warrants on Series G Preferred Stock $ 76,400 $ 76,400 Amortization of Discount on Series G Preferred Stock 1,028,571 1,028,571
8. CONVERTIBLE DEBT In February 1996, the Company completed an offshore private placement of $10,000,000 of convertible debt resulting in net proceeds to the Company of $9,500,000. The convertible debt bears interest at the rate of 8% per annum and pays interest quarterly in arrears on any unpaid or unconverted debt. To the extent not previously converted, the convertible debt is due in January 1999, and may be repaid in cash or common stock of the Company at the sole option of the Company. All conversions of convertible debt into common stock are based upon a 25% discount of the price of the Company's common stock for five consecutive trading days immediately prior to the date of conversion. The Company recognized as interest expense the 25% discount on the conversion into common stock equal to $3,333,333 in 1996. In 1996 the Company issued 44,324 shares of its common stock and paid $4,958,250 in cash in exchange for retiring $8,400,000 in convertible debt. In January 1997, the Company retired $100,000 of convertible debt for cash. During 1997, the Company issued an additional 11,901 shares of its common stock in exchange for retiring $600,000 of convertible debt. In January 1998, the Company issued 43,851 shares of its common stock in exchange for retiring $760,000 of convertible debt. F-10 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. ACQUISITION OF VIDIKRON ASSETS On December 7, 1998 the Company acquired substantially all of the assets of Vidikron Industries, S.p.A. ("Vidikron") relating to its video business, including all of its stock in its U.S. distribution subsidiary, Vidikron of America, Inc. for $ 9.4 million. The transaction was completed through a combination of $4.7 million in cash, $1.0 million in notes from the seller, the issuance of $1 .2 million of common stock of the Company, and the assumption of $2.5 million in liabilities from the seller. The acquisition was accounted for as a purchase, with goodwill equal to $6 million. Approximately $600,000 of the purchase price was allocated to trademarks acquired. Had the acquisition been completed on January 1, 1997, the following proforma unaudited information would have resulted, as follows:
1997 1998 ----------------- -------------------- Sales $ 17,520,756 $ 18,308,337 Net loss attributable to common stockholders (11,335,870) (12,386,273) Loss per share (25.23) (18.52)
10. WRITE-OFF OF TOOLING In 1998 certain tooling for the Digital Home Theater product consisting of steel injection molds and the associated design costs with a net book value of $2.9 million was written off, due to the lack of availability of key components required for the future manufacture of the Digital Home Theater projector. In addition, $785,000 in advances made to a third-party manufacturer for deposits against inventory procured for the production of the Digital Home Theater projector were also written off. 11. STOCK OPTION PLANS Non-qualified Option Plan - The Company has reserved 125,000 shares of common stock for issuance upon exercise of options under a non-qualified stock option plan adopted in February 1990 and amended in June 1990, July 1990, and November 1993. All options granted under this plan have been granted at fair market value at the date of grant. The following is a summary of non-qualified option plan activity for the three years ended December 31, 1998:
1996 1997 1998 ---- ---- ---- Outstanding at January 1 55,271 105,222 107,572 -------- -------- -------- Granted 67,063 55,800 21,875 Expired -- -- -- Canceled (16,503) (53,450) (25,000) Exercised (609) -- -- -------- -------- -------- Outstanding at December 31 105,222 107,572 104,447 ======== ======== ======== Available for grant at December 31 19,778 17,428 20,553 ======== ======== --------
Weighted average option exercise price information for the years 1996, 1997, and 1998 follows:
1996 1997 1998 ---- ---- ---- Outstanding at January 1 $ 142.40 $162.40 $ 130.00 Granted 173.60 117.60 2.40 Expired -- -- -- Canceled 142.40 180.80 120.00 Exercised 32.40 -- -- Outstanding at December 31 162.40 130.00 105.65 Exercisable at December 31 158.00 131.60 123.90
F-11 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. STOCK OPTION PLANS (Continued) Significant option groups outstanding at December 31, 1998 and related weighted average price and life information follows:
Exercise Price Number of Weighted Average Weighted Average Number of Range Options Price Remaining Life (Years) Exercised -------------- --------- ---------------- -------------------------- ---------- $ 1.99-$2.99 21,875 $ 2.40 5 none $ 40.00-$119.99 2,100 $ 47.52 3 none $ 120.00-$159.99 59,400 $ 123.72 5 none $ 160.00-$199.99 2,625 $ 167.84 3 none $ 200.00-$319.99 18,447 $ 215.00 1 none
The weighted fair value at date of grant for options granted in 1997 and 1998 was $ 71.20 and $ 2.40 per option respectively. The fair value of options at date of grant was estimated based on the opinion of such fair value attributed by recipients of two of the grants with the following weighted average assumptions:
1996 1997 1998 ---- ---- ---- Expected life (Years) 5 5 5 Interest Rate 6.25% 6.10% 6.25% Volatility 89% 72% 89% Dividend Yield 0% 0% 0%
Stock-based compensation costs did not impact pretax income or earnings per share in 1997 and 1998. These costs would have been increased by $ 0.1 million, or ($0.22) per share, in 1997 and $ 52,500 or ($0.08) per share in 1998 had the fair values of the options been recognized as compensation expense on a straight line basis over the vesting period of the grant. Incentive Option Plan - In February 1990, the 1988 Incentive Stock Option and Appreciation Plan was terminated and a new plan, as amended in June 1990, July 1990, and November 1993 was adopted under which options to purchase 25,000 shares of common stock have been reserved. The incentive option plan provides for the granting of incentive stock options (ISOS) at an exercise price not less than the fair market value of the common stock on the date the option is granted. ISOS may not be granted to an individual to the extent that, in the calendar year in which such ISOS first become exercisable, the shares subject to such ISOS have a fair market value on the date of grant in excess of $100,000. No option may be granted after February 20, 2000, and no option may be outstanding for more than ten years after its grant. As of December 31, 1998, no options have been granted under the Plan. On February 19, 1999, the stockholders of the Company approved an ISOS, in most material respects, substantially similar if not identical to the 1990 ISOS to replace the 1990 ISOS which was due to expire in February 2000. 12. INCOME TAXES As of December 31, 1997 and 1998, the composition of the Company's net deferred taxes was as follows: 1997 1998 ------------ ------------ Deferred tax assets $ 13,100,000 $ 16,000,000 Less valuation allowance (13,100,000) (16,000,000) ----------- ------------ Net $ -- $ -- ============ ============ Deferred tax assets principally result from the availability of net operating and capital loss carry-forwards to offset income earned in future years. The offsetting valuation allowance reduces total deferred tax assets to an amount management believes will not likely be realized. At December 31, 1998, the Company had tax net operating and capital loss carry-forwards of approximately $39,800,000, which expire in the years 2003 through 2010. The utilization of tax net operating and capital losses may be subject to certain limitations. 13. COMMITMENTS AND CONTINGENCIES Aggregated minimum compensation under employment agreements with certain officers and directors will be $895,000 in 1999. Compensation expense relating to these agreements was approximately $577,450, $710,200, and $535,000 respectively in 1996, 1997, and 1998. F-12 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 13. COMMITMENTS AND CONTINGENCIES (Continued) The future minimum rental commitments as of December 31, 1998 are as follows: Year Amount ---- ------ 1999 $222,166 2000 160,530 2001 98,894 2002 98,894 2003 98,894 2004 98,894 Rent expense for the years ended December 31, 1996, 1997 and 1998 was $209,695, $257,554 and $293,833, respectively. In June 1995 and August 1995, two class action lawsuits were filed against the Company as well as certain of its officers and directors by stockholders of the Company. In October 1995 the plaintiffs in the second action joined as plaintiffs in the first action, and the second action was dismissed without prejudice. In July 1996, the class action suit was dismissed without prejudice, and the plaintiffs were given an opportunity to replead. Upon repleading, the class action suit alleged numerous violations of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, but not limited to, violations of Section 10(b) of the Exchange Act. The suit also alleged claims for negligent misrepresentation and for common law fraud and deceit. In response, the Company and the individual defendants submitted motions to dismiss the action. In July 1997 these motions were granted, and the class action suit was dismissed with prejudice by the U.S. District Court in New York. In July 1998, the case was settled with the individual plaintiffs at no cost to the Company. In April 1995 a legal action was brought against the Company, certain members of the Board of Directors, and an employee of the Company by Eugene Dolgoff, a founder and former officer of the Company. The complaint alleged, among other actions, breach of employment and patent assignment agreements. Mr. Dolgoff sought damages, punitive damages, and equitable relief totaling in excess of $ 100 million. In April 1998, the lawsuit was settled for $ 500,000, of which $250,000 was paid and $250,000 was accrued, and all of Mr. Dolgoff's claims and those of the Company against him were dismissed. In December, 1998, a stockholder of the Company initiated an action in Supreme Court, State of New York, alleging common law fraud, negligence and breach of fiduciary duty claims against the Company and its Directors. In February, 1999 the Company and the Defendant Directors moved to dismiss this action based upon undisputed documentary evidence and based upon an assertion that the Complaint failed to state a cause of action. The Plaintiffs' responsive papers are due in April, 1999 and reply papers are due to be submitted by the Company and the Defendant Directors in May, 1999. Based upon discussions with counsel, the Company's management believes that the motion to dismiss is well-founded. In the event, however, that the motion were not granted, the Company's management believes that it has meritorious defenses and intends to vigorously defend against these claims. The Company's management believes that the outcome of this litigation will not have a material adverse effect on its financial position or results of operations. The Company has entered into employment agreements with three of its officers and directors and a consulting agreement with one of its officers and directors. For 1996, 1997, and 1998 salary expense relating to these agreements was approximately $577,450, $710,200, and $535,000 respectively. One of the employment agreements with an officer and director was terminated on March 16, 1999 and the consultant resigned as an officer on February 19,1999, and as a director effective March 20, 1999. 14. RELATED PARTIES The Company leases space from Mssrs. Baj Macario and Peralda, two of the Company's officers and directors, and purchases certain components used in the manufacture of certain projectors and certain manufactured projectors from Novavision, S.p.A., a company owned by Mssrs. Baj Macario and Peralda. For the year ended December 31, 1998, the lease expense was $ 6,181. The lease was negotiated at the time, and as part, of the Vidikron Acquisition and the transfer price for manufactured goods is subject to competitive bids. Mssrs. Baj Macario and Peralda also hold a power of attorney from Grangeover, an Isle of Mann entity, to vote the Company's common stock owned by Grangeover. In January of 1998 the Company merged its majority owned subsidiary, Tamarack Storage Devices Inc., into a bulletin board shell company, changed the name of the merged entity to Manhattan Scientifics, Inc. ("MSI") and simultaneously therewith effected an offering of $1,000,000 of common stock of MSI in a Rule 504 offering. On the consummation of this transaction, after giving effect to the merger and the Rule 504 offering, the Company owned approximately 77% of the issued and outstanding common shares of MSI. On or about the same time MSI issued 7,500,000 options each to Messrs. Maslow and Holleran to acquire MSI common stock at an exercise price of $0.20 per share. F-13 VIDIKRON TECHNOLOGIES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 14. RELATED PARTIES (Continued) Marvin Maslow is an officer and director of MSI and Mr. Holleran is a director of MSI. In July 1998, as part of the Company's sale of approximately 43.1 million shares of MSI common stock to an institutional investor, the institutional investor required that it receive 10,000,000 of the 15,000,000 options owned by these two officers and directors and that the exercise price be reduced to $0.05 per share. Each of the two officers and directors surrendered options for 5,000,000 shares of MSI common stock and each had the exercise price of their remaining warrants for 2,500,000 shares of MSI common stock similarly reduced to $0.05 per share. In 1998, Mr. Maslow received $ 25,000 in compensation from MSI. On February 12, 1999 Mr. Holleran resigned as a director of MSI. 15. BUSINESS CONCENTRATION In 1998, no single customer accounted for more than 5% of revenues. The Company is dependent upon certain vendors for the manufacture of significant components. If these vendors become unwilling or unable to manufacture these products in the required volumes, the Company would have to identify and qualify acceptable alternative vendors. The inability to develop alternate sources, if required in the future, could result in delays or reductions in product shipments. 16. NOTES PAYABLE AND BANK DEBT The Company obtained the cash used for the Vidikron acquisition through the issuance of $6.0 million in Notes for cash to the existing owners of the Company's Preferred Stock and Convertible Debt. These Notes were converted into Series I Convertible Preferred Stock in March 1999. Additionally, $1.0 million in Notes were issued to the sellers of the Vidikron assets acquired. These Notes are due in December 1999, carry no interest for the first six months, and carry an interest rate of 15% annually thereafter until the due date. Finally, the Company has a Note with Texas Instruments with an outstanding balance of approximately $625,000 as of December 31, 1998 payable in five equal installments through May 1999 at an interest rate of 8% annually. The Company had outstanding as of December 31, 1998 a loan of $1,247,400 bearing interest of 10.45%, which was scheduled to mature on June 30, 1999. This loan was assumed by the Company in connection with the Vidikron Acquisition. On December 28, 1998 the lender sent notice of their intention to accelerate the loan due to the breach of a change in control covenant. The Company is in negotiations with the lender and is seeking to substitute a new facility to pay down this obligation. 17. SUBSEQUENT EVENT On February 19,1999 $6.0 million in Notes were converted into a new series of Preferred Stock in the Company and the stockholders of the Company approved a forty-for-one reverse split, which has been retroactively stated. F-14 Schedule II VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEAR PERIOD ENDED DECEMBER 31, 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS DESCRIPTION BALANCE AT CHARGED TO CHARGED BALANCE AT DEGINNING COSTS AND TO OTHER END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD Allowances deducted in the balance sheet from the assets to which they apply: Allowance for bad debt 1998 $ 11,540 113,952 $ 86,548(A) $ 212,040 1997 -- 11,540 11,540 1996 -- --
(A) Opening balance of acquired account receivable. EX-3.1 2 EXHIBIT-3.1 Exhibit 3.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF PROJECTAVISION, INC. (a Delaware corporation) It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Projectavision, Inc. 2. The certificate of incorporation of the Corporation is hereby amended by striking out Article One hereof and by substituting in lieu of said Article One the following new Article One: "First: The name of the Corporation is Vidikron Technologies Group, Inc." 3. The amendment of the certificate of incorporation herein certified has been duly adopted and stockholder consent has been obtained in accordance with the provisions of Sections 216 and 242 of the General Corporation Law of the State of Delaware. 4. The effective time of the amendment herein certified shall be March 1, 1999 Signed on March 1, 1999 ---------------------------------------- Martin J. Holleran President and Chief Executive Officer EX-3.1.1 3 EXHIBIT-3.1.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF VIDIKRON TECHNOLOGIES GROUP, INC. It is hereby certified that; 1. The name of the corporation is Vidikron Technologies Group, Inc. (the 'Corporation'). 2. The Certificate of Incorporation of the Corporation is hereby amended by striking out the first sentence of Article Fourth thereof and by substituting in lieu of such first sentence the following new sentence: 'The aggregate number of shares which the corporation shall have authority to issue is five hundred and one million (501,000,000) shares, consisting of (i) five hundred million (500,000,000) shares of common stock, par value $.0001 per share ('Common Stock'), and (ii) one million (1,000,000) shares of preferred stock, par value $.01 per share ('Preferred Stock').' 3. In accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, the amendment of the Certificate of Incorporation herein certified has been duly adopted by the holders of a majority of the outstanding shares of Common Stock as of January 21, 1999, the record date for the determination of the stockholders entitled to vote at the Corporation's annual meeting of stockholders held on February 19, 1999. Signed as of this 2nd day of March, 1999. ------------------------------------------- Martin J. Holleran, Chief Executive Officer EX-10.53 4 EXHIBIT-10.53 ================================================================================ AMENDED AGREEMENT OF PURCHASE AND SALE OF ASSETS By and Among PROJECTAVISION, INC., PROJECTAVISION INTERNATIONAL and VIDIKRON INDUSTRIES, S.p.A. ================================================================================ December 7, 1998 TABLE OF CONTENTS ----------------- Page ---- 1. (a) Purchase and Sale of Assets.....................................2 (b) Assumed Liabilities.............................................6 (c) Excluded Assets. ..............................................8 (d) Consent of Third Parties........................................9 2. (a) Purchase Price.................................................10 (b) Purchase Price Prepayments.....................................10 (c) Purchase Price Adjustment......................................10 Prepayment.....................................................10 (d) Allocation of Purchase Price...................................10 (e) Acquisition by Affiliates......................................11 3. (a) Closing........................................................11 (b) Further Action.................................................11 4. (a) The Company's Delivery Obligations at the Closing; Covenants; Further Assurances..................................13 (b) Billings.......................................................16 (c) Liability for Transfer Taxes...................................16 (d) Certificates of Tax Affidavits.................................17 (e) Use of Business Name...........................................17 (f) Further Assurances.............................................17 5. Purchaser's Delivery Obligations at the Closing.........................18 6. Representations and Warranties of the Company...........................19 (a) Organization, Standing and Qualification.......................19 (b) Subsidiaries...................................................20 (c) Transactions with Certain Persons..............................20 (d) Execution, Delivery and Performance of Agreement; Authority......................................................21 (e) Capitalization; Ownership of Capital Stock.....................22 (f) [Intentionally Omitted]........................................22 (g) Financial Statements...........................................22 (h) Absence of Undisclosed Liabilities.............................23 (i) Taxes..........................................................23 (j) Absence of Changes or Events...................................24 (k) Litigation.....................................................27 (l) Compliance with Laws and Other Instruments.....................28 (m) Title to Properties............................................28 (n) Insurance......................................................28 (o) Territorial Restrictions.......................................29 (p) Intellectual Property..........................................29 i TABLE OF CONTENTS ----------------- (continued) Page ---- (i) Title..............................................29 (ii) Transfer...........................................29 (iii) No Infringement....................................30 (iv) Licensing Arrangements.............................30 (v) No Intellectual Property Litigation................30 (vi) Due Registration, Etc..............................31 (vii) Use of Name and Mark...............................31 (q) Environmental Matters..........................................31 (r) No Guaranties..................................................31 (s) [Intentionally Deleted]........................................31 (t) Absence of Certain Business Practices..........................32 (u) Disclosure.....................................................32 (v) Labor Disputes.................................................32 (w) Customers and Accounts.........................................34 (x) Suppliers; Raw Materials.......................................34 (y) Unbilled Costs and Advance Billings............................35 (z) Contracts and Proposals........................................35 (aa) [Intentionally Deleted]........................................36 (bb) Directors and Officers.........................................36 (cc) Inventories....................................................36 (dd) Real Property..................................................37 (i) Leases.............................................37 (ii) No Proceedings.....................................38 (iii) Current Use........................................38 (ee) Warranties.....................................................38 (ff) Dealer and Distributor Arrangements............................38 (gg) Excluded Assets................................................39 (hh) Government Loan................................................39 7. Representations and Warranties by Purchaser.............................39 (a) Organization...................................................39 (b) Execution, Delivery and Performance of Agreement...............40 (c) Litigation.....................................................40 8. Employment Matters; Employment Contracts................................40 9. Indemnification.........................................................44 10. Survival of Representations, Warranties and Agreements..................46 11. Conduct of Business Prior to Closing....................................47 (i) Liabilities........................................47 (ii) Litigation.........................................47 ii TABLE OF CONTENTS ----------------- (continued) Page ---- (iii) Compliance with Laws..............................47 (iv) Continued Effectiveness of Representations and Warranties....................................47 12. Access to Information and Documents....................................48 13. [Intentionally Deleted.]...............................................49 14. Conditions Precedent...................................................50 (a) Conditions to Obligations of Each Party.......................50 (b) Conditions to Obligations of the Purchaser....................50 (c) Conditions to Obligations of the Company......................51 15. Intentionally Deleted..................................................52 (a) ..............................................................52 (b) ..............................................................52 16. (a) Termination...................................................52 17. Right to Designate Director............................................52 18. Assumed Liabilities Escrow Account.....................................52 19. [Intentionally Deleted]................................................53 20. Notices................................................................53 21. Miscellaneous..........................................................55 EXHIBITS SCHEDULES Schedule 1(a) - Assets Schedule 1(a)(x) - Consents Schedule 1(a)(xv) - Government Loan Schedule 1(b) - Assumed Liabilities Schedule 1(b).1 - Agreed Upon Accounts Payable iii TABLE OF CONTENTS ----------------- (continued) Schedule 1(b).2 - Company's Bank Debt Documents Schedule 1(c) - Excluded Assets Schedule 2(c) - Allocation of Purchase Price Schedule 4(a).1 - English Bill of Sale Schedule 4(a).2 - Italian Bill of Sale Schedule 4(a)(vi) - Opinion of Company's Counsel Schedule 4(a)(vii) - Peralda Non-Competition Undertaking Schedule 4(a)(viii) - Peralda Employment Agreement Schedule 4(a)(ix) - Macario Employment Agreement Schedule 4(a)(x) - Macario Non-Competition Undertaking Schedule 4(a)(xi) - Lease Assignment Schedule 4(a)(xii) - Personal Property Assignment Schedule 4(a)(xiii) - Intellectual Property Assignment Schedule 4(a) (xx) - Cozzi Employment Agreement Schedule 4(a) (xxi) - Wellnitz Employment Agreement Schedule 5(a)(iv) - Opinion of Purchaser's Counsel Schedule 6(a) - States where the Company is Qualified to do Business Schedule 6(b) - Subsidiaries Schedule 6(c) - Transactions with Certain Persons Schedule 6(d) - Conflicts Schedule 6(g).1 - Historical Financial Statements of the Company and the Subsidiary iv TABLE OF CONTENTS ----------------- (continued) Schedule 6(g).2 - Company's 1997 Financial Statements Schedule 6(h) - Undisclosed Liabilities Schedule 6(i).1 - Unpaid Taxes Schedule 6(i).2 - Company's Tax Returns for 1995 and 1996 Schedule 6(j) - Changes or Events Schedule 6(k) - Litigation Schedule 6(l) - Compliance with Laws and Other Investments Schedule 6(m) - Encumbered Assets Schedule 6(n) - Insurance Schedule 6(o) - Territorial Restrictions Schedule 6(p)(i) - Intellectual Property Schedule 6(p)(ii) - Non-Transferable Intellectual Property Schedule 6(p)(iv) - Licensing Arrangements Schedule 6(p)(v) - Intellectual Property Litigation Schedule 6(p)(vii) - Restrictions on Use of Name and Mark Schedule 6(r) - Guaranties Schedule 6(t) - Certain Business Practices Schedule 6(v).1 - List of Company's Employees Schedule 6(v).2 - List of Company's Employees to be Employed by Purchaser Schedule 6(w) - Customers and Accounts Schedule 6(x) - Suppliers; Raw Materials v TABLE OF CONTENTS ----------------- (continued) Schedule 6(y) - Unbilled Costs and Advance Billings Schedule 6(z) - Contracts and Proposals Schedule 6(z)(i) - Contracts and Proposals - Consents and Italian Law Schedule 6(z)(iv) - Powers of Attorney Schedule 6(bb) - List of Directors and Officers of each of the Company and Subsidiary Schedule 6(cc) - Obsolete/Discontinued Inventory Schedule 6(dd) - Real Property Leases Schedule 6(ee) - Warranties Schedule 6(ff) - Exclusive Dealer Arrangements Schedule 8(a) - Employees Schedule 8(b) - Employee Plans Schedule 8(g) - Italian Employment Matters Schedule 12(a) - Certain Distributors and Suppliers Schedule 15(c) - Escrow Agreement Schedule 16(b)(i) - Escrow Agreement vi AMENDED AGREEMENT OF PURCHASE AND SALE OF ASSETS ---------------------------------------- AMENDED AGREEMENT (this "Agreement"), dated December 7, 1998, by and among PROJECTAVISION, INC., a Delaware corporation having its principal office at Two Penn Plaza, Suite 640, New York, New York 10121 (" Projectavision"), PROJECTAVISION INTERNATIONAL s.r.l., an Italian corporation that is wholly owned by Projectavision and its officers having an address at Via Dei Guasti 29, Misinto("International") VIDIKRON INDUSTRIES, S.p.A., an Italian corporation having its principal office at Via Dei Guasti, 29, 20020 Misinto (Milano), Italy (the "Company"). Projectavision and International are hereinafter collectively referred to as "Purchaser." W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company is engaged in the business, among others, of designing, manufacturing, sourcing and distributing high-end video projection systems for the consumer (the "Company's Video Business"); WHEREAS, the Company owns eighty five percent (85%) of all of the issued and outstanding equity securities of Vidikron of America, Inc., a Delaware corporation, having its principal executive offices at 150 Bay Street, Jersey City, New Jersey (the "Subsidiary"); WHEREAS, the Company desires to sell to Purchaser, and Purchaser desires to acquire from the Company, substantially all of the assets constituting the Company's Video Business, and certain of the Company's liabilities, on the terms and conditions set forth herein; and WHEREAS, the Company and Purchaser previously entered into an Agreement of Purchase and Sale of Assets dated January 20, 1998 (the "Purchase Agreement"), which was subsequently amended by the parties pursuant to letter agreements dated April 30, 1998, October 2, 1998, and October 23, 1998, November 19, 1998 and December 3, 1998(collectively, the "Letter Amendments"), and pursuant to which the Company agreed to sell to Purchaser, and Purchaser agreed to acquire from Seller, substantially all of the assets of the Company's Video Business; and WHEREAS, the Company and Purchaser wish to further amend the Purchase Agreement, as amended by the Letter Amendments, in its entirety, by the execution and delivery of this Agreement. 1 NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and in order to set forth the terms and conditions of the purchase and sale of assets and the manner of carrying the same into effect, the parties hereto hereby agree as follows: 1. (a) Purchase and Sale of Assets. Except as set forth on Schedule 1(c) annexed hereto, subject to and upon the terms and conditions set forth in this Agreement, the Company agrees to sell, transfer, convey, assign and deliver to Purchaser, and Purchaser agrees to purchase at the "Closing" (as defined in Section 3 hereof), those certain assets and properties, and that certain business, goodwill and rights of the business as a going concern, of every nature, kind and description whatsoever, whether tangible and intangible, wheresoever located and whether or not carried or reflected on the books and records of the Company with respect to the Company's Video Business, all of which shall be referred to in the form of Bill of Sale as set forth in Schedule 1(a) annexed hereto (hereinafter sometimes collectively called the "Assets"), including, without limitation: (i) subject to the provisions of Sections 6(p) and 6(o) below, all right, title and interest in and to any and all United States, Italian and other: (A) industrial designs, and improvements thereto; (B) trademarks, service marks, trade names (including, without limitation, any trade names acquired by the Company in connection with its acquisition of the business), trade dress, logos, business and product names, slogans, and registrations and applications for registration thereof; (C) copyrights (including software) and registrations, if any, thereof; (D) inventions, processes, designs, formulae, trade secrets, know-how, industrial models, confidential and technical information, manufacturing, engineering and technical drawings, product specifications and confidential business information; (E) mask work and other semiconductor chip rights and registrations, if any, thereof; (F) intellectual property rights similar to any of the foregoing; (G) copies and tangible embodiments thereof (in whatever form or medium, including electronic media) (collectively, "Intellectual Property"); (ii) the assets reflected on the Pro Forma Financial Statements referred to in Section 6(g) hereof, with only such disposition of such assets as shall have occurred in the ordinary course of the 2 Company's business between the date of the Pro Forma Financial Statements and the Closing; (iii) all machinery, equipment, fixtures, leasehold improvements, trucks, vehicles, parts and other tangible personal property (including, but not limited to, any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other party); (iv) all inventory of equipment held for sale or lease, spare parts, replacement and component parts, and office and other supplies ("Inventories"), including Inventories held at any location for the Company and Inventories previously purchased and in transit to or from the Company; (v) all rights in and to Inventories (including, but not limited to, products hereafter returned or repossessed and unpaid, Company's rights of rescission, replevin, reclamation and rights to stoppage in transit); (vi) all rights (including, but not limited to, any and all Intellectual Property rights) in and to the products and services sold, rented or leased and in and to any products and services sold, rented or leased and in and to any products or other Intellectual Property rights under research or development prior to or on the Closing Date; (vii) all of the rights of the Company under all Contracts (as defined in Section 6(z) hereof) and, including, without limitation, any right to receive payment for products sold or services rendered (exclusive, however, of the "Accounts Receivables" that the Company shall retain upon the Closing of this Agreement in accordance with the provisions of, and as such term is defined in, Section 1(c) below), and to receive goods and services, pursuant to such Contracts and to assert claims and take other rightful actions in respect of breaches, defaults and other violations of such Contracts; (viii) all credits (exclusive of the Accounts Receivables that the Company shall retain in accordance with the provisions of Section 1(c) below), and, if any, prepaid expenses, deferred charges, return 3 allowances, advance payments, security deposits and prepaid items; (ix) only to the extent that they relate solely to the Company's Video Business, and are discrete with respect thereto, all books, records, manuals and other materials (in any form or medium whether now known or hereafter devised), including, without limitation, all records and materials maintained by the Company, advertising matter, catalogues, consumer manuals, price lists, correspondence, mailing lists, lists of customers, distribution lists, photographs, production data, sales and promotional materials and records, purchasing materials and records, manufacturing and quality control records and procedures, blueprints, research and development files, records, data and laboratory books, Intellectual Property disclosures, media materials and plates, accounting records, and sales order files; provided, however, that it is expressly understood that in the event that any of the foregoing also sets forth information relative to the Company in connection with matters unrelated, in whole and in part, to the Company's Video Business, then notwithstanding the foregoing, all such books and records shall remain the property of the Company, and will not be deemed to be an asset transferred hereunder but rather, will be deemed to be an "Excluded Asset" (as that term is defined in Section 1(c) below), and consequently, shall be retained by the Company in accordance with the provisions of Section 12(c) below; (x) to the extent their transfer is permitted by law, all consents, approvals, authorizations, waivers, permits, grants, franchises, concessions, agreements, licenses, exemptions or orders of regulation, certificate, declaration or filing with, or report or notice to any entity issued, executed, delivered or otherwise made to or for the benefit of the Assets or any assets of the Subsidiary, including all applications thereof (collectively, the "Consents"), all of which Consents are set forth on Schedule 1(a)(x) hereof, including, but not limited to, the Consent (the "Governmental Approval") of any nation, or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, 4 commission or instrumentality of the United States or Italy, any state of the United States or any municipality thereof, any region or province of Italy or any municipality thereof, and any tribunal or arbitrator(s) of competent jurisdiction, and any self-regulatory organization of the United States or Italy (collectively, the "Governmental Authority" or "Governmental Authorities); (xi) except with respect to the Accounts Receivables to be retained by the Company in accordance with the provisions of Section 1(c) below, all rights to choses in action, causes of action, claims and rights of recovery or setoff, lawsuits, judgments, claims and demands of any nature available to or being pursued by the Company with respect to the Company's business or the ownership, use, function or value of any of the Assets whether arising by way of counterclaim or otherwise; (xii) all guarantees, warranties, indemnities and similar rights in favor of the Company with respect to any of the Assets or the Company's Video Business; (xiii) accrued sales (in respect of outstanding proposals or work-in-process), commitments, proposals, Contracts, understandings or commitments, whether oral or written, to perform services, advanced billings and unbilled costs (as set forth on Schedule 6(y) annexed hereto); (xiv) the tangible assets (the "Tangible Assets") that are part of Schedule 1(a) annexed hereto and as provided on the Balance Sheet; and , (xv) all shares of stock of the Subsidiary owned by Company and any other equity ownership interests and rights to acquire equity ownership interests in the Subsidiary (it being expressly understood and agreed that Purchaser shall have no obligation whatsoever to enter into any agreements of any kind with those shareholders of the Subsidiary other than the Company, including, without limitation agreements regarding such shareholders' shareholdings with respect to the Subsidiary or such shareholders' employment arrangements therewith). 5 (b) Assumed Liabilities. (i) The Assets shall be conveyed free and clear of all liabilities, obligations, liens, claims and encumbrances, excepting only those liabilities, obligations, liens, claims and encumbrances which are expressly to be assumed by Purchaser hereunder, if any. Purchaser shall assume at the Closing, and thereafter timely pay, perform or discharge, when due, the "Assumed Liabilities," except to the extent that any of such Assumed Liabilities have been paid or satisfied as of the Closing Date. As used herein, the term "Assumed Liabilities," all of which shall be set forth on Schedule 1(b) annexed hereto, shall be expressly limited to: (A) the sum of (w) the Company's accounts payable incurred solely in the ordinary course of the Company's Video Business (the "Trade Payables") in the aggregate amount as set forth in the Company's written advice to Purchaser no later than ten (10) business days after the Closing Date, which written advice shall also individually set forth such Trade Payables on an account by account basis, including the amount of time each of such Trade Payables has been outstanding and when same is due and owing (x) certain of the principal plus interest amount of the Company's existing bank indebtedness (the precise amount of which shall be determined by the parties at Closing) with the banks listed on Schedule 1(b).2 attached hereto, which schedule may be delivered by the Seller no later than ten (10) days after the Closing (the "Company's Bank Debt"), plus (y) the accrued employee severance benefits through the Closing Date, plus (z) the Government Loan, if any, to the extent that prior to Closing the Company has actually received funds with respect to the Government Loan and such funds have either been retained by or used in connection with the Company's Video Business; provided, however, sum of (w), (x), (y) and (z) shall in no event exceed $2,500,000 U.S. Dollars (such sum being hereinafter referred to as the "Agreed Upon Accounts Payables"); it being expressly agreed that $1,500,000 of such Agreed Upon Accounts Payables shall be deposited into the "Assumed Liabilities Escrow Account", as defined in, and in 6 accordance with, the provisions of Section 18 below, and the remaining $1,000,000 balance of such Agreed Upon Accounts Payables shall be paid by Purchaser to the appropriate creditors of the Company one hundred and twenty (120) days subsequent to the Closing hereof; (ii) In addition, upon the Closing, Purchaser shall be responsible for the full and timely payment of the Bill of Sale Registration Tax and Stamp Duties under Italian law. (iii) Purchaser shall not and does not assume any liabilities, obligations or commitments of the Company, other than the Assumed Liabilities, and the Company shall be solely responsible, without limitation, for the following: (A) Legal, accounting, brokerage and finder's fees and income, excise, if any, or other Transfer Taxes (as defined in Section 4(c) hereof and which shall not include the Bill of Sale Registration Tax and Stamp Duties) or other expenses incurred by the Company in connection with this Agreement or the consummation of the transactions contemplated hereby; provided that Purchaser agrees that it shall be solely responsible for any and all payments of any nature whatsoever due and owing to Hambro America Securities, Inc. and Purchaser hereby agrees to indemnify the Company with respect thereto; (B) Debts, liabilities or obligations of any nature of the Company except for the Assumed Liabilities; (C) Except for the Bill of Sale Registration Tax and Stamp Duties, any domestic, value added, if any, federal, international, regional, provincial, state or local or foreign income, franchise, excise, use, property, payroll or similar or other Taxes (as defined in Section 6(i) hereof)(or penalties and interest thereon) imposed on the Company including, without limitation, those due as a result of the operation of the Company's Video Business through the Closing Date; 7 (D) Any claim, legal action, suit, arbitration or other legal or administrative proceeding (or governmental investigation) pending or in effect, or threatened against or relating to either the Company's Video Business, the officers and directors of the Company (as such litigation, if any, may relate to the Company's Video Business), or the Assets or the properties or business relative to the Company's Video Business, all of which shall be expressly retained by the Company; provided, however, that Purchaser shall provide the Company (at no cost to the Purchaser) with whatever cooperation and assistance that the Company may reasonably require subsequent to the Closing hereof in connection with the foregoing; and (E) Except as Purchaser shall have otherwise expressly agreed to assume herein, liabilities and obligations of the Company, if any, accruing prior to, on or after the Closing Date relating to the Company's employment of any of the Company's employees, including, without limitation, compensation, severance payments, if any, contributions to employee benefit plans, workers' compensation or other insurance claims. (c) Excluded Assets. Except as set forth on Schedule 1(c) annexed hereto, the Company is selling to Purchaser hereunder all, and is not excluding any, of the assets of any nature whatsoever that are used by the Company to conduct the Company's Video Business as presently operated and as currently contemplated to be operated subsequent to the consummation of the transaction contemplated by this Agreement (hereinafter referred to as the "Excluded Assets"). Schedule 1(c) shall include, among other things, that certain low interest loan(or any portion thereof) extended to the Company by the Italian Government in accordance with that letter to the Company dated October 30, 1997 (the "Government Loan"), the true and complete documentation of which is annexed hereto as Schedule 1(a)(xv), and (iii) a detailed listing on an account by account basis of the Company's accounts receivables as of the Closing Date (other than receivables due to Seller from the Subsidiary which shall be the property of Projectavision) with respect to those goods and services that the Company has fully delivered or performed solely in connection with the Company's Video Business, as the case may be, all of which shall be retained by the Company, which accounts receivables shall not be in excess of $1,167,000(the "Accounts 8 Receivables"). It is agreed by Purchaser that Seller shall have the right, during the ten(10) day period subsequent to the Closing, to update and amend Schedule 1(c) to include receivables incurred prior to the Closing, subject to the terms of this Section 1(c), by delivering to Purchaser within such ten (10) day period a revised, updated Schedule 1(c) in writing. (d) Consent of Third Parties. Notwithstanding anything to the contrary in this Agreement, but subject, nevertheless, to Section 14 hereof, this Agreement shall not constitute an agreement to assign or transfer any Governmental Approval, instrument, Contract, lease, permit or other agreement or arrangement or any claim, right or benefit arising thereunder or resulting therefrom if an assignment or transfer or an attempt to make such an assignment or transfer without the consent of a third party would constitute a breach or violation thereof or affect adversely the rights of Purchaser or the Company thereunder; any transfer or assignment to Purchaser by the Company or the Subsidiary of any interest under any such instrument, Contract, lease, permit or other agreement or arrangement that requires the consent or approval of a third party shall be made subject to such consent or approval being obtained. In the event any such consent or approval is not obtained on or prior to the Closing Date, the Company shall continue to use its best efforts to obtain such approval or consent after the Closing Date until such time as such consent or approval has been obtained, and the Company will cooperate with Purchaser in any lawful and economically feasible arrangement to provide that Purchaser shall receive the interest of the Company, and/or the Subsidiary, as the case may be, in the benefits under any such instrument, Contract, lease or permit or other agreement or arrangement, including performance by the Company or the Subsidiary as agent, if economically feasible, provided, that Purchaser shall undertake to pay or satisfy the corresponding liabilities for the enjoyment of such benefit to the extent Purchaser would have been responsible therefor hereunder if such consent or approval had been obtained. The Company shall pay and discharge, and shall indemnify and hold Purchaser harmless from and against any and all out-of-pocket costs of seeking to obtain or obtaining any such consent or approval whether before or after the Closing Date. Nothing in this Section 1(d) shall be deemed a waiver by Purchaser of its right to have received on or before the Closing an effective assignment of all of the Assets nor shall this Section 1(d) be deemed to constitute an agreement to exclude from the Assets any assets described in Section 1(a) hereof. 9 2. (a) Purchase Price. As full and total consideration for the sale, transfer, conveyance, assignment and delivery of the Assets by the Company to Purchaser, and in reliance upon the representations and warranties made herein by the Company, Purchaser agrees, subject to any adjustments herein provided for, (i) Purchaser shall pay, or cause to be paid on behalf of, Seller,$3,500,000 upon the Closing, less any "Prepayments" (as that term is defined in Section 2(b) below, payable by wire transfer or certified or official bank check drawn on a bank which is a member of the New York Clearing House Association payable to the order of the Company and (ii) Purchaser shall assume the Agreed Upon Accounts Payables, $1,500,000 of which shall be deposited into the "Assumed Liabilities Escrow Account" as that term is defined in Section 18 below. The aggregate consideration set forth in clause (i) and clause (ii) of the immediately preceding sentence is hereinafter referred to as the "Purchase Price." (b) Purchase Price Prepayments. Upon the execution hereof, the Company acknowledges that Purchaser has heretofore paid to the Company $2,900,000 (the "Prepayments"), the entire sum of which shall be credited towards the Purchase Price. (c) Purchase Price Adjustment. The Purchase Price set forth in Section 2(a) above (which is subject to the provisions of Section 15 below) shall be subject to adjustment as hereinbelow set forth in this Section 2 (c). Specifically, in the event that the Agreed Upon Accounts Payable are less than Two Million Five Hundred Thousand Dollars ( 2,500,000), the Purchase Price shall be increased on a dollar-for-dollar basis. By way of example, in the event that the Agreed Upon Accounts Payable is Two Million Four Hundred Thousand Dollars ($ 2,400,000)_, the Purchase Price shall be increased by $100,000 to Three Million Six Hundred Thousand Dollars ($3,600,000). There shall also be a Purchase Price adjustment in accordance with the provisions of that certain letter agreement dated January 20,1998 by and between Projectavision and the Company relative to the Subsidiary's "Bank Debt" (as such term is defined in such January 20, 1998 letter agreement). (d) Allocation of Purchase Price. The Purchase Price payable pursuant to Section 2(a) hereof, and the assets purchased and liabilities assumed, as between Projectavision and International, shall be allocated as provided on Schedule 2(c) annexed hereto. The parties hereto agree that Purchaser may use such allocation for purposes of filing Internal Revenue Service Form 8594 (Asset Acquisition Statement under Section 1060) pursuant to the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). 10 (e) Acquisition by Affiliates. Notwithstanding anything to the contrary in this Agreement, Purchaser may cause some or all of the Assets to be acquired hereunder by one (1) or more affiliates of Purchaser; provided, however, that Purchaser shall remain liable, jointly and severally, with any such affiliate(s) for any and all obligations under this Agreement. The term "affiliates" as used in this Section 2(d) shall have the same meaning as set forth under the definition of "affiliates" in Rule 405 of the Securities Act of 1933, as amended. 3. (a) Closing. The closing of the transactions contemplated under this Agreement (the "Closing") shall take place at the offices of Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New York, New York 10022 no later than December 7, 1998, provided that all conditions precedent set forth in Section 14 hereof, or at such other time and place as the parties may agree. The day on which the Closing actually takes place is herein sometimes referred to as the "Closing Date." (b) Further Action. (i) The Company and Purchaser agree to use all reasonable good faith efforts to take all actions and to do all things necessary, proper or advisable to consummate the transactions contemplated hereby by the Closing Date, including but not limited to (A) fulfilling the provisions of Section 12 below, and (B) delivering all of the Schedules required to be annexed to this Agreement; provided that a Schedule shall not be deemed to have been delivered hereunder unless and until same is complete and accurate in its entirety. (ii) The Company and Purchaser shall, as promptly as practicable, file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied pursuant to all applicable provisions of (A) constitutions, treaties, statutes, laws (including common law), rules, regulations, ordinances, codes or orders of any Government Authority; and (B) orders, decisions, injunctions, judgments, awards and decrees of or agreements with any Governmental Authority (collectively, the "Applicable Laws") in connection with this Agreement, the sale and transfer of the Assets pursuant to this Agreement and the consummation of the other transactions contemplated hereby. 11 (iii) The Company and Purchaser, as promptly as practicable, will use all reasonable efforts to obtain, or cause to be obtained, all consents of any Governmental Authority and of any third party (collectively, the "Consents") necessary to be obtained in order to consummate the sale and transfer of the Assets pursuant to this Agreement and the consummation of the other transactions contemplated hereby. (iv) The Company shall coordinate and cooperate with Purchaser in exchanging such information and supplying such assistance as may be reasonably required by Purchaser pursuant to Applicable Laws in connection with this Agreement and the "Company's Related Agreements" (as that term is defined in Section 6(d) below). (v) At all times prior to the Closing, the Company shall promptly notify Purchaser in writing, and the Purchaser shall promptly notify the Company in writing, upon becoming aware of any fact, condition, event or occurrence that will or may result in the failure to satisfy any of the conditions precedent to the transactions contemplated by this Agreement as set forth in Section 14 hereof. (vi) The Company shall use its good faith, reasonable efforts to enter into such agreements and other arrangements (including sublicenses and subleases) with Purchaser as are necessary to ensure that Purchaser receives benefits under the Contracts set forth on Schedule 6(z) annexed hereto and the other agreements to be transferred to Purchaser hereunder that are the same as received under the Contracts prior to the Closing or as contemplated to be received after the Closing. (vii) The Company and Purchaser shall, collectively, use their best efforts to secure a line of credit with one or more Italian banking institutions on or before March 1, 1999 which shall provide Purchaser with credit availability of not less than $2,000,000. 4. (a) The Company's Delivery Obligations at the Closing; Covenants; Further Assurances. At the Closing, the Company agrees to deliver or cause to be delivered to Purchaser (and, as applicable, execute): 12 (i) a Bill of Sale in English and a Bill of Sale in Italian, each of which shall be duly executed by the Company in substantially the form of Schedule 4(a).1 and Schedule 4(a).2, respectively, annexed hereto; (ii) such other good and sufficient deeds, bills of sale, endorsements, assignments, documents of title and other instruments of conveyance, assignment and transfer, in form and substance reasonably satisfactory to Purchaser's counsel, as shall be effective to vest in Purchaser good title to the Assets; (iii) all contracts, files and other data (including, without limitation, lists of orders and computer disks and tapes) and documents pertaining to the Assets; (iv) certified copies of resolutions adopted by the Company's Board of Directors authorizing the execution, delivery and performance of this Agreement; (v) an authenticated copy of the Subsidiary's Certificate of Incorporation, as amended, certified by the Office of the Secretary of State of the State of Delaware, and a true and correct copy of the by-laws of the Subsidiary as certified by the secretary of the Subsidiary; (vi) the opinion of Company's counsel, substantially in the form of Schedule 4(a)(vi) annexed hereto which opinion shall cover, among other things, the due authorization, execution and delivery of this Agreement and the transactions contemplated hereby; (vii) the Non-Competition Undertaking of Mr. Flavio Peralda, which shall include, among other things, a provision prohibiting any further use, directly or indirectly, of the names and words "Vidikron Industries S.p.A." or Vidikron of America, Inc.," or any other name confusingly similar to such names and marks or any variation thereof (the "Peralda Non-Competition Undertaking"), in the form of Schedule 4(a)(vii) annexed hereto; (viii) the Employment Agreement (the "Peralda Employment Agreement") between Purchaser and Mr. Flavio Peralda in the form of Schedule 4(a)(viii) annexed hereto; 13 (ix) the Employment Agreement (the "Macario Employment Agreement"), which shall include, among other things, a provision prohibiting any further use, directly or indirectly, of the names and words "Vidikron Industries S.p.A." or Vidikron of America, Inc.," or any other name confusingly similar to such names and marks or any variation thereof, between Purchaser and Mr. Emilio Baj Macario in the form of Schedule 4(a)(ix) annexed hereto; (x) the Non-Competition Undertaking of Mr. Emilio Baj Macario, which shall include, among other things, a provision prohibiting any further use, directly or indirectly, of the names and words "Vidikron Industries S.p.A." or Vidikron of America, Inc.," or any other name confusingly similar to such names and marks or any variation thereof (the "Macario Non-Competition Undertaking") in the form of Schedule 4(a)(x) annexed hereto; (xi) approvals, if required by the terms thereof, in respect of and an assignment and assumption agreement for the Leases (as defined in Section 6(dd) hereof) in substantially the form of Schedule 4(a)(xi) annexed hereto (the "Lease Assignment"); (xii) an assignment and assumption agreement for the equipment leases in substantially the form of Schedule 4(a)(xii) annexed hereto to be prepared by Purchaser (the "Personal Property Assignment);" provided, however, Purchaser expressly agrees that in the event that any Personal Property Assignment cannot be executed and delivered at the Closing, it shall be acceptable for the Company, in lieu thereof, to keep in existence the applicable equipment lease for the benefit of Purchaser and the Purchaser shall reimburse the Company on a timely basis for any ongoing lease payments from time to time as same become due and owing; (xiii) a notarized assignment agreement for the Intellectual Property to be included in each of the Bills of Sale referred to in Section 4(a)(i) above, in accordance with applicable laws and in substantially the form of Schedule 4(a)(xiii) annexed hereto (the "Intellectual Property Assignment"); 14 (xiv) all Consents, including, without limitation, those necessary in connection with the Lease Assignment, if required, the Personal Property Assignment and the Intellectual Property Assignment; (xv) a Certificate of the Registry of the Companies which shall cover the Company's continued registration in the Registry of Companies as of the Closing Date; (xvi) a Certificate signed by a managing director of the Company dated the Closing Date, reaffirming that all of the representations and warranties set forth in Section 6 below; (xvii) the lease with the Purchaser for the premises at the Company's address first set forth above (the "Italian Lease") for a term of not less than six (6) years at a rate of 140,000,000Li. per annum (plus normal operating expenses and value added taxes, if any, all consistent with the terms and conditions as are applicable to the Italian Lease upon the execution hereof); (xviii) the Assumed Liabilities Escrow Agreement" as that term is defined in Section 18 below; (xix) Governmental Approvals; (xx) the Employment and Stock Purchase Agreement ("Cozzi Employment Agreement") between Purchaser and Mr. Giovanni Cozzi in the form of Schedule 4(a)(xx) annexed hereto; (xxi) the Employment and Stock Purchase Agreement (the "Wellnitz Employment Agreement") between Purchaser and Mr. James Wellnitz in the form of Schedule 4(a) (xxi) annexed hereto; (xxii) the original stock certificate(s) or an affidavit of lost certificate, reasonably satisfactory in form and substance to Purchaser's counsel representing the Company's eighty-five percent (85%) beneficial equity ownership interest in the Subsidiary, accompanied by undated stock powers executed in blank with signatures guaranteed; 15 (xxiii) the original stock certificate(s), representing the beneficial equity ownership in the Subsidiary of each of Mr. Giovanni Cozzi and Mr. James Wellnitz which, in the aggregate, which equal fifteen percent (15%) of the beneficial equity ownership in the Subsidiary, accompanied by undated stock powers executed in blank with signatures guaranteed; (xxiv) all of the books and records, stock ledger, bank accounts, agreements, contracts, understandings, correspondence, and all other materials of any nature whatsoever relative to the Subsidiary; (xxv) evidence in form and substance satisfactory to Purchaser that all notices required to be given to the Company's employees pursuant to Italian laws have been properly given in a timely fashion in accordance with applicable Italian Laws; and (xxvi) all other documents and instruments required to be delivered to Purchaser in order to consummate the transactions herein contemplated. (b) Billings. The Company agrees that from and after the Closing Date, Purchaser shall have the right and authority to bill and collect for its own account all billings in respect of work-in-process, if any, that are being transferred to Purchaser as provided herein. The Company agrees that it will promptly transfer and deliver to Purchaser any cash or other property which the Company may receive in respect of such billings. (c) Liability for Transfer Taxes. Except for the Bill of Sale Registration Tax and Stamp Tax Duties, the Company shall be responsible for the payment in the ordinary course of, and shall indemnify and hold harmless Purchaser against, all income, sales (including, without limitation, bulk sales), use, value added, documentary, stamp, gross receipts, transfer, conveyance, excise (if any), license and other similar Taxes (as defined in Section 6(i) hereof) and fees (collectively, "Transfer Taxes"), arising out of or in connection with or attributable to the transactions effected pursuant to this Agreement and the Company's Related Agreements. The Company shall prepare and timely file all tax returns required to be filed in respect of Transfer Taxes (including, without limitation, all notices required to be given with respect to bulk sales taxes), provided 16 that Purchaser shall be permitted to prepare any such tax returns that are the primary responsibility of Purchaser under Applicable Law. Purchaser's preparation of any such tax returns shall be subject to the Company's approval, which approval shall not be unreasonably withheld or delayed. (d) Certificates of Tax Affidavits. On or before the Closing Date, Purchaser shall obtain copies of certificates from appropriate taxing authorities with respect to value added taxes relative to any country, federal, state, regional, provincial or other taxing authority for which Purchaser or the Company could have liability to withhold or pay with respect to the transfer of the Assets or any of the transactions herein contemplated, provided, that Purchaser's failure to obtain such certificates (provided that such failure shall not be the fault of the Company) shall not relieve the Purchaser of its obligations to enter into and complete the Closing. In the event that notwithstanding its good faith efforts to the contrary, Purchaser is unable to obtain such certificates prior to the Closing, Purchaser shall withhold or, where appropriate, escrow such amount as necessary based upon the Purchaser's reasonable estimate of the amount of such potential liability, or as determined by the appropriate taxing authority, to cover such value added taxes until such time as certificates are provided. (e) Use of Business Name. Contemporaneously with the Closing, the Company will change its name, and the Company will not, directly or indirectly, use or do business, or allow any Affiliate (as hereinafter defined) to use or do business, or assist any third party in using or doing business, under the names and marks "Vidikron Industries S.p.A." or "Vidikron of America, Inc.," or any other name confusingly similar to such names and marks or any variation thereof. It is expressly acknowledged and agreed by the Company that the provisions of this Section 4(e) are of the essence hereof. (f) Further Assurances. At any time and from time to time after the Closing, at Purchaser's request and expense, without further consideration, the Company shall execute and deliver such other additional instruments of sale, transfer, conveyance, assignment and confirmation and take such other action as Purchaser may reasonably deem necessary or desirable in order to transfer, convey and assign to Purchaser the Assets, subject to this Agreement, to put Purchaser in actual possession and operating control thereof and to assist Purchaser in exercising all of the Company's rights with respect thereto and to take such action and execute such documents or instruments as may be reasonably requested by the Purchaser in connection with 17 any governmental or regulatory matters or filings required to be made by Purchaser, including, without limitation, any filings, documents or instruments to be delivered to the United States Securities and Exchange Commission or any other Governmental Authority, The Nasdaq Stock Market, Purchaser's, the Company's and the Subsidiary's, lenders, auditors or any other appropriate party. 5. Purchaser's Delivery Obligations at the Closing. (a) At the Closing, Purchaser agrees to deliver, or cause to be delivered, as the case may be, to the Company (and, as applicable, execute): (i) a certified or cashier's check for the balance of the Purchase Price as provided in Section 2 hereof, less any and all Prepayments thereto for delivered, subject to any adjustment herein and the holdback provisions of Section 15 below; (ii) a certified copy of resolutions adopted by the Board of Directors of Purchaser authorizing the execution, delivery and performance of this Agreement and the Purchaser's Related Agreements (as defined in Section 7(a) hereof); (iii) a certificate of good standing issued by the Secretary of State of the State of Delaware as to the good standing and corporate existence of Purchaser; (iv) an opinion of Purchaser's counsel substantially in the form of Schedule 5(a)(iv) annexed hereto which opinion shall cover, among other things, the due authorization, execution and delivery of this Agreement and the transactions contemplated hereby; (v) the Macario Employment Agreement; (vi) the Macario Non-Competition Undertaking; (vi) the Peralda Non-Competition Agreement; (vii) the Peralda Employment Agreement; (viii) the Cozzi Employment Agreement; (ix) the Wellnitz Employment Agreement; 18 (x) (the Personal Property Assignment; (xi) the Lease Assignment; (xii) all other documents and instruments required to be delivered to the Company pursuant to the provisions of this Agreement; (xiii) , the Trade Payables Escrow Agreement; (xiv) the Lease; (xv) the Bill of Sale in Italian and the Bill of Sale in English duly executed by the Purchaser in substantially the form of Schedule 4(a).2 annexed hereto; and (b) At any time and from time to time after the Closing, at the Company's request and expense, Purchaser shall execute and deliver such other additional instruments as the Company may reasonably deem necessary to evidence Purchaser's obligations under this Agreement, and Purchaser agrees to take such actions as may be reasonably necessary to carry out the purposes and intentions of this Agreement. For a reasonable period of time following the Closing, Purchaser shall provide the Company with reasonable access to all books and records of the Company that are delivered to Purchaser hereunder relating to the Assets and the period through the Closing Date. 6. Representations and Warranties of the Company. The Company represents and warrants to Purchaser, as of the date of this Agreement and as of the Closing Date, as follows: (a) Organization, Standing and Qualification. Each of the Company and the Subsidiary (i) is a corporation duly organized, validly existing and in good standing under the laws of Italy and the State of Delaware, respectively; (ii) has all requisite corporate power and authority and is entitled to carry on the business as now being conducted and to own, lease or operate its properties in the places where such business is now conducted and such properties are now owned, leased or operated; and (iii) the Subsidiary is duly qualified, licensed and in good standing as a foreign corporation authorized to do business in the states listed on Schedule 6(a) annexed hereto, which are the only states where the failure to be so qualified would have a material adverse effect on the condition, financial or otherwise, of the Company or the Subsidiary. The Company has delivered to 19 Purchaser a true and complete copy of the certificate of incorporation of the Subsidiary and all amendments thereto, certified as true and correct by the Secretary of State of the State of Delaware, as well as the by-laws of the Subsidiary as presently in effect, certified as true and correct by the secretary of the Subsidiary. (b) Subsidiaries. The Subsidiary has no subsidiaries except those listed on Schedule 6(b) annexed hereto. Except as set forth on Schedule 6(b) annexed hereto, the Subsidiary owns all of the outstanding capital stock of all of the subsidiaries of the Subsidiary listed on Schedule 6(b) annexed hereto. Except as set forth on Schedule 6(b) annexed hereto, the Subsidiary has no interest, directly or indirectly, and has no commitment to purchase any interest, directly or indirectly, in any other corporation or in any partnership, joint venture or other business enterprise or entity. Except as set forth on Schedule 6(b) annexed hereto, the Company's Video Business has not been conducted through any other direct or indirect subsidiary or affiliate of the Subsidiary or the Company other than the Subsidiary. Except as set forth on Schedule 6(b) annexed hereto, there are no securities of any subsidiary of the Company or the Subsidiary directly or indirectly convertible, exercisable or exchangeable for any of the capital stock of the Subsidiary, including, but not limited to, any options, warrants, rights, agreements, understandings or commitments, vested or unvested, of any nature whatsoever relating to the capital stock of the Subsidiary. (c) Transactions with Certain Persons. Except as set forth on Schedule 6(c) annexed hereto, neither the Company with respect to the Company's Video Business nor the Subsidiary has directly or indirectly, purchased, leased from others or otherwise acquired any property or obtained any services from, or sold, leased to others or otherwise disposed of any property or furnished any services to, or otherwise dealt with (except with respect to remuneration for services rendered as a director, officer or employee of the Company or the Subsidiary), in the ordinary course of business or otherwise (i) any shareholder of the Company or the Subsidiary, or (ii) any person, firm or corporation which, directly or indirectly, alone or through one or more intermediaries controls, is controlled by, or is under common control with the Company or the Subsidiary or any shareholder of the Company or the Subsidiary (an "Affiliate"). Except as set forth on Schedule 6(c) annexed hereto, neither the Company with respect to the Company's Video Business, nor the Subsidiary, owes any amount to, or has any contract with or commitment to, any shareholders, officers, employees or 20 consultants (other than compensation for current services not yet due and payable and reimbursement of expenses arising in the ordinary course of business), and none of such persons owes any amount to either the Company with respect to the Company's Video Business or by the Subsidiary. Except as set forth on Schedule 6(c) annexed hereto, no part of the property or assets of any of the shareholders of the Company or the shareholders of the Subsidiary are used by the Company in connection with the Company's Video Business or the Subsidiary. Except as set forth on Schedule 6(c) annexed hereto, no part of the property or Assets of the Company's Video Business or the Subsidiary are used by any of the shareholders of the Company or shareholders of the Subsidiary for their personal benefit or any purpose not related to the business of the Company's Video Business or the Subsidiary. (d) Execution, Delivery and Performance of Agreement; Authority. Except as set forth on Schedule 6(d) annexed hereto, neither the execution, delivery nor performance of this Agreement and all other agreements to which the Company or the Subsidiary is a party that are required to be delivered by the Company, pursuant to Section 4(a) hereof (which documents are sometimes herein collectively referred to as the "Company's Related Agreements") will, with or without the giving of notice or the passage of time, or both, conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any lien, charge or encumbrance pursuant to any provision of the Company's charter documents or the Subsidiary's certificate of incorporation or by-laws or any franchise, mortgage, deed of trust, lease, license, Contract, agreement, Applicable Law, rule or regulation, or any order, judgment or decree to which the Company or the Subsidiary are a party or by which either of them may be bound or materially or adversely affected or require any consent, authorization, approval or any other action by, or any notice to, or filing or registration with, any Governmental Authority or other third party. Except as set forth on Schedule 6(d) annexed hereto, no other party, including, without limitation, any present or former partner, shareholder, or employee of the Company or the Subsidiary has, may or will have any right (tangible or intangible, choate or inchoate) to any interest in the Assets or the proceeds from the sale of the Assets. Except as set forth on Schedule 6(d) annexed hereto, no Consent is required to be obtained or made by the Company or the Subsidiary in connection with the execution and delivery of this Agreement or the Company's Related Agreements, and to consummate the transactions contemplated thereby. The Company has the full right, power and authority to enter into this Agreement and, if applicable, the Company's Related 21 Agreements, and to carry out the transactions contemplated hereby and thereby, as applicable, and all proceedings required to be taken by it to authorize and approve the execution, delivery and performance of this Agreement and the Company's Related Agreements have been properly taken, and this Agreement and the Company's Related Agreements constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except that such enforcement may be subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally. The execution, delivery and performance of this Agreement and the Company's Related Agreements have been duly authorized, to the extent required by Applicable Law and by all requisite corporate and shareholder action of the Company. (e) Capitalization; Ownership of Capital Stock. The authorized capital of the Subsidiary consists of two hundred (200) shares of common stock, no par value, of which one hundred (100) shares are issued and outstanding on the date hereof, all of which have been duly authorized and validly issued and are fully paid and non-assessable. All of the presently authorized, issued and outstanding shares of capital stock of the Subsidiary are legally and beneficially owned, free and clear of any liens, claims, encumbrances, voting trusts, or any agreement, understanding or arrangement regarding the transfer, sale, disposition, purchase or acquisition thereof, by those individuals and entities in the amounts set forth on Schedule 6(g).2 annexed hereto. Except as otherwise disclosed on Schedule 6(g).1 annexed hereto, there are no outstanding subscriptions, rights, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatsoever under which the Subsidiary is, or may become obligated to, issue, assign or transfer any shares of the capital stock of the Company or the Subsidiary, as the case may be. (f) [Intentionally Omitted] (g) Financial Statements. Annexed hereto is a true and correct copy of each of the Company's income statement relative to the Company's Video Business, and the Subsidiary's audited income statement and balance sheet (which audited income statement and balance sheet of the Subsidiary shall include footnotes, and shall be all prepared in accordance with generally accepted accounting principles), all with respect to the fiscal years ending December 31, 1995, 1996 and 1997 (collectively, the "Historical Financial Statements") and which shall all be annexed hereto as Schedule 6(g).1; The Historical Financial Statements, 22 have been prepared in good faith from the books and records of the Company and the Subsidiary in accordance with past practices, are true and accurate in all material respects, and fairly presents the financial position of each of them at such dates and for the periods indicated thereon. In addition, the Historical Financial Statements for the fiscal year ending December 31, 1997 have been prepared in conformity with generally accepted accounting principles, consistently applied. (h) Absence of Undisclosed Liabilities. Except as set forth on Schedule 6(h), as of the Company's balance sheet date with respect to the fiscal year ended December 31, 1997, (the "Balance Sheet Date"), neither the Company's Video Business nor the Subsidiary had any material debts, liabilities or obligations (whether absolute, accrued, contingent or otherwise) except those incurred in the ordinary course of business. (i) Taxes. Except as set forth on Schedule 6(i).1 annexed hereto, (i) all Taxes imposed by the United States, Italy or by any other country or by any state, municipality, region, province, subdivision or instrumentality of the United States, Italy or of any other country, or by any other taxing authority, which are due or payable by the Company, the Subsidiary or any Affiliate of the Company or the Subsidiary, and all interest and penalties thereon, whether disputed or not, have been paid in full, all tax returns required to be filed in connection therewith have been accurately prepared and duly and timely filed prior to the expiration of any available extension periods; and all deposits required by law to be made by the Company or the Subsidiary or any Affiliate of the Company or the Subsidiary with respect to employees' withholding or similar taxes have been duly made, except for the current reporting period which will be paid when due. Neither the Company nor the Subsidiary is currently delinquent in the payment of any foreign or domestic tax, assessment or governmental charge or deposit and has no tax deficiency or claim outstanding, or, to its knowledge, proposed or assessed against it, and, to its knowledge, there is no basis for any such deficiency or claim. There is not now in force any extension of time with respect to the date on which any tax return was or is due to be filed by or with respect to the Company or the Subsidiary. As used in this Agreement, "Taxes" shall include, without limitation, all federal, state, regional, provincial, local, foreign or other income, alternative minimum, accumulated earnings, add-on, personal holding company, franchise, capital stock, net worth, capital, profits, gross receipt, value added, sales, use, goods and services, 23 transaction, excise, customs, duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, charges, fees, severance, environmental (including, taxes under Section 59A of the United States Internal Revenue Code of 1986, as amended), real property, personal property, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, workers' compensation, payroll, withholding, estimated or other similar tax, duty or other governmental charge or assessment or deficiency thereof, including all interest and penalties thereon and additions thereto whether disrupted or not, which is imposed by any Governmental Authority. Upon the execution hereof, the Company shall deliver to Purchaser its tax returns for the years ended December 31, 1995 and 1996, which shall be annexed hereto as Schedule 6(i).2. (j) Absence of Changes or Events. Except as set forth on Schedule 6(j) annexed hereto, since the Balance Sheet Date, each of the Company with respect to the Company's Video Business and the Subsidiary has conducted their business only in the ordinary course and has not, with respect to the Company's Video Business and the Subsidiary: (i) incurred any material obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, except current liabilities for trade or business obligations in the ordinary course of business and consistent with its prior practice, none of which liabilities, in any case or in the aggregate, materially and adversely affects the business, properties, assets, liabilities or condition, financial or otherwise, of the Company or the Subsidiary; (ii) discharged or satisfied any lien, charge or encumbrance other than those then required to be discharged or satisfied, or paid any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, other than current liabilities shown on the Balance Sheet and current liabilities incurred since the Balance Sheet Date in the ordinary course of business and consistent with its prior practice; 24 (iii) declared or made any payment of dividends or other distribution to its shareholders or upon or in respect of any shares of its capital stock, or purchased, retired or redeemed, or obligated itself to purchase, retire or redeem, any of its shares of capital stock or other securities (it being understood that this Section 6(j)(iii) shall only be applicable to the Subsidiary); (iv) mortgaged, pledged or subjected to lien, charge, security interest or any other encumbrance or restriction any of its property, business or assets, tangible or intangible; (v) sold, transferred, leased to others or otherwise disposed of any of its assets except in the ordinary course of business, or cancelled or compromised any debt or claim, or waived or released any right of substantial value; (vi) received any notice of termination of any contract, lease or other agreement or suffered any damage, destruction or loss (whether or not covered by insurance) which, in any case or in the aggregate, has had a materially adverse effect on its assets, properties, operations or prospects; (vii) encountered any labor union organizing activity, had any actual or threatened employee strikes, work stoppages, slow-downs or lock-outs or had any material change in its relations with its employees, agents, customers or suppliers; (viii) transferred or granted any rights under, or entered into any settlement regarding the breach or infringement of, any United States, Italian or any other license, patent, copyright, trademark, trade name, invention or similar rights, or modified any existing rights with respect thereto; (ix) made any material change in the rate of compensation, commission, bonus or 25 other direct or indirect remuneration payable, or paid or agreed or orally promised to pay conditionally or otherwise, any bonus, extra compensation, pension or severance or vacation pay, to any shareholder, director, officer, employee, salesman, distributor or agent of the Company with respect to the Company's Video Business or the Subsidiary; (x) issued or sold any shares of its capital stock or other securities, or issued, granted or sold any options, rights or warrants with respect thereto, or, solely with respect to the Subsidiary, acquired any capital stock or other securities of any corporation or any interest in any business enterprise, or otherwise made any loan or advance to or investment in any person, firm or corporation; (xi) made any capital expenditures or capital additions or betterments in excess of an aggregate of $25,000; (xii) changed its banking, credit, borrowing or safe deposit arrangements; (xiii) instituted, settled or agreed to settle any litigation, action or proceeding before any court or governmental body relating to the property of either the Company's Video Business or the Subsidiary; (xiv) failed to replenish its inventories and supplies in a normal and customary manner consistent with its prior practice or made any purchase commitment in excess of the normal, ordinary and usual requirements of its business or at any price in excess of the then current market price or upon terms and conditions more onerous than those usual and customary in the industry, or made any material change in its selling, pricing, marketing, advertising or personnel practices inconsistent with its prior practice or; (xv) suffered any change, event or condition which, in any case or in the 26 aggregate, has had or may have a materially adverse affect on either the Company's Video Business or the Subsidiary's condition (financial or otherwise), properties, assets, liabilities, operations or prospects including, without limitation, any change in either the Company's Video Business or the Subsidiary's revenues, costs, levels of committed business or relations with its employees, agents, customers or suppliers; (xvi) entered into any transaction, contract or commitment other than in the ordinary course of business or paid or agreed to pay any legal, accounting, brokerage, finder's fee, taxes or other expenses in connection with or incurred any severance pay obligations by reason of, this Agreement or the transactions contemplated thereby; or (xvii) entered into any agreement or made any commitment, whether written or oral, to take any of the types of action described in subparagraphs (i) through (xvi) above. (k) Litigation. Except as set forth on the Historical Financial Statements, there is no claim, legal action, suit, arbitration or other legal or administrative proceeding (or governmental investigation) or any order, decree or judgment in progress, pending or in effect, or threatened against or relating to either the Company's Video Business or the Subsidiary, the officers or directors of the Company (as such litigation, if any, may relate to the Company's Video Business) or the Subsidiary, nor the Assets or the properties or business relative to the Company's Video Business or the properties, assets or business relative to the Subsidiary, and neither the Company nor the Subsidiary knows or has reason to be aware of any basis for the same, which if determined adversely to the Company or the Subsidiary would have a material adverse affect on the Company's Video Business or the Subsidiary. Except as set forth on Schedule 6(k) annexed hereto, there is no claim, legal action, suit, arbitration or other legal or administrative proceeding (or governmental investigation) or any order, decree or judgment in progress, pending or in effect, or threatened against or relating to either the Company's Video Business or the Subsidiary, the officers or directors of the Company (as it may relate to the Company's Video Business) or the Subsidiary, the Assets or the properties or business relative to the Company's Video Business or properties, assets or business of the Subsidiary, and neither 27 the Company nor the Subsidiary knows or has reason to be aware of any basis for the same, which if determined adversely to the Company or the Subsidiary would have a material adverse affect on the Company's Video Business or the Subsidiary. (l) Compliance with Laws and Other Instruments. Except as set forth in Schedule 6(l) annexed hereto, each of the Company, with respect to the Company's Video Business, and the Subsidiary has complied with all existing laws, rules, regulations, ordinances, orders, judgments and decrees now or hereafter applicable to their Assets, business, properties assets and operations. Neither the ownership nor use of the Assets nor the conduct of the Company's Video Business conflicts with the rights of any other person, firm or corporation, or violates, or with or without the giving of notice or the passage of time, or both, will violate, conflict with or result in a default, right to accelerate or loss of rights under, any terms of provisions of either the Company's or the Subsidiary's certificate of incorporation or by-laws as presently in effect, or any lien, encumbrance, mortgage, deed of trust, lease, license, agreement, law, ordinance, rule or regulation, or any order, judgment or decree to which it is a party or by which it may be bound or affected. (m) Title to Properties. Each of the Company and the Subsidiary have good, marketable and insurable title to the Assets, and the Subsidiary's assets, respectively. Except as set forth on Schedule 6(m) annexed hereto, none of the Assets or the Subsidiary's assets are subject to any loan agreement, conditional sale or title retention agreement, equipment obligations, lease purchase agreement, mortgage, indenture, pledge, security agreement, guaranty, lien, charge, security interest, encumbrance, restriction, lease, license, easement, liability or adverse claim of any nature whatsoever (excluding trade and account payables), direct or indirect, whether accrued, absolute, contingent or otherwise. (n) Insurance. Set forth on Schedule 6(n) annexed hereto is an accurate and complete list and description of all fire, theft, casualty, liability and other insurance policies procured by the Company with respect to the Company's Video Business and the Subsidiary, specifying with respect to each such policy the name of the insurer, the risk insured against, the limits of coverage, the deductible amount (if any), the premium rate and the date through which coverage will continue by virtue of premium already paid. Except as set forth on Schedule 6(n) annexed hereto, all insurance policies relating to the Company's Video Business and the Subsidiary are in full force and effect, 28 and all premiums due thereon have been paid. Set forth on Schedule 6(n) annexed hereto, is a description of all open claims made by the Company with respect to the Company's Video Business and the Subsidiary under any policy of insurance and all claims which in the opinion of the Company or the Subsidiary reasonably formed and held, should or could be made under any such policy. (o) Territorial Restrictions. Except as set forth in Schedule 6(o) annexed hereto, neither the Company nor the Subsidiary is restricted by any written agreement or understanding with any party from carrying on the Company's Video Business or the business conducted by the Subsidiary, respectively, anywhere in the world. Purchaser, solely as a result of its purchase of the Assets and the assumption of the Assumed Liabilities, will not thereby become restricted in carrying on any business anywhere in the world. (p) Intellectual Property. (i) Title. Schedule 6(p)(i) annexed hereto contains a complete and correct list of all Intellectual Property that is owned by the Company with respect to the Company's Video Business and the Subsidiary (the "Owned Intellectual Property") other than Intellectual Property that is not registered or subject to application for registration. Except as set forth on Schedule 6(p)(i), the Company and the Subsidiary owns or has the exclusive right to use pursuant to license, sublicense, agreement or permission all Owned Intellectual Property, free from any encumbrances and free from any requirement of any past, present or future royalty payments, license fees, charges or other payments, or conditions or restrictions whatsoever. Except as set forth on Schedule 6(p)(i), the Owned Intellectual Property comprise all of the Intellectual Property necessary for Purchaser to conduct and operate the Company's Video Business and the Subsidiary's business as same are currently being conducted and are intended to be conducted upon the consummation of the transaction herein contemplated. (ii) Transfer. Except as set forth on Schedule 6(p)(ii) hereof, upon the Closing, Purchaser will own all of the Owned Intellectual Property and will have the right to use all Owned Intellectual Property, free from any liens, claims or encumbrances and on the same terms of any person in effect prior to the Closing. 29 (iii) No Infringement. The conduct of the Company's Video Business and the Subsidiary's business does not infringe or otherwise conflict with any rights of any person in respect of any Intellectual Property. (iv) Licensing Arrangements. Schedule 6(p)(iv) annexed hereto sets forth all material agreements, arrangements or laws (A) pursuant to which the Company and the Subsidiary has licensed Owned Intellectual Property to, or the use of Owned Intellectual Property is otherwise permitted (through non-assertion, settlement or similar agreements or otherwise) by, any other party, and (B) pursuant to which the Company and the Subsidiary has had Intellectual Property licensed to it, or has otherwise been permitted to use Intellectual Property. All of the agreements or arrangements set forth on Schedule 6(p)(iv) annexed hereto (x) are in full force and effect in accordance with their terms and no default exists thereunder by the Company by any other party thereto, (y) are free and clear of all liens, and (z) except as set forth in Schedule 6(p)(iv) annexed hereto, do not contain any change in control or other terms or conditions that will become applicable or inapplicable as a result of the consummation of the transactions contemplated by this Agreement. The Company has delivered to the Purchaser true and complete copies of all licenses and arrangements (including amendments) set forth on Schedule 6(p)(iv) annexed hereto. All royalties, license fees, charges and other amounts currently payable by, on behalf of, to, or for the account of, the Company or the Subsidiary in respect of any Intellectual Property are disclosed in the Pro Forma Financial Statements. (v) No Intellectual Property Litigation. No claim or demand has been made nor is there any proceeding that is pending, or to the knowledge of the Company threatened, which (A) challenges the rights of the Company or the Subsidiary in respect of any Intellectual Property, (B) asserts that the Company or the Subsidiary is infringing or otherwise in conflict with, or is, except as set forth on Schedule 6(p)(v) annexed hereto, required to pay any royalty, license fee, charge or other amount with regard to, any Intellectual Property, or (C) claims that any default exists under any agreement or arrangement listed on Schedule 6(p)(v) annexed hereto. None of the 30 Intellectual Property is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any court, arbitrator, or administrative agency. (vi) Due Registration, Etc. The Owned Intellectual Property, to the extent required, has been duly registered with, filed in or issued by, as the case may be, the United State Patent and Trademark Office, United States Copyright Office, the Ufficio Italiano Brevgtti E Marchi, and the Company has taken such other actions, to ensure full protection under any Applicable Laws or regulations, and such registrations, if any, filings, issuances and other actions remain in full force and effect. (vii) Use of Name and Mark. Except as set forth on Schedule 6(vii) annexed hereto, there are and immediately after the Closing will be, no contractual restrictions or limitations pursuant to any orders, decisions, injunctions, judgments, awards or decrees of any Governmental Authority on the Purchaser's right to use the name and mark "Vidikron Industries, S.p.A." or "Vidikron of America, Inc." in the conduct of business as carried on by the Company and the Subsidiary upon the execution hereof. (q) Environmental Matters. Purchaser shall have no liability of any nature with respect to, shall not be deemed to violate, and shall not violate, any environmental laws or regulations or orders, or be required to take any action to be in compliance with any environmental laws or regulations or orders by virtue of the entering into of the Agreement, the acquisition of the Assets, or effecting the transactions contemplated hereby. (r) No Guaranties. Except as set forth on Schedule 6(r), none of the obligations or liabilities of the Company's Video Business or the Subsidiary is guaranteed by any other person, firm or corporation, nor has the Company with respect to the Company's Video Business or the Subsidiary guaranteed the obligations or liabilities of any other person, firm or corporation. There are no outstanding letters of credit, surety bonds or similar instruments of the Company with respect to the Company's Video Business or the Subsidiary in connection with the Assets and the Subsidiary's assets, as the case may be. (s) [Intentionally Deleted] 31 (t) Absence of Certain Business Practices. Except as set forth on Schedule 6(t) annexed hereto, neither the Company nor the Subsidiary nor any executive officer of the Company and the Subsidiary, nor any other person acting on its behalf, has, directly or indirectly, given or agreed to give any gift or similar benefit, of a material nature to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the Company's Video Business or the Subsidiary (or assist the Company with respect to the Company's Video Business or the Subsidiary in connection with any actual or proposed transaction) which (i) might subject the Company with respect to the Company's Video Business or the Subsidiary to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had an adverse effect on the assets, business or operations of the Company's Video Business or the Subsidiary as reflected on the Pro Forma Financial Statements or (iii) if not continued in the future, might adversely affect the Assets, business, operations or prospects of the Company's Video Business or the Subsidiary or which might subject the Company or the Subsidiary to suit or penalty in any private or governmental litigation or proceeding. (u) Disclosure. No representation or warranty by the Company contained in this Agreement or in any other document furnished or to be furnished relative to the Company or the Subsidiary in connection herewith or pursuant hereto, including but not limited to any Schedule, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact required to make the statements herein or therein contained not misleading or necessary in order to provide a prospective purchaser of the Assets and the Subsidiary with adequate information as to the Company or the Subsidiary and its condition (financial and otherwise), properties, assets, liabilities, business and prospects, and the Company or the Subsidiary have disclosed to Purchaser in writing all material adverse facts known to them related to the same. The representations and warranties contained in this Section 6 shall not be affected or deemed waived by reason of the fact that Purchaser and/or its representatives should have known that any such representation or warranty is or might be inaccurate in any respect. (v) Labor Disputes. Neither the Company with respect to the Company's Video Business nor the Subsidiary is a party to or bound by any collective bargaining agreement and there are no labor unions or other organizations representing, purporting to represent or attempting to represent any employees employed by 32 the Company with respect to the Company's Video Business or the Subsidiary. With respect to the Company's Video Business and the Subsidiary (i) no work stoppage by employees of the Company with respect to the Company's Video Business or the Subsidiary has occurred and is continuing or to the best of the Company's knowledge is threatened, (ii) the Company does not have any actual knowledge of any pending or threatened charges against the Company with respect to the Company's Video Business or the Subsidiary of unfair labor practices or discrimination based on age, race or sex, (iii) there are no pending labor negotiations with or union organization efforts by any employees of the Company or the Subsidiary or with any union representing or attempting to represent any employees of the Company with respect to the Company's Video Business or the Subsidiary and (iv) the Company does not have any actual knowledge of employee grievances which in the aggregate would be material and adverse to the Company's Video Business or the business of the Subsidiary that have not been settled or otherwise resolved to the satisfaction of the Company or the Subsidiary and the employees. Schedule 6(v).1 annexed hereto sets forth the name and title of each director, officer, employee, consultant and agent of the Company's Video Business, and the functions actually performed by each of such employees correspond to the position ("categoria") specified on Schedule 6(v).1. The employees of the Company's Video Business have been duly and timely remunerated for all the services performed in the course of their working relationship with the Company in compliance with the applicable provisions of law and the provisions of the relative labor agreements (including the applicable collective labor agreement, if any). With respect to the remuneration paid to the employees, all contributions have been made to compulsory health insurance and social security and the relevant amounts have been duly paid as provided under the applicable law. The overall remuneration, including bonuses and benefits due to each employee that was formerly employed by the Company and is to be employed by the Purchaser subsequent to the Closing, and the amount of each such employee's accrued benefits, is set forth in Schedule 6(v).2 and no other form of remuneration or particular benefit has been agreed to in addition to those set out therein. The terms of employment applicable and actually applied to the employees are solely those provided for by the applicable law and by the provisions of the applicable collective labor agreement, if any. No verbal commitments of any kind exist between the Company and any of its employees. No claims by any of the employees or by the relevant trade unions are pending and no situation exists which could give rise to any such claim in the future. No claim has been made by any of the Company's consultants and agents that 33 any of such persons is entitled to compensation and/or benefits as if that he or she were an employee of the Company. (w) Customers and Accounts. Except as set forth on Schedule 6(w) annexed hereto, the Company does not have any knowledge or information that any person or entity whose payments to the Company with respect to the Company's Video Business or the Subsidiary, whether alone or together with any party actually known by the Company or the Subsidiary to be such person's Affiliate, who accounted for five percent (5)% or more of the gross revenues of the Company and/or the Subsidiary in either of its fiscal years ending in 1996 or 1997 or in the nine (9) month period ending,September 30, 1998 has ceased or will cease doing business with the Company or the Subsidiary or Purchaser as its successor, for any reason, or will or has reduced its payments to the Company with respect to the Company's Video Business or the Subsidiary by more than ten (10%) percent for any reason. Schedule 6(w) annexed hereto correctly lists the twenty (20) largest clients of each of the Company with respect to the Company's Video Business and the Subsidiary during each of the fiscal years ended in 1996, 1997 and nine (9) month period ended September 30, 1998, together with the amount of billings made by each of the Company with respect to the Company's Video Business or the Subsidiary to each such account during each such year or period. (x) Suppliers; Raw Materials. Schedule 6(x) annexed hereto sets forth (i) the names and addresses of all suppliers from which the Company with respect to the Company's Video Business and the Subsidiary ordered raw materials, supplies, equipment, merchandise and other goods and services with an aggregate purchase price for each supplier of one hundred thousand dollars ($100,000) or more during the fiscal year ended December 31, 1997 and the nine (9) month period ended September 30, 1998(ii) the amount for which each supplier invoiced the Company with respect to the Company's Video Business during such period. The Company has not received any notice or have any reason to believe that there has been any material adverse change in the price of such raw materials, supplies, merchandise and other goods or services, or that any supplier will not sell raw materials, supplies, merchandise and other goods or services to Purchaser at any time after the Closing on terms and conditions similar to those currently enjoyed by the Company with respect to the Company's Video Business, subject to general and customary price increases. No supplier of the Company with respect to the Company's Video Business described in clause (i) of the first sentence of this Section 6(x) has threatened to take any action described in the immediately preceding sentence as a result of 34 the consummation of the transactions contemplated by this Agreement. Schedule 6(x) annexed hereto lists the twenty (20) largest vendors to each of the Company with respect to the Company's Video Business and the Subsidiary in terms of cash payments made during the 1996 and 1997 fiscal years and the nine (9) month period ended September 30, 1998. (y) Unbilled Costs and Advance Billings. All costs incurred on jobs in process, whether reflected as unbilled costs or a reduction of advance billings to clients, reflected on the Pro Forma Financial Statements (a true and correct schedule of which is listed on Schedule 6(y) annexed hereto) were calculated in accordance with the percentage of completion method of accounting, applied on a basis consistent with the principles used in preparing the Pro Forma Financial Statements and are realizable in the ordinary course of business and were incurred in accordance with applicable budgets in respect thereof. (z) Contracts and Proposals. (i) Schedule 6(z)(i) annexed hereto contains (A) a complete and correct list of all agreements, contracts, licenses, commitments and other instruments and arrangements (whether written or oral) by which each of the Company with respect to the Company's Video Business and the Subsidiary is bound, including but not limited to sales representation and distribution agreements (collectively, the "Contracts"), (B) the written anticipated revenues and costs for each written or oral Contract and scheduled completion dates with respect to each job that is yet to be completed and the Company has no reason to believe that any of such jobs will not be completed and (C) a list of all outstanding proposals, or other writings prepared in an effort to obtain business, prepared by the Company with respect to the Company's Video Business or the Subsidiary, or on either of their behalf, and forwarded to prospective clients or customers (the "Proposals"). (ii) The Company has delivered to Purchaser complete and correct copies of all written Contracts, together with all amendments thereto, including (A) an accurate descriptions of all material terms of all oral Contracts and (B) all Proposals, set forth or required to be set forth in Schedule 6(z)(i) hereto. 35 (iii) All Contracts are in full force and effect and enforceable against each party thereto. There does not exist under any Contract any event of default or event or condition that, after notice or lapse of time or both, would constitute a violation, breach or event of default thereunder on the part of the Company or the Subsidiary, as the case may be, or any other party thereto except as set forth in Schedule 6(z)(i) annexed hereto and except for such events or conditions that, individually and in the aggregate, (A) has not had or resulted in, and will not have or result in a default or an event which, after notice or lapse of time, or both, would constitute a default or result in a right to accelerate a loss of right (a "Material Adverse Effect") and (B) has not and will not materially impair the ability of the Company or the Subsidiary, as the case may be, to perform its obligations under this Agreement and under the Company's Related Agreements. None of existing or completed Contracts of the Company with respect to the Company's Video Business or the Subsidiary, as the case may be, are subject to renegotiation with any governmental body. Except as set forth in Schedule 6(z)(i), and except as provided for by Italian law as set forth on Schedule 6(z)(i), no consent of any third party is required under any Contract as a result of or in connection with, and the enforceability of any Contract will not be affected in any manner by, the execution, delivery and performance of this Agreement or any of the Company's Related Agreements or the consummation of the transactions contemplated thereby. (iv) Except as set forth on Schedule 6(z)(iv), neither the Company nor the Subsidiary has outstanding power of attorney in favor of any party relating to either the Company's Video Business or the Subsidiary. (aa) [Intentionally Deleted] (bb) Directors and Officers. Schedule 6(bb) annexed hereto contains a complete and accurate list of the names of the Subsidiary's directors and officers, the name of each bank in which the Subsidiary has an account or safe deposit box and the names of all persons authorized to draw thereon or have access thereto. (cc) Inventories. All inventory of equipment of the Company with respect to the Company's Video Business, all of 36 which are included in the Assets, and of the Subsidiary held for sale or rent, spare parts, replacement and component parts, and office and other supplies (solely with respect to the Subsidiary) (collectively, "Inventories") are of good and usable quality in all material respects and except as set forth on Schedule 6(cc) annexed hereto, do not include obsolete or discontinued items. Except as set forth on Schedule 6(cc) annexed hereto, (i) all Inventories that are finished goods are saleable or rentable as current inventories at the current prices thereof in the ordinary course of business, (ii) all Inventories are recorded on the Pro Forma Financial Statements on a last cost basis in accordance with generally accepted accounting principles and (iii) no write-down in Inventory has been made or should have been during the past two (2) years. Schedule 6(cc) annexed hereto lists the locations of all Inventories. (dd) Real Property. (i) Leases. Schedule 6(dd) annexed hereto contains a complete and correct list of all real estate leases (the "Leases") pursuant to which the Company or the Subsidiary occupies or uses real property in connection with the Company's Video Business and the Subsidiary's business, respectively, setting forth the address, landlord, remaining terms, base rent and tenant for each Lease. The Company has delivered to the Purchaser correct and complete copies of the Leases. Each Lease is legal, valid, binding, enforceable, and in full force and effect, except as may be limited by bankruptcy, insolvency, reorganization and similar Applicable Laws affecting creditors generally and by the availability of equitable remedies. Neither the Company or the Subsidiary nor the landlord under any of the Leases is (or upon the consummation of the transactions contemplated hereby, will be) in default, violation or breach in any respect under any Lease, and no event has occurred and is continuing that constitutes or, with notice or the passage of time or both, would constitute a default, violation or breach in any respect under any Lease. None of the Leases have been pledged, mortgaged, assigned, modified or amended by the Company or the Subsidiary. Each Lease grants the tenant under the Lease the exclusive right to use and occupy the demised premises thereunder. Each of the Company and the Subsidiary, as the case may be, has good and valid title to the leasehold estate under each Lease free and clear of all liens created by the Company or the 37 Subsidiary, as the case may be. Each of the Company and the Subsidiary, as the case may be, enjoys peaceful and undisturbed possession under its respective Leases for the leased real property. Except as set forth on Schedule 6(dd) annexed hereto, no consent is required by any landlord, lessor, ground lessor, mortgagee, or other party holding any interest in connection with or in respect of any of the Leases, by virtue of the transactions contemplated hereby. (ii) No Proceedings. There are no eminent domain or other similar proceedings pending or, to the knowledge of the Company threatened affecting any portion of the leased real property and there is no proceeding pending or, to the knowledge of the Company threatened for the taking or condemnation of any portion of the leased real property. There is no writ, injunction, decree, order or judgment outstanding, nor any action, claim, suit or proceeding, pending or threatened, relating to the ownership, lease, use, occupance or operation by any person of any of the leased real property. (iii) Current Use. The use and operation of the real property in the conduct of the Company's Video Business and the Subsidiary's business does not violate in any material respect any instrument of record or agreement affecting the real property. There is no violation of any covenant, condition, restriction, easement or order of any Governmental Authority having jurisdiction over such property or of any other person entitled to enforce the same affecting the real property or the use or occupancy hereof. No damage or destruction has occurred with respect to any of the real property. (ee) Warranties. Set forth on Schedule 6(ee) annexed hereto is an accurate list, and full description, of all of the standard warranties by the Company with respect to the Company's Video Business or the Subsidiary in respect of its products and services and a description of the annual costs to the Company and the Subsidiary with respect thereto for the fiscal years ended December 31, 1996, 1997 and for the nine (9) month period ended September 30, 1998 in connection with such warranties. (ff) Dealer and Distributor Arrangements. Set forth on Schedule 6(ff) annexed hereto is an accurate and complete list by product, service, territory and term of all dealer and 38 distributors of products and/or services of the Company and the Subsidiary. Except as set forth on Schedule 6(ff) annexed hereto, the Company does not any knowledge or information that any person or entity who distributed products on behalf of each of the Company with respect to the Company's Video Business and/or the Subsidiary who accounted for five (5%) or more of the gross revenues of the Company with respect to the Company's Video Business and/or the Subsidiary in either of the fiscal years ending in 199 or 1997 or in the nine (9) month period ending September 30, 1998 has ceased or will cease doing business with the Company with respect to the Company's Video Business or the Subsidiary or Purchaser as its successor, for any reason, or will or has reduced its contribution to the Company's gross revenues with respect to the Company's Video Business by more than ten (10%) percent for any reason. Schedule 6(ff) annexed hereto correctly lists the twenty (20) largest distributors, indicating whether they are exclusive or non-exclusive, of each of the Company with respect to the Company's Video Business and the Subsidiary during each of the fiscal years ended in 1996 and 1997 and the ten (10) month period ending September 30, 1998, together with the sales effected by each such distributor during each such year or period. (gg) Excluded Assets. Except as set forth on Schedule 1(c) annexed hereto, the Assets constitute all of the assets and properties that the Company is currently using to conduct the Company's Video Business and the business of the Subsidiary as same are currently being conducted or are intended to be conducted upon the consummation of the transactions contemplated by this Agreement. (hh) Government Loan. The Company is current and in compliance in all respects with respect to all matters relative to the Government Loan. 7. Representations and Warranties by Purchaser. Purchaser represents and warrants to the Company as follows: (a) Organization. Projectavision is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and International is an Italian corporation duly organized, validly existing and in good standing under the laws of Italy, and Purchaser has full corporate power and authority to enter into this Agreement and all other agreements to which Purchaser is a party required to be delivered by Purchaser pursuant to Section 5(a) hereof (which documents are hereinafter sometimes collectively referred to as "Purchaser's Related Agreements") and 39 to carry out the transactions contemplated by this Agreement. Each of Projectavision and International have delivered to the Company copies of their respective certificates of incorporation, and all amendments thereto, and their respective by-laws as presently in effect, each certified as true and correct by Purchaser's secretary. (b) Execution, Delivery and Performance of Agreement. Neither the execution, delivery nor performance of this Agreement and Purchaser's Related Agreements by Purchaser will, with or without the giving of notice or the passage of time, or both, conflict with, result in a default, right to accelerate or loss of rights under, or result in the creation of any lien, charge or encumbrance pursuant to any provision of Purchaser's certificate of incorporation or by-laws or any franchise, mortgage, deed of trust, lease, license, agreement, understanding, law, ordinance, rule or regulation or any order, judgment or decree to which Purchaser is a party or by which it may be bound or affected. Purchaser has the full power and authority to enter into this Agreement and to carry out the transactions contemplated hereby, all proceedings required to be taken by Purchaser to authorize the execution, delivery and performance of this Agreement and Purchaser's Related Agreements have been properly taken, and this Agreement and Purchaser's Related Agreements constitute the valid and binding obligation of Purchaser, enforceable in accordance with their respective terms, except that such enforcement may be subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium and similar law affecting creditors' rights generally. (c) Litigation. Except as disclosed in the Company's public filings, there is no claim, legal action, suit, arbitration, governmental investigation or other legal or administrative proceeding, nor any order, decree or judgment in progress, pending or in effect or, to Purchaser's knowledge, threatened against or relating to Purchaser in connection with or relating to the transactions contemplated by this Agreement and the Purchaser's Related Agreements and Purchaser does not know or have any reason to be aware of any basis for the same. 8. Employment Matters; Employment Contracts. (a) The Company shall be responsible for, and shall discharge, all obligations with respect to their respective currently existing salary, wages, bonuses, commissions and other compensation, group insurance claims, medical benefits reimbursable by the Company or the Subsidiary under existing medical reimbursement policies, severance and all other benefits accrued through the Closing Date to all employees of the Company with respect to the Company's 40 Video Business, all of which are set forth on Schedule 8(a) (the "Employees") or the employees of the Subsidiary and any such costs arising after the Closing Date under the terms of any of the foregoing attributable to employment prior to the Closing Date. (b) Schedule 8(b) annexed hereto contains: (i) an accurate and complete list and description of all collective in house bargaining agreements, employment and consulting agreements, executive compensation plans, bonus plans, deferred compensation agreements, employee stock options or stock purchase plans and group life, health and accident insurance and other employee benefit plans, agreements, arrangements or commitments, whether or not legally binding, including, without limitation, holiday, vacation, Christmas and other bonus practices, to which the Company with respect to the Employees or the Subsidiary is a party or is bound; (ii) the names and current annual salary rates of all Employees and all persons who are currently employed by the Subsidiary showing separately for each such person the amount paid or payable as salary, bonus payments and any indirect compensation for the year ended December 31, 1996 as well as each of their current compensation; (iii) all material written agreements providing for the services of an independent contractor to which the Company with respect to the Company's Video Business or the Subsidiary is a party or by which it is bound; and (iv) true and correct copies of all employee retirement plans, pension plans, welfare plans and all employee benefits covering the Employees and the Subsidiary's employees (and any summary plan descriptions in effect for such plans and benefits). Solely with respect to the Subsidiary's employees, except as set forth on Schedule 8(b) annexed hereto, all requirements of applicable law, including, without limitation, the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), have been fulfilled with regard to said plans and the administration thereof and will be fulfilled with regard to the termination of any of said 41 plans. With respect to the Company's employees, all requirements of applicable Italian law have been satisfied. (c) The execution and performance of this Agreement will not constitute a stated triggering event under any plan or arrangement which will result in payment (whether of deferred compensation, or otherwise) becoming due to any Employee or former Employee of the Company or any employee of the Subsidiary. (d) There exist no obligations or liabilities, including claims incurred (as defined herein) but not reported under any uninsured plan providing medical benefits, arising out of or in connection with any Employee or any Subsidiary's employee benefit plan or arrangement, except to the extent funded or accrued as a liability. For purposes of the preceding sentence, a medical claim shall be deemed to be incurred on the date of occurrence of an injury, the diagnosis of an illness, or any other event giving rise to such claim or series of related claims. No plan provides health, medical, death or survivor benefits to any former employee of the Subsidiary in connection with the Subsidiary or beneficiary thereof, except to the extent required under any state insurance law providing for a conversion option, COBRA or other COBRA type rights under a group insurance policy or under Section 601 of ERISA. There are no multi-employer plans covering any employee of the Subsidiary nor has the Company or the Subsidiary ever maintained a multi-employer plan. (e) There has not been any (i) termination of any "defined benefit plan" within the meaning of ERISA maintained by the Subsidiary which is under "common control" (within the meaning of Paragraph 4001(b) of ERISA) with the Subsidiary except to the extent that such "defined benefit plan" was fully funded on the date of termination sufficient to pay all plan liabilities and no liability in respect thereof exists (or shall exist) to the Pension Benefit Guaranty Corporation, (ii) commencement of any proceeding to terminate any such plan pursuant to ERISA, or otherwise or (iii) written notice given to the Subsidiary of the intention to commence or seek the commencement of any such proceeding. (f) Except with respect to those employees set forth on Schedule 6(v).2, Purchaser shall have the right, but not the obligation, from and after the date hereof, to offer employment on terms and conditions as their employment with the Company immediately prior to the Closing; provided, however, that Purchaser shall not offer employment to any employee of the 42 Company that is not on Schedule 6(v).2 while such person is employed by the Company. (g) The Company has not failed in any respect to observe the provisions of laws or regulations relating to labor relations and/or safety at work or other laws, the violation of which, including any penalties or sanctions which could be imposed, would have an adverse effect upon the financial condition and/or operation of the Company's Video Business. The Company's relations with its Employees has been established and conducted in compliance with the provisions of the National Collective Contract for Industry ("Contratto Collettivo Industria") integrated by the In-company agreement ("Accordo Aziendale"), the ranking of Employees corresponds to the duties actually performed, no judicial proceedings by Employees and/or agents of the Company or by the competent Labor Inspectorate and/or Social Security Office are pending. The Company has taken in a timely manner all steps required by law or applicable conventions with respect to notifications to, consultations with, or other action concerning, trade unions, works councils, or Employees in contemplation of this Agreement and of the transactions contemplated thereby. Except as set forth on Schedule 8(g) annexed hereto, there are no trade union affiliations or conventions, no industry employment conventions, and no in-company employee conventions other than those listed on Schedule 8(g). (h) With respect to the Employees and the Subsidiary's employees, the Company has duly paid all employee related insurance, social security contributions, and other employee related charges, when due according to applicable laws, rules or regulations, and no circumstances exist which could give rise to additional payments thereunder. Adequate provisions have been made in the Balance Sheet as at Closing, to reflect all such employee-related charges accrued for periods prior to the Closing Date but not yet due and to reflect all accrued employee vacation time or payment in lieu thereof. The reserve on the Balance Sheet with respect to the T.F.R. (Severance Indemnity payments) due to Employees and to the employees of the Subsidiary, is and will be adequate to cover the accrued liabilities of the Company and the Subsidiary in respect of such indemnity payments as at the respective date thereof. No circumstances exist which could give rise to any additional indemnity payments. (i) The Company is under no obligation (whether of a legal nature or otherwise) to pay any pensions or other sums to, or in respect of, any of its ex-Employees or ex-employees of the Subsidiary. 43 9. Indemnification. (a) The Company hereby agrees to defend and hold Purchaser harmless from, against and in respect of (and shall, subject to the other provisions of this Agreement, reimburse Purchaser for): (i) any and all loss, liability or damage suffered or incurred by Purchaser by reason of any untrue representation, breach of warranty or nonfulfillment of any covenant by the Company contained herein or in any certificate, document or instrument delivered by the Company; (ii) any and all loss, liability or damage suffered or incurred by Purchaser in respect of or in connection with any liabilities of the Company and the Subsidiary, except for the Assumed Liabilities (including, without limitation, and liabilities relating to the Excluded Assets); (iii) except as otherwise provided herein and except for the Assumed Liabilities, any and all debts, liabilities or obligations (including, and environmental liability and costs and any other liabilities relating to Excluded Assets) of the Company, direct or indirect, fixed, contingent or otherwise, arising out of any act, transaction, circumstance or state of facts which occurred or existed on or before the Closing Date, whether or not then known, due or payable; (iv) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including, without limitation, reasonable legal fees, court costs and expenses, incident to (i), (ii) or (iii) above or (iv) below or incurred in investigating or attempting to avoid the same or to oppose the imposition thereof, or in enforcing this indemnity; and (v) any and all loss, liability or damage suffered or incurred by Purchaser by reason of or in connection with any claim for finder's fee or brokerage or other commission arising by reason of any services alleged to have been rendered to or at the instance of the Company with respect to this Agreement or any of the transactions contemplated hereby, subject to the provisions of Section 9(b)(iii) below. 44 (b) Purchaser shall indemnify, defend and hold the Company harmless from, against and in respect of (and shall, subject to the other provisions of this Agreement, reimburse it for): (i) any and all loss, liability or damage suffered or incurred by the Company by reason of or resulting from any untrue representation, breach of warranty or non-fulfillment of any covenant or agreement by Purchaser contained herein or in any certificate, document or instrument delivered by Purchaser to the Company; (ii) any and all loss, liability or damage suffered or incurred by the Company in respect of or in connection with Purchaser's failure to timely pay any of the Assumed Liabilities; (iii) any and all payments of any nature whatsoever due and owing to Hambro America Securities, Inc. with respect to this Agreement or any of the transactions contemplated hereby. (iv) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including, without limitation, reasonable legal fees, court costs and expenses, incident to (i), (ii) or (iii) above or (v) below or incurred in investigating or attempting to avoid the same or to oppose the imposition thereof, or in enforcing this indemnity; and (v) any and all actual loss, liability or damage suffered or incurred by the Company by reason of or in connection with any claim for finder's fee or brokerage or other commission arising by reason of any services alleged to have been rendered to or at the instance of Purchaser with respect to this Agreement or any of the transactions contemplated hereby. (c) [Intentionally Omitted.] (d) Any indemnifiable liability or reimbursement under this Section 9 shall be limited to the amount of actual damages (of any nature) subject to indemnification actually sustained by a party hereto, net of any applicable insurance payments actually received, other reimbursement or tax benefit actually realized by such party. 45 (e) If a claim by a third party is made against a party hereto (an "Indemnified Party"), and if an Indemnified Party intends to seek indemnity with respect thereto under this Section 9, the Indemnified Party shall promptly notify the party required to indemnify the Indemnified Party pursuant to this Section 9 (an "Indemnifying Party") of such claim (the "Indemnity Notice"); provided, however, that failure by an Indemnified Party to notify an Indemnifying Party of such claim shall not effect the Indemnified Party's right to seek indemnification so long as the Indemnifying Party is not materially prejudiced by such failure to have been notified of such claim. The Indemnifying Party shall have ten (10) days after receipt of the Indemnity Notice to undertake, conduct and control, through counsel of its own choosing and at its expense, but reasonably acceptable to the Indemnified Party, the settlement or defense thereof, and the Indemnified Party shall cooperate with it in connection therewith; provided, however, that with respect to settlements entered into by the Indemnifying Party, the Indemnifying Party shall obtain the release of the claiming party in favor of the Indemnified Party. If the Indemnifying Party undertakes, conducts and controls the settlement or defense of such claim, the Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by the Indemnified Party, providing that the fees and expenses of such counsel shall be borne by the Indemnified Party. With respect to indemnification provided for hereunder, the Indemnified Party shall not pay or settle any such claim so long as the Indemnifying Party is reasonably contesting any such claim in good faith. Notwithstanding the immediately preceding sentence, the Indemnified Party shall have the right to pay or settle any such claims, provided that in such event it shall waive any right to indemnity therefor by the Indemnifying Party. (f) Subject to the limitations set forth in Sections 9(c)-(e), if the Indemnifying Party does not notify the Indemnified Party within fifteen (15) days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim in the exercise of its good faith reasonable judgment at the expense of the Indemnifying Party subject to the other terms and provisions of this Section 9. 10. Survival of Representations, Warranties and Agreements. All statements, representations, warranties, agreements and indemnities made by each of the parties hereto (and in any schedule or exhibit annexed hereto) are and shall be true and correct as of the date hereof and as of the Closing Date, and 46 each of them shall survive until the first anniversary of the Closing subject to Section 9 hereof. 11. Conduct of Business Prior to Closing. (a) Subsequent to Balance Sheet Date, each of the Company with respect to the Company's Video Business and the Subsidiary shall conduct its business and affairs only in the ordinary course and consistent with its prior practice and shall maintain, keep and preserve the Assets, the Subsidiary's assets and properties in good condition and repair and maintain insurance thereon in accordance and consistent with present practices, and the Company will use its best efforts to preserve the business and organization of the Company with respect to the Company's Video Business and the Subsidiary intact, to keep available to Purchaser the services of the present officers of the Company's Video Business and the Subsidiary to preserve for the benefit of Purchaser the goodwill of the Company's Video Business and the Subsidiary with its suppliers and customers and others having business relations with it, including, without limitation, the following: (i) Liabilities. Consistent with past practice, the Company with respect to the Company's Video Business and the Subsidiary shall pay or discharge its current liabilities when the same become due and payable, except for such liabilities as may be subject to a good faith dispute or counterclaim. (ii) Litigation. The Company shall promptly notify Purchaser of any lawsuits, claims, proceedings or investigations which after the date hereof are commenced or, to the knowledge of the Company threatened against the Company with respect to the Company's Video Business, the Subsidiary or against any officer, employee, consultant or agent of the Company with respect to the Company's Video Business, the Subsidiary or the transactions contemplated by this Agreement. (iii) Compliance with Laws. The Company will take such action as may be necessary to duly comply with all laws, statutes, rules and regulations applicable to it as they relate to the conduct of the Company's Video Business and the Subsidiary's business. (iv) Continued Effectiveness of Representations and Warranties. The Company shall use its best efforts to conduct the Company's Video Business and the business of the Subsidiary in such a manner so that the 47 representations and warranties contained in Section 6 hereof shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date. The Company shall promptly give to Purchaser notice of any event, condition or circumstance occurring from the date hereof through the Closing Date which would constitute a violation or breach of their representations, warranties, covenants or agreements contained in this Agreement. (b) Without limiting the generality of Section 11(a) hereof, prior to the Closing, the Company will not without Purchaser's prior written approval: (i) change the Subsidiary's certificate of incorporation or by-laws or merge or consolidate or obligate the Company or the Subsidiary to do so with or into any other entity; (ii) enter into any contract, agreement, commitment or other understanding or arrangement which is not in the ordinary course of the Company's Video Business or the business of the Subsidiary; or (iii) perform, take any action or incur or permit to exist any of the acts, transactions, events or occurrences of the type described in subparagraphs (i), (ii), (iii), (iv), (v), (viii), (ix), (x), (xi), (xii), (xiv), (xv) and (xvi) of Section 6(j) hereof which would have been inconsistent with the representations and warranties set forth therein had the same occurred after the Balance Sheet Date and prior to the date hereof. (c) The Company shall give Purchaser prompt written notice of any change in any of the information contained in the representations and warranties made in Section 6 hereof or the Schedules referred to therein which occurs prior to the Closing. 12. Access to Information and Documents. (a) Each of the parties hereto recognizes that it will receive confidential information concerning the other upon the execution of this Agreement. Accordingly, each of the parties hereto agrees to use their respective best efforts to prevent the "unauthorized disclosure" of any confidential information concerning the other that is disclosed during the course of the investigations contemplated by this Agreement and is clearly 48 designated as confidential at the time of disclosure. As used herein, the term "unauthorized disclosure" shall mean disclosure by either the Company or the Purchaser to any person or entity who is not an executive officer, director or key employee of any party hereto or who is not an authorized representative of any party hereto. An authorized representative shall include a party's attorneys, accountants, financial advisors and bankers, and with respect to Purchaser, its potential financing sources. The obligations of this paragraph will not apply to information that (a) is or becomes part of the public domain, (b) is disclosed by the disclosing party to third parties without restrictions on disclosure or (c) is received by the receiving party from a third party without breach of a nondisclosure obligation to the other party. The obligations on nondisclosure set forth in this Section 12(a) will terminate two (2) years after the date of this Agreement. It is expressly acknowledged and agreed that all of the confidential information is special and unique and in the event of a breach or threatened breach of the provisions of this Section 12(a), remedies otherwise available at law may not be an adequate, sufficient or timely remedy. Accordingly, each of the parties hereto expressly agrees that in the event of any breach or threatened breach of the provisions of this Section 12(a) that, in addition to all other remedies that may be available to either party, each of the parties shall be entitled to seek injunctive or other equitable relief as a remedy for any such breach or threatened breach of this Section 12(a). (b) The Company will retain all books and records relating to the Company's Video Business (whether or not such books and records also relate to other business of the Company that are not being acquired by the Purchaser hereunder) for ten (10) years (the "Retention Period"), during which time the Company shall provide Purchaser access to all such books and records during normal business hours upon Purchaser's reasonable request therefor. Subsequent to the Retention Period, the Company shall dispose of or permit the disposal of any such books and records not required to be retained under such policies without first giving sixty (60) days' prior written notice to Purchaser offering to surrender the same to Purchaser at Purchaser's expense. The Company agrees to cooperate with Purchaser and shall furnish or make available to Purchaser such books and records and any and all other assistance as Purchaser may reasonably request relating to any matter relating to Taxes or a governmental inquiry of investigation during the Retention Period. 13. [Intentionally Deleted.] 49 14. Conditions Precedent. (a) Conditions to Obligations of Each Party. The obligations of the parties to consummate the transactions contemplated hereby shall be subject to the fulfillment (or waiver by Purchaser or the Company, as the case may be) on or prior to the Closing Date of the condition that: the transactions contemplated hereby shall not have been restrained, enjoined or otherwise prohibited by any Applicable Law, including any order, injunction, decree or judgment of any court or other Governmental Authority; no court or other Governmental Authority shall have determined any Applicable Law to make illegal the consummation of the transactions contemplated by the Agreement, Purchaser's Related Agreements or the Company's Related Agreements; and no proceeding with respect to the application of any such Applicable Law to such effect shall be pending. (b) Conditions to Obligations of the Purchaser. All obligations of the Purchaser hereunder are subject, at the option of Purchaser, to the fulfillment of each of the following conditions at or prior to the Closing, and the Company shall use its best efforts to cause such conditions to be fulfilled: (i) All representations and warranties of the Company contained herein or in any Schedule or document delivered pursuant hereto shall be true and correct in all material respects when made and shall be deemed to have been made again at and as of the date of the Closing Date, and shall then be true and correct in all material respects. (ii) All covenants, agreements and obligations required by the terms of this Agreement to be performed by the Company at or before the Closing shall have been duly and properly performed in all material respects. (iii) Since the Balance Sheet Date, there shall not have occurred any material adverse change in the condition (financial or otherwise), business, properties or prospects of the Company or the Subsidiary or the Assets or the Subsidiary's assets. (iv) On the Closing Date, the Agreed Upon Accounts Payables shall not exceed Two Million Five Hundred Thousand ($2,500,000) U.S. Dollars and there shall be no material adverse change with respect to the 50 Historical Financial Statements, or the business or affairs of the Company or the Subsidiary. (v) All schedules required to be delivered to Purchaser at or prior to the Closing and all documents required to be delivered (and, as applicable, executed) at or prior to Closing, including but not limited to these documents described in Section 4(a) above, shall have been so delivered (and, as applicable, executed). (vi) There shall be delivered to Purchaser a certificate executed by the President and Secretary of each of the Company and the Subsidiary, dated the date of the Closing, certifying that all of the conditions set forth in this Section 14(b) have been fulfilled. (vii) There shall be no additional material liability of any nature whatsoever accruing to Purchaser with respect to this Agreement or the transaction contemplated hereby. (c) Conditions to Obligations of the Company. All obligations of the Company at the Closing are subject, at the option of the Company, to the fulfillment of each of the following conditions at or prior to the Closing, and Purchaser shall use its best efforts to cause each such condition to be so fulfilled: (i) All representations and warranties of Purchaser contained herein or in any schedule or document delivered pursuant hereto shall be true and correct in all material respects when made and shall be deemed to have been made again at and as of the Closing Date, and shall then be true and correct in all material respects. (ii) All covenants, agreements and obligations required by the terms of this Agreement to be performed by Purchaser at or before the Closing shall have been duly and properly performed in all material respects. (iii) There shall be delivered to the Company a certificate executed by the President and Secretary of Purchaser, dated the date of the Closing, certifying that all of the conditions set forth in this Section 14(c) have been fulfilled. 51 (iv) All Schedules, documents and other items required to be delivered by Purchaser pursuant to Section 5(a) above at or prior to the Closing shall be so delivered. 15. Intentionally Deleted. (a) (b) Purchaser entitled to 16. (a) Termination. Intentionally Deleted. (i) 17. Right to Designate Director. Simultaneously upon the Closing, the Company shall have the option to designate two (2) individuals to be elected to Purchaser's board of directors as a director in accordance with Purchaser's by-laws. It is agreed that those individuals shall be Mr. Flavio Peralda and Mr. Emillio Baj Macario. 18. Assumed Liabilities Escrow Account. Upon the Closing of this Agreement, pursuant to an escrow agreement (the "Assumed Liabilities Escrow Agreement")to be entered into with counsel for the Company, counsel for the Purchaser and the parties hereto, pursuant to which Company's counsel shall act as escrow agent (the "Escrow Agent")., Purchaser shall deposit, upon the Closing, into a segregated interest bearing escrow account (the " Assumed Liabilities Escrow Account") One Million Five Hundred Thousand ($1,500,000) Dollars (the " Assumed Liabilities Deposit"). The Assumed Liabilities Deposit shall be held by the Escrow Agent in accordance with the provisions of the Assumed Liabilities Escrow Agreement and the provisions hereinbelow set forth. The T 52 Assumed Liabilities shall be paid on a timely basis by at the direction of Seller, from time to time to those vendors and suppliers who are entitled to same, immediate evidence of which shall be provided by Purchaser the Escrow Agent to Purchaser. To the extent there remains any amount of the Assumed Liabilities Deposit as a consequence of Purchaser settling any Agreed Upon Accounts Payable with a vendor or supplier for less than the amount set forth on Schedule 1(b).1, any such remaining amount of the Assumed Liabilities Deposit shall be the sole and exclusive property of the Seller, provided however that, Purchaser shall be entitled to a corresponding credit towards the Purchase Price. All interest earned with respect to the Assumed Liabilities Deposit shall be the property of the Purchaser and Purchaser shall be responsible for all taxes in connection therewith. 19. [Intentionally Deleted] 20. Notices. Any and all notices, demands or requests required or permitted to be given under this Agreement shall be given in writing and sent, by registered or certified U.S. mail, return receipt requested, by hand, or by overnight courier, addressed to the parties hereto at their addresses set forth above or such other addresses as they may from time-to-time designate by written notice, given in accordance with the terms of this Section, together with copies thereof as follows: In the case of Purchaser, to: Projectavision, Inc. Two Penn Plaza Suite 640 New York, NY 10121 Telephone no.: (212) 971-3000 Facsimile no.: (212) 971-6016 Attn: Martin J. Holleran, Chief Executive Officer and President with a copy simultaneously by like means to: Zukerman Gore & Brandeis, LLP 900 Third Avenue New York, NY 10022 Telephone no.: (212) 223-6700 Facsimile no.: (212) 223-6433 Attention: Clifford A. Brandeis, Esq. 53 and In the case of the Company, to: Vidikron Industries S.p.A. Via Dei Guasti, 29 20020 Misinto (Milano) C.so Venezia, 16-20121 Milano, Italy Telephone no.: (011) 39-0-96.72.02.75 Facsimile no.: (011) 39-0-96.32.88.34 Attn: Mr. Flavio Peralda with a copy simultaneously by like means to: Cesaris, Nunziante e Breveglieri 20121 Milano Via Marte Di Pieta, 24 Milan, Italy Telephone no.: (011) 39-02.72.55.11 Facsimile no.: (011) 39-02.72.55.13.33 Attn: Avv. Luca Breveglieri and Rubin, Bailin, Ontoli, Mayer, Baker & Fry LLP 405 Park Avenue New York, New York 10022 Telephone no.: (212) 935-0900 Facsimile no.: (212) 826-9307 Attn: Joseph Rubin, Esq. (In addition, without constituting notice hereunder, the parties shall use reasonable efforts to send by facsimile to counsel for the party to whom notice is to be sent copies of all notices sent by such party). Notice given as provided in this Section shall be deemed effective: (i) on the date hand delivered, (ii) on the first business day following the sending thereof by overnight courier, (iii) on the seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter) 54 after the depositing thereof into the exclusive custody of the U.S. Postal Service, and (iv) on the fourteenth (14th) calendar (or if not a business day, then the next succeeding business day thereafter) after the deposit into the exclusive custody of the Italian Postal Service). 21. Miscellaneous. (a) This Agreement, including, without limitation, the schedules, Purchaser's Related Documents, the Company's Related Documents, and other documents referred to herein, among the parties hereto, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior agreements, arrangements or understandings with respect hereto, including but not limited to that certain letter of intent dated July 31, 1997 among certain of the parties hereto, and may not be modified or amended except by a written agreement specifically referring to this Agreement signed by all of the parties hereto. (b) No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. (c) This Agreement shall be binding upon and inure to the benefit of each corporate party hereto, its successors and assigns. (d) The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections nor affect the meaning or interpretation of this Agreement. (e) Each party hereto shall cooperate, shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. (f) Except as otherwise provided herein or in agreements delivered in connection with this Agreement, all legal, accounting and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party or parties incurring the same. (g) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. 55 (h) This Agreement and all amendments hereto shall be governed by, construed and enforced in accordance with the internal laws of Italy without reference to principles of conflict of laws. Each of the parties expressly agree that any dispute of any nature arising out of or relative to any of the transactions contemplated by this Agreement, including but not limited to any dispute relative to Section 15 above, shall be submitted to, and shall be exclusively determined by, binding arbitration applying the rules of the American Arbitration Association situated in New York City. Any decision rendered in such arbitration shall be final and conclusive and binding on the parties, and may only be entered in a court located in the State of New York, County of New York. Each party shall be responsible for their own legal fees in connection with any arbitration unless application to the contrary is made to, and a decision is rendered by, the arbitration panel in connection with any arbitration. (i) If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision, only to the extent it is invalid or unenforceable, and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. (j) All Schedules attached hereto shall be incorporated by reference herein as if set forth herein in full. (k) The Company, on the one hand, and Purchaser, on the other hand, agree that, without the prior written consent of the other, unless otherwise required by law, it shall not make or permit to be made any announcement of any kind about this Agreement or the transactions contemplated hereby, either prior to the Closing Date or any time hereafter in the event the transactions contemplated hereby are not consummated as provided herein. (l) The Company, on the one hand, and Purchaser, on the other hand, represent and warrant to the other that there is no obligation to pay any commission, finder's fee, broker's fee or similar charge in connection with the transactions provided for in this Agreement, resulting from any agreements or other action of such representing party. (m) All documents to be delivered by the Company or the Subsidiary for Purchaser's review hereunder shall be 56 delivered if originally written in a language other than English, in the original language in which it was written. (n) This Agreement is not intended to, and shall not confer any rights upon, any parties other than the express parties hereto. (o) Upon the execution of this Agreement, the Company expressly agrees that it will not, directly or indirectly, solicit or discuss with any potential third party any proposals with respect to the sale or other disposition, however effected, to any third party of any capital stock or any assets of the Company or the Subsidiary not in the ordinary course of business, nor will the Company or the Subsidiary provide any information relating to any such possible sale or other disposition of any of the Company's or the Subsidiary's capital stock or assets (other than in the ordinary course of business) to any potential third party buyer or disclose to any potential third party buyer the fact that the Company or the Subsidiary is, or any of its capital stock or assets (except in the ordinary course of business) are, for sale or disposition, generally. In the event that the Company receives an unsolicited inquiry relating to any of the forgoing, the Company shall immediately advise Purchaser of same. (p) The Company expressly acknowledges that the Purchaser is a public company and subsequent to the execution of the Asset Purchase Agreement the Company may (although not immediately), and upon the Closing of the transaction contemplated by the Asset Purchase Agreement the Company will, have a legal obligation to make public disclosures and filings in accordance with the rules and regulations promulgated by the United States Securities and Exchange Commission. Accordingly, the Company agrees to keep all negotiations relating to, and the signing of, this Agreement, strictly confidential, and that subsequent to the execution of this Agreement (although not immediately), the Purchaser may, and upon the Closing the transaction contemplated by the Asset Purchase Agreement will, prepare and issue a press release and effect other public disclosures for dissemination and filing in accordance with the rules and regulations of the United States Securities and Exchange Commission. The form, substance and timing of all public disclosures and filings shall be determined solely by the Purchaser upon consultation with the Company; provided, however, that the Purchaser's determination with respect to all aspects of public disclosure shall govern. The Purchaser acknowledges that subsequent to the execution of this Agreement, the Company may, upon consultation with Purchaser, make certain disclosures to 57 private individuals or entities in connection with the transactions contemplated hereby. (q) In the event that subsequent to the Closing the Company receives funds relative to the Government Loan, the Company agrees that any such funds will be utilized solely in connection with the Company's Video Business as directed by Purchaser and Purchaser agrees to be obligated to repay all such funds. (r) Upon the Closing, the Company and Purchaser shall make whatever appropriate adjustments that are required upon the mutual agreement of the parties with respect to any projector engines that have been prepaid in whole or in part by the Company and that will be sold subsequent to the Closing for the benefit of the Purchaser. 58 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PROJECTAVISION, INC. By: ---------------------------- Name: Martin J. Holleran Title: President and Chief Executive Officer PROJECTAVISION INTERNATIONAL By: ---------------------------- Name: Martin J. Holleran Title: Sole Director VIDIKRON INDUSTRIES S.p.A. By: ---------------------------- Name: Flavio Peralda Title: President 59 EX-10.54 5 EXHIBIT-10.54 Exhibit 10.54 -------------------------------------- -------------------------------------- EMPLOYMENT AGREEMENT By and Between PROJECTAVISION, INC. and EMILIO BAJ MACARIO -------------------------------------- -------------------------------------- December 7, 1998 TABLE OF CONTENTS Page ---- 1. Employment.................................................................1 2. Duties and Responsibilities of Employee....................................2 3. Exclusivity of Service.....................................................2 4. Compensation; Bonus........................................................2 5. Benefits...................................................................3 6. Term of Employment.........................................................4 7. Confidentiality; Inventions; Product Development, Etc......................4 8. Termination................................................................6 (b) Cause.............................................................7 9. Violation of Other Agreements..............................................8 10. Specific Performance; Damages..............................................8 11. Notices....................................................................9 12. Waivers....................................................................9 13. Preservation of Intent.....................................................9 14. Entire Agreement..........................................................10 15. Inurement; Assignment.....................................................10 16. Amendment.................................................................10 17. Headings..................................................................10 18. Counterparts..............................................................10 19. Governing Law.............................................................10 - i - EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement") dated ___________, 1998, by and between PROJECTAVISION, INC., a Delaware corporation having an office at Two Penn Plaza, Suite 640, New York, NY 10121 ("Employer"), and EMILIO BAJ MACARIO, an individual residing at _________________________ ("Employee"). [Note: The actual employing entity may be an Italian affiliate (either a subsidiary or a division), based upon the final structure of the transaction.] W I T N E S S E T H: WHEREAS, Employer has entered into an Agreement of Purchase and Sale of Assets (the "Purchase Agreement") dated __________, 1998 by and among Employer, Projectavision International and Vidikron Industries, S.p.A. ("Vidikron") pursuant to which Employer is purchasing from Vidikron, and Vidikron is selling to Employer, certain of the assets of Vidikron; WHEREAS, the closing under the Purchase Agreement occurred concurrently with the execution and delivery of this Agreement; WHEREAS, Employee served as Managing Director of Vidikron; WHEREAS, Employee has certain valuable experience and expertise in Vidikron which could benefit Employer; WHEREAS, Employer would suffer irreparable harm if Employee discloses Confidential Information or Trade Secrets (each as hereinafter defined) or otherwise violates the provision of this Agreement; and WHEREAS, Employer desires to engage Employee as an employee of Employer's Vidikron European Division (the "Vidikron European Division") and Employee desires to provide his services in connection with Employer's business and both parties desire to clarify and specify the rights and obligations which each have with respect to the other in connection with such employment. NOW, THEREFORE, in consideration of the agreements and covenants herein set forth, the parties hereby agree as follows: 1. Employment Employer hereby employs Employee as Managing Director of the Vidikron European Division and Employee hereby accepts such employment and agrees to render his services as an employee of Employer, for the term of this Agreement (as set forth in Section - 1 - 6 hereof), all subject to and on the terms and conditions herein set forth. 2. Duties and Responsibilities of Employee (a) Employee shall be employed as Managing Director of the Vidikron European Division, subject to the other provisions of this Section 2, initially based out of the Vidikron European Division Office. (b) In the performance of his duties, Employee shall report to Employer's Chief Executive Officer. Employee shall use his best efforts to maintain and enhance the business and reputation of Employer. Employee's duties and responsibilities shall include, without limitation, responsibilities for overseeing matters related to the Vidikron European Division's accounting, personnel, information technology, technical production, sales department and quality assurance program, and such other duties commensurate with and appropriate to his position as may, from time to time, be designated to Employee by the Board or its designee(s). Upon Employer's request, Employee shall also perform similar services in an identical capacity for any other subsidiary or division of Employer designated by Employer in Italy. Employee shall be available to travel as the reasonable needs of Employer shall require. (c) Employer agrees not to take any action to denigrate or lessen the status, authority, responsibilities or perquisites of Employee hereunder. Employee shall be entitled during the "Term" (as defined in Section 6 below), to an office, secretary, and all senior executive privileges commensurate with his title and position and he shall generally be treated in the same fashion as all other senior executives of Employer. 3. Exclusivity of Service Employee agrees to devote all of his business time, efforts and attention to the business and affairs of Employer on an exclusive basis, and not to engage in any other business activities for any person or entity, other than personal investment activities, provided that such activities do not materially affect the performance of Employee's duties hereunder. 4. Compensation; Bonus (a) In consideration for his services to be performed under this Agreement and as compensation therefor, Employee shall receive, in addition to the benefits set forth in Section 5 hereof, a base salary (the "Base Salary") at the annual rate of One Hundred Eighty Thousand ($180,000) Dollars. All payments of - 2 - Base Salary shall be payable in bi-weekly installments or otherwise in accordance with Employer's policies. The Base Salary shall be reviewed by the Board one year after the date hereof and may be increased at the Board's sole discretion; provided, however, that at a minimum, the Board shall increase the Base Salary by a percentage equal to the percentage increase of the rate of inflation (the "Inflation Percentage") in Italy (as determined by ) with respect to the first year of the Term (as hereinafter defined); provided, further, that the Board shall have no obligation whatsoever to increase the Base Salary by more than the Inflation Percentage. (b) In addition to the Base Salary, Employee may receive an annual bonus, in an amount of up to $25,000, for the first twelve (12) months of the Term, based upon performance criteria to be agreed upon by Employer and Employee within thirty (30) days subsequent to the execution hereof. The bonus program with respect to the thirteenth through twenty-fourth months of the Term shall be subject to the approval of the Board of Directors (the "Board"). 5. Benefits In addition to the Base Salary and bonus provided for in Section 4 hereof, Employee shall be entitled to the following benefits during and in respect of the Term (as defined below): (a) Employee shall be entitled to four (4) weeks annual paid vacation, in accordance with Employer's policies, annually to be taken by Employee at times mutually and reasonably agreed upon by Employer and Employee in addition to all other holidays established as part of Employer's standard practices. No payment shall be made to Employee for unused vacation days nor may more than fifty (50%) percent of such days be carried over to future years. (b) Employee shall be entitled to reimbursement for all reasonable travel, entertainment and other reasonable expenses incurred in connection with Employer's business, provided that such expenses are adequately documented and vouchered in accordance with Employer's policies. (c) On the date hereof, Employer shall grant to Employee options (the "Options") to purchase eighty eight thousand (88,000) shares of common stock (the "Common Stock") of Employer (as may be adjusted for stock splits, stock dividends, recapitalization and any similar transactions), par value $.0001 per share, pursuant to Employer's 1990 Stock Option Plan (the "Plan") and a Stock Option Agreement to be entered into by Employer and Employee in the form adopted pursuant to the Plan promptly following the mutual execution and delivery of this Agreement. Fifty percent (50%) of the Options shall vest, and become exercisable, one (1) year from and after the date hereof and the remaining fifty percent (50%) of the Options shall vest, and become exercisable, two (2) years from and after the date hereof. All Options shall, subject to the terms and conditions of the Plan, be exercisable at the price per share of the Common Stock on the date of the issuance of the Options. (d) In the event that subsequent to the execution hereof the Company institutes any new benefits for senior executives that were not effected as of the date hereof, Employee shall be entitled to fully participate in any such newly instituted benefits for senior executives. - 3 - 6. Term of Employment The term (the "Term") of employment shall be from the date hereof through two (2) years after the closing, unless terminated prior thereto in accordance with Section 8 hereof. In addition, the Term shall be subject to a one (1) year removal after said two (2) year period upon the mutual agreement of the parties. 7. Confidentiality; Inventions; Product Development, Etc. (a) Employee agrees and covenants that, at any time during employment by Employer or thereafter, he will not (without first obtaining the written permission of Employer) divulge to any person or entity, nor use (either himself or in connection with any business) any "Confidential Information" or "Trade Secrets" (each as hereinafter defined in Section 7(c) hereof) to which he may have had access or which had been revealed to him during the course of his employment unless such disclosure is pursuant to a court order, disclosure in litigation involving the Employer or in any reports or applications required by law to be filed with any governmental agency. (b) Employee hereby grants to Employer or its nominee all rights of every kind whatsoever, exclusively and perpetually, in and to all services performed, products created and product ideas conceived by Employee for Employer or its nominee, and hereby agrees, upon Employer's request therefor, to assign and transfer to Employer or its nominee, any and all inventions, Trade Secrets, product ideas, improvements, processes, Confidential Information and "know how" relating to the business or products of Employer or any subsidiary or division thereof, including any thereof which Employee may learn, possess or acquire during Employee's employment by Employer, and agrees that all such things and such knowledge are, and will be, the sole and exclusive property of Employer or its nominee, and are known or held by Employee only for the benefit of Employer or its nominee. Any patent, trademark, servicemark or copyright applications and patents, trademarks, servicemarks or copyrights developed, obtained or conceived by Employee while employed or engaged by Employer which relate to the business or product development activities of Employer or its nominee, as well as all physical embodiments of Confidential Information, shall be and remain the sole exclusive property of Employer, or its nominee. At Employer's request, Employee will execute any and all applications, assignments or other instruments which Employer or its nominee shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to protect otherwise Employer's interest therein. - 4 - (c) As used in this Agreement, the term "Confidential Information" shall mean and include all information and data in respect of Employer's operations, financial condition, products, customers and business (including, without limitation, artwork, photographs, specifications, facsimiles, samples, business, marketing or promotional plans, creative written material and information relating to characters, concepts, names, trademarks and copyrights) which may be communicated to Employee or to which Employee may have access in the course of Employee's employment by Employer and which are designated or treated by the Employer as confidential, and with respect to which Employer has taken reasonable measures to maintain confidentiality. Notwithstanding the foregoing, the term "Confidential Information" shall not include information which: (i) is, at the time of the disclosure, a part of the public domain through no act or omission by Employee; (ii) was otherwise in Employee's lawful possession prior to the disclosure; or (iii) is hereafter lawfully disclosed to Employee by a third party who or which did not acquire the information under an obligation of confidentiality to or through Employer. As used in this Agreement, the term "Trade Secrets" shall mean and include information, without regard to form, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly known by or available to the public and which information (i) derives economic value, actual or potential, from not being known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts by the Employer, that are reasonable under the circumstances to maintain its secrecy including but not limited to the entering into of agreements containing similar provisions as set forth herein with respect to confidentiality with other senior executives of the Company. Any combination of known information shall be within any of the foregoing exclusions only if the combination as such is within such exclusions. Nothing in this Section 7 shall limit any protection, definition or remedy provided to Employer under any law, statute or legal principle relating to Confidential Information or Trade Secrets. - 5 - (d) Employee agrees that at the time of leaving the employ of Employer he will deliver to Employer and not keep or deliver to anyone else any and all notes, notebooks, drawings, memoranda, documents, and in general, any and all material relating to the business of Employer (except Employee's personal files and records) or relating to any employee, officer, director, agent or representative of Employer. (e) Employee agrees that commencing as of the date hereof and for a period of one (1) year following the termination of his employment with the Company, Employee will not, directly or indirectly: (a) engage in or become interested (whether as owner, principal, agent, stockholder, member, partner, trustee, venturer, lender or other investor, director, officer, employee, consultant or through the agency of any corporation, partnership, limited liability company, association or agent or otherwise) in any business or enterprise that shall then be in whole or in substantial part competitive with the business conducted by the Company (or any other subsidiary thereof); provided, however, ownership of less than one percent (1%) of the outstanding securities of any class of any entity listed on a national securities exchange or traded in the over-the-counter market shall not be considered a breach of this Section 7(e). 8. Termination (a) General. In the event Employee is terminated other than pursuant to Sections 8(b), 8(c) and 8(d) hereof, or in the event of a breach by Employer of this Agreement (which breach shall not have been cured by Employer within thirty (30) days after written notice thereof from Employee, which written notice, to be effective, must describe with specificity the nature of the alleged breach), (i) Employer shall pay to Employee Employee's Base Salary under Section 4 hereof in a lump sum (net of all applicable withholding taxes and other amounts that have routinely been deducted from Employee's Base Salary payments hereunder prior to any such termination) within ten (10) business days, (ii) Employer shall pay to Employee all other benefits under Section 5(d) hereof until the two year anniversary of the date set forth above, and (iii) all options set forth in Section 5(c) shall automatically vest upon any such termination. (b) Cause. Notwithstanding the terms of this Agreement, Employer may discharge Employee and terminate this Agreement in the event that (i) Employee shall materially fail to perform his material duties hereunder with reasonable diligence or shall violate any material covenant of his herein contained, (ii) Employee shall engage in an act of dishonesty in connection with his duties hereunder or theft, (iii) Employee shall unreasonably refuse to carry out the lawful order of Employer commensurate and appropriate with Employee's duties to be performed hereunder, (iv) Employee shall be charged with a felony involving moral turpitude (which shall include any felony relating to drugs) or shall be - 6 - convicted of, or plead nolo contendere (or make an equivalent plea) in respect of, any governmental indictment, complaint or other formal allegation or (v) Employee shall have breached in any material respect any material agreement, covenant, undertaking or representation and/or warranty under either (x) the Purchase Agreement or (y) that certain Non- Competition and Continuity of Business Dealings Undertaking made by Employee in favor of Employer of even date herewith. Notwithstanding the foregoing to the contrary, prior to discharging Employee pursuant to clauses (i) or (iii) of the immediately preceding sentence, Employer shall give Employee ten (10) days' prior written notice of any breach or failure and a reasonable opportunity to cure any such breach or failure, or cease violating any covenant contained herein, the extent curable or ceasable; provided, however, that no notice shall be required to be given in the event such breach, failure or violation is not curable or ceasable. In the event Employee is discharged pursuant to this Section 8(b), Employee's Base Salary and bonus under Section 4 hereof and all benefits under Section 5 hereof shall terminate immediately upon such discharge (subject to applicable law such as COBRA), and Employer shall have no further obligation to Employee except the payment to and reimbursement to Employee for any monies due to Employee which right to payment or reimbursement accrued prior to such discharge. (c) Incapacity. Should Employee, in the reasonable judgment of a physician chosen by the Board, become incapacitated to the extent that he is unable to perform his material duties pursuant to this Agreement for a period of four (4) consecutive months by reason of illness, disability, or other incapacity, Employer may terminate this Agreement upon one (1) month's notice after said four (4) month period. In addition, upon any such termination, all options set forth in Section 5(c) shall automatically vest. Notwithstanding the foregoing, in the event that Employee (or his representative) disputes the determination made by the physician chosen by the Board to evaluate Employee's ability to perform his material duties hereunder, Employee (or his representative) shall have the right to have a physician of their choosing evaluate Employee. In the event that physician chosen by the Board and the Employee (or his representative) cannot agree, then the two (2) physicians shall choose a third physician, whose determination shall be final and binding upon the parties. (d) Death. This Agreement shall terminate immediately upon the death of Employee, in which case Employee's legal representatives shall be entitled to receive promptly a payment equal to the lesser of four (4) months Base Salary or the Base Salary for the remaining Term hereof. - 7 - 9. Violation of Other Agreements Employee represents and warrants to Employer that he is legally able to enter into this Agreement and accept employment with Employer; that Employee is not prohibited by the terms of any agreement, understanding or policy from entering into this Agreement; and the terms hereof will not and do not violate or contravene the terms of any agreement, understanding or policy to which Employee is or may be a party, or by which Employee may be bound. Employee agrees that, as it is a material inducement to Employer that Employee make the foregoing representations and warranties and that they be true in all respects, Employee shall forever indemnify and hold Employer harmless from and against all liability, costs or expenses (including attorney's fees and disbursements) on account of the foregoing representations being untrue. 10. Specific Performance; Damages In the event of a breach or threatened breach of the provisions of Section 7 hereof, Employee agrees that the injury which would be suffered by Employer would be of a character which could not be fully compensated for solely by a recovery of monetary damages. Accordingly, Employee agrees that in the event of a breach or threatened breach of Section 7 hereof, in addition to and not in lieu of any damages sustained by Employer and any other remedies which Employer may pursue hereunder or under any applicable law, Employer shall have the right to equitable relief, including issuance of a temporary or permanent injunction, by any court of competent jurisdiction against the commission or continuance of any such breach or threatened breach, without the necessity of proving any actual damages or posting of any bond or other surety therefor. In addition to, and not in limitation of the foregoing, Employee understands and confirms that, in the event of a breach or threatened breach of Section 7 hereof, Employee may be held financially liable to Employer for any loss suffered by Employer as a result. 11. Notices Any and all notices, demands or requests required or permitted to be given under this Agreement shall be given in writing and sent, by registered or certified U.S. mail, return receipt requested, by hand, or by overnight courier, addressed to the parties hereto at their addresses set forth above or such other addresses as they may from time-to-time designate by written notice, given in - 8 - accordance with the terms of this Section, together with copies thereof as follows: In the case of Employer, with a copy to: Zukerman Gore & Brandeis, LLP 900 Third Avenue New York, New York 10022-4728 Attention: Clifford A. Brandeis, Esq. In the case of Employee, with a copy to: Cesaris, Nunziante e Breveglieri 20121 Milano Via Marte Di Pieta, 24 Milan, Italy Telephone no.: (011) 39-02.72.55.11 Facsimile no.: (011) 39-02.72.55.13.33 Attn: Avv. Luca Breveglieri and Rubin, Bailin, Ontoli, Mayer, Baker & Fry LLP 405 Park Avenue New York, New York 10022 Telephone no.: (212) 935-0900 Facsimile no.: (212) 826-9307 Attn: Joseph Rubin, Esq. Notice given as provided in this Section shall be deemed effective: (i) on the date hand delivered, (ii) on the first business day following the sending thereof by overnight courier, and (iii) on the seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter) after the depositing thereof into the exclusive custody of the U.S. Postal Service. 12. Waivers No waiver by any party of any default with respect to any provision, condition or requirement hereof shall be deemed to be a waiver of any other provision, condition or requirement hereof; nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. - 9 - 13. Preservation of Intent Should any provision of this Agreement be determined by a court having jurisdiction in the premises to be illegal or in conflict with any laws of any state or jurisdiction or otherwise unenforceable, Employer and Employee agree that such provision shall be modified to the extent legally possible so that the intent of this Agreement may be legally carried out. 14. Entire Agreement This Agreement sets forth the entire and only agreement or understanding between the parties relating to the subject matter hereof and supersedes and cancels all previous agreements, negotiations, letters of intent, correspondence, commitments and representations in respect thereof among them, and no party shall be bound by any conditions, definitions, warranties or representations with respect to the subject matter of this Agreement except as provided in this Agreement. 15. Inurement; Assignment The rights and obligations of Employer under this Agreement shall inure to the benefit of and shall be binding upon any successor of Employer or to the business of Employer, subject to the provisions hereof. Employer may assign this Agreement to any person, firm or corporation controlling, controlled by, or under common control with Employer, provided that such assignee is the entity conducting the business and operations in Italy where Employee is being engaged to provide his services hereunder. Neither this Agreement nor any rights or obligations of Employee hereunder shall be transferable or assignable by Employee. 16. Amendment This Agreement may not be amended in any respect except by an instrument in writing signed by the parties hereto. 17. Headings The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 18. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. - 10 - 19. Governing Law This Agreement shall be governed by, construed and enforced in accordance with the internal laws of the State of New York, without giving reference to principles of conflict of laws. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. ------------------------------ EMILIO BAJ MACARIO PROJECTAVISION, INC. By:__________________________ Name: Martin J. Holleran Title: President and Chief Executive Officer - 11 - EX-10.55 6 EXHIBIT 10.55 EXHIBIT 10.55 ================================================================================ EMPLOYMENT AGREEMENT By and Between PROJECTAVISION, INC. and FLAVIO PERALDA ================================================================================ December 7, 1998 TABLE OF CONTENTS Page ---- 1. Employment..............................................................1 2. Duties and Responsibilities of Employee.................................2 3. Exclusivity of Service..................................................2 4. Compensation; Bonus.....................................................2 5. Benefits................................................................3 6. Term of Employment......................................................4 7. Confidentiality; Inventions; Product Development, Etc...................4 8. Termination.............................................................6 (b) Cause..............................................................6 (c) Incapacity.........................................................7 (d) Death..............................................................7 9. Violation of Other Agreements...........................................8 10. Specific Performance; Damages...........................................8 11. Notices.................................................................8 12. Waivers.................................................................9 13. Preservation of Intent..................................................9 14. Entire Agreement........................................................9 15. Inurement; Assignment..................................................10 16. Amendment..............................................................10 17. Headings...............................................................10 18. Counterparts...........................................................10 19. Governing Law..........................................................10 - i - EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement") dated December 7, 1998, by and between PROJECTAVISION, INC., a Delaware corporation having an office at Two Penn Plaza, Suite 640, New York, NY 10121 ("Employer"), and FLAVIO PERALDA, an individual residing at _________________________ ("Employee"). W I T N E S S E T H: WHEREAS, Employer has entered into an Agreement of Purchase and Sale of Assets (the "Purchase Agreement") dated __________, 1998 by and among Employer, Projectavision International and Vidikron Industries, S.p.A. ("Vidikron") pursuant to which Employer is purchasing from Vidikron, and Vidikron is selling to Employer, certain of the assets of Vidikron; WHEREAS, the closing under the Purchase Agreement occurred concurrently with the execution and delivery of this Agreement; WHEREAS, Employee served as President of Vidikron; WHEREAS, Employee has certain valuable experience and expertise in Vidikron which could benefit Employer; WHEREAS, Employer would suffer irreparable harm if Employee discloses Confidential Information or Trade Secrets (each as hereinafter defined) or otherwise violates the provision of this Agreement; and WHEREAS, Employer desires to engage Employee as an employee of Employer's Vidikron European Division (the "Vidikron European Division") and Employee desires to provide his services in connection with Employer's business and both parties desire to clarify and specify the rights and obligations which each have with respect to the other in connection with such employment. NOW, THEREFORE, in consideration of the agreements and covenants herein set forth, the parties hereby agree as follows: 1. Employment Employer hereby employs Employee as President of the Vidikron European Division and Employee hereby accepts such employment and agrees to render his services as an employee of Employer, for the term of this Agreement (as set forth in Section 6 hereof), all subject to and on the terms and conditions herein set forth. 2. Duties and Responsibilities of Employee (a) Employee shall be employed as President of the Vidikron European Division, subject to the other provisions of this Section , initially based out of the Vidikron European Division Office. (b) In the performance of his duties, Employee shall report to Employer's Chief Executive Officer. Employee shall use his best efforts to maintain and enhance the business and reputation of Employer. Employee's duties and responsibilities shall include, without limitation, responsibilities for overseeing matters related to the Vidikron European Division's accounting, personnel, information technology, technical production, sales department and quality assurance program, and such other duties commensurate with and appropriate to his position as may, from time to time, be designated to Employee by the Board or its designee(s). Upon Employer's request, Employee shall also perform similar services in an identical capacity for any other subsidiary or division of Employer designated by Employer in Italy. Employee shall be available to travel as the reasonable needs of Employer shall require. (c) Employer agrees not to take any action to denigrate or lessen the status, authority, responsibilities or perquisites of Employee hereunder. Employee shall be entitled during the "Term" (as defined in Section 6 below), to an office, secretary, and all senior executive privileges commensurate with his title and position and he shall generally be treated in the same fashion as all other senior executives of Employer. 3. Exclusivity of Service Employee agrees to devote all of his business time, efforts and attention to the business and affairs of Employer on an exclusive basis, and not to engage in any other business activities for any person or entity, other than personal investment activities, provided that such activities do not materially affect the performance of Employee's duties hereunder. 4. Compensation; Bonus (a) In consideration for his services to be performed under this Agreement and as compensation therefor, Employee shall receive, in addition to the benefits set forth in Section 5 hereof, a base salary (the "Base Salary") at the annual rate of One Hundred Eighty Thousand ($180,000) Dollars. All payments of - 2 - Base Salary shall be payable in bi-weekly installments or otherwise in accordance with Employer's policies. (b) In addition to the Base Salary, Employee may receive an annual bonus, in an amount of up to $25,000, based upon performance criteria to be agreed upon by Employer and Employee within thirty (30) days subsequent to the execution hereof. 5. Benefits In addition to the Base Salary and bonus provided for in Section hereof, Employee shall be entitled to the following benefits during and in respect of the Term (as defined below): (a) Employee shall be entitled to four (4) weeks annual paid vacation, in accordance with Employer's policies, annually to be taken by Employee at times mutually and reasonably agreed upon by Employer and Employee in addition to all other holidays established as part of Employer's standard practices. No payment shall be made to Employee for unused vacation days. (b) Employee shall be entitled to reimbursement for all reasonable travel, entertainment and other reasonable expenses incurred in connection with Employer's business, provided that such expenses are adequately documented and vouchered in accordance with Employer's policies. (c) On the date hereof, Employer shall grant to Employee options (the "Options") to purchase eighty eight thousand (88,000) shares of common stock (the "Common Stock") of Employer (as may be adjusted for stock splits, stock dividends, recapitalization and any similar transactions), par value $.0001 per share, pursuant to Employer's 1990 Stock Option Plan (the "Plan") and a Stock Option Agreement to be entered into by Employer and Employee in the form adopted pursuant to the Plan promptly following the mutual execution and delivery of this Agreement. Fifty percent (50%) of the Options shall vest, and become exercisable, one (1) year from and after the date hereof and the remaining fifty percent (50%) of the Options shall vest, and become exercisable, two (2) years from and after the date hereof. All Options shall, subject to the terms and conditions of the Plan, be exercisable at the price per share of the Common Stock on the date of the issuance of the Options. - 3 - (d) In the event that subsequent to the execution hereof the Company institutes any new benefits for senior executives that were not effected as of the date hereof, Employee shall be entitled to fully participate in any such newly instituted benefits for senior executives. 6. Term of Employment The term (the "Term") of employment shall be from the date hereof through one (1) year after the closing, unless terminated prior thereto in accordance with Section hereof. In addition, the Term of this Agreement may also be extended for two (2) successive one (1) year terms upon the mutual agreement of the parties. 7. Confidentiality; Inventions; Product Development, Etc. (a) Employee agrees and covenants that, at any time during employment by Employer or thereafter, he will not (without first obtaining the written permission of Employer) divulge to any person or entity, nor use (either himself or in connection with any business) any "Confidential Information" or "Trade Secrets" (each as hereinafter defined in Section (c) hereof) to which he may have had access or which had been revealed to him during the course of his employment unless such disclosure is pursuant to a court order, disclosure in litigation involving the Employer or in any reports or applications required by law to be filed with any governmental agency. (b) Employee hereby grants to Employer or its nominee all rights of every kind whatsoever, exclusively and perpetually, in and to all services performed, products created and product ideas conceived by Employee for Employer or its nominee, and hereby agrees, upon Employer's request therefor, to assign and transfer to Employer or its nominee, any and all inventions, Trade Secrets, product ideas, improvements, processes, Confidential Information and "know how" relating to the business or products of Employer or any subsidiary or division thereof, including any thereof which Employee may learn, possess or acquire during Employee's employment by Employer, and agrees that all such things and such knowledge are, and will be, the sole and exclusive property of Employer or its nominee, and are known or held by Employee only for the benefit of Employer or its nominee. Any patent, trademark, servicemark or copyright applications and patents, trademarks, servicemarks or copyrights developed, obtained or conceived by Employee while employed or engaged by Employer which relate to the business or product development activities of Employer or its nominee, as well as all physical embodiments of Confidential Information, shall be and remain the sole exclusive property of Employer, or its nominee. At Employer's request, Employee will execute any and all - 4 - applications, assignments or other instruments which Employer or its nominee shall deem necessary to apply for and obtain Letters Patent of the United States or any foreign country or to protect otherwise Employer's interest therein. (c) As used in this Agreement, the term "Confidential Information" shall mean and include all information and data in respect of Employer's operations, financial condition, products, customers and business (including, without limitation, artwork, photographs, specifications, facsimiles, samples, business, marketing or promotional plans, creative written material and information relating to characters, concepts, names, trademarks and copyrights) which may be communicated to Employee or to which Employee may have access in the course of Employee's employment by Employer and which are designated or treated by the Employer as confidential, and with respect to which Employer has taken reasonable measures to maintain confidentiality. Notwithstanding the foregoing, the term "Confidential Information" shall not include information which: (i) is, at the time of the disclosure, a part of the public domain through no act or omission by Employee; (ii) was otherwise in Employee's lawful possession prior to the disclosure; or (iii) is hereafter lawfully disclosed to Employee by a third party who or which did not acquire the information under an obligation of confidentiality to or through Employer. As used in this Agreement, the term "Trade Secrets" shall mean and include information, without regard to form, including, but not limited to, technical or non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly known by or available to the public and which information (i) derives economic value, actual or potential, from not being known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts by the Employer, that are reasonable under the circumstances to maintain its secrecy including but not limited to the entering into of agreements containing similar provisions as set forth herein with respect to confidentiality with other senior executives of the Company. - 5 - Any combination of known information shall be within any of the foregoing exclusions only if the combination as such is within such exclusions. Nothing in this Section shall limit any protection, definition or remedy provided to Employer under any law, statute or legal principle relating to Confidential Information or Trade Secrets. (d) Employee agrees that at the time of leaving the employ of Employer he will deliver to Employer and not keep or deliver to anyone else any and all notes, notebooks, drawings, memoranda, documents, and in general, any and all material relating to the business of Employer (except Employee's personal files and records) or relating to any employee, officer, director, agent or representative of Employer. (e) Employee agrees that commencing as of the date hereof and for a period of one (1) year following the termination of his employment with the Company, Employee will not, directly or indirectly: (a) engage in or become interested (whether as owner, principal, agent, stockholder, member, partner, trustee, venturer, lender or other investor, director, officer, employee, consultant or through the agency of any corporation, partnership, limited liability company, association or agent or otherwise) in any business or enterprise that shall then be in whole or in substantial part competitive with the business conducted by the Company (or any other subsidiary thereof); provided, however, ownership of less than one percent (1%) of the outstanding securities of any class of any entity listed on a national securities exchange or traded in the over-the-counter market shall not be considered a breach of this Section 7(e). 8. Termination (a) General. In the event Employee is terminated other than pursuant to Sections 8(b), 8(c) and 8(d) hereof, or in the event of a breach by Employer of this Agreement (which breach shall not have been cured by Employer within thirty (30) days after written notice thereof from Employee, which written notice, to be effective, must describe with specificity the nature of the alleged breach), (i) Employer shall pay to Employee Employee's Base Salary under Section 4 hereof in a lump sum (net of all applicable withholding taxes and other amounts that have routinely been deducted from Employee's Base Salary payments hereunder prior to any such termination) within ten (10) business days, (ii) Employer shall pay to Employee all other benefits under Section 5(d) hereof until the one year anniversary of the - 6 - date set forth above, and (iii) all options set forth in Section 5(c) shall automatically vest upon any such termination. (b) Cause. Notwithstanding the terms of this Agreement, Employer may discharge Employee and terminate this Agreement in the event that (i) Employee shall materially fail to perform his material duties hereunder with reasonable diligence or shall violate any material covenant of his herein contained, (ii) Employee shall engage in an act of dishonesty in connection with his duties hereunder or theft, (iii) Employee shall unreasonably refuse to carry out the lawful order of Employer commensurate and appropriate with Employee's duties to be performed hereunder, (iv) Employee shall be charged with a felony involving moral turpitude (which shall include any felony relating to drugs) or shall be convicted of, or plead nolo contendere (or make an equivalent plea) in respect of, any governmental indictment, complaint or other formal allegation or (v) Employee shall have breached in any material respect any material agreement, covenant, undertaking or representation and/or warranty under either (x) the Purchase Agreement or (y) that certain Non- Competition and Continuity of Business Dealings Undertaking made by Employee in favor of Employer of even date herewith. Notwithstanding the foregoing to the contrary, prior to discharging Employee pursuant to clauses (i) or (iii) of the immediately preceding sentence, Employer shall give Employee ten (10) days' prior written notice of any breach or failure and a reasonable opportunity to cure any such breach or failure, or cease violating any covenant contained herein, the extent curable or ceasable; provided, however, that no notice shall be required to be given in the event such breach, failure or violation is not curable or ceasable. In the event Employee is discharged pursuant to this Section (b), Employee's Base Salary and bonus under Section hereof and all benefits under Section hereof shall terminate immediately upon such discharge (subject to applicable law such as COBRA), and Employer shall have no further obligation to Employee except the payment to and reimbursement to Employee for any monies due to Employee which right to payment or reimbursement accrued prior to such discharge. (c) Incapacity. Should Employee, in the reasonable judgment of a physician chosen by the Board, become incapacitated to the extent that he is unable to perform his material duties pursuant to this Agreement for a period of four (4) consecutive months by reason of illness, disability, or other incapacity, Employer may terminate this Agreement upon one (1) month's notice after said four (4) month period. In addition, upon any such termination, all options set forth in Section 5(c) shall automatically vest. - 7 - Notwithstanding the foregoing, in the event that Employee (or his representative) disputes the determination made by the physician chosen by the Board to evaluate Employee's ability to perform his material duties hereunder, Employee (or his representative) shall have the right to have a physician of their choosing evaluate Employee. In the event that physician chosen by the Board and the Employee (or his representative) cannot agree, then the two (2) physicians shall choose a third physician, whose determination shall be final and binding upon the parties. (d) Death. This Agreement shall terminate immediately upon the death of Employee, in which case Employee's legal representatives shall be entitled to receive promptly a payment equal to the lesser of four (4) months Base Salary or the Base Salary for the remainder of the Term of this Agreement. 9. Violation of Other Agreements Employee represents and warrants to Employer that he is legally able to enter into this Agreement and accept employment with Employer; that Employee is not prohibited by the terms of any agreement, understanding or policy from entering into this Agreement; and the terms hereof will not and do not violate or contravene the terms of any agreement, understanding or policy to which Employee is or may be a party, or by which Employee may be bound. Employee agrees that, as it is a material inducement to Employer that Employee make the foregoing representations and warranties and that they be true in all respects, Employee shall forever indemnify and hold Employer harmless from and against all liability, costs or expenses (including attorney's fees and disbursements) on account of the foregoing representations being untrue. 10. Specific Performance; Damages In the event of a breach or threatened breach of the provisions of Section hereof, Employee agrees that the injury which would be suffered by Employer would be of a character which could not be fully compensated for solely by a recovery of monetary damages. Accordingly, Employee agrees that in the event of a breach or threatened breach of Section hereof, in addition to and not in lieu of any damages sustained by Employer and any other remedies which Employer may pursue hereunder or under any applicable law, Employer shall have the right to equitable relief, including issuance of a temporary or permanent injunction, by any court of competent jurisdiction against the - 8 - commission or continuance of any such breach or threatened breach, without the necessity of proving any actual damages or posting of any bond or other surety therefor. In addition to, and not in limitation of the foregoing, Employee understands and confirms that, in the event of a breach or threatened breach of Section hereof, Employee may be held financially liable to Employer for any loss suffered by Employer as a result. 11. Notices Any and all notices, demands or requests required or permitted to be given under this Agreement shall be given in writing and sent, by registered or certified U.S. mail, return receipt requested, by hand, or by overnight courier, addressed to the parties hereto at their addresses set forth above or such other addresses as they may from time-to-time designate by written notice, given in accordance with the terms of this Section, together with copies thereof as follows: In the case of Employer, with a copy to: Zukerman Gore & Brandeis, LLP 900 Third Avenue New York, New York 10022-4728 Attention: Clifford A. Brandeis, Esq. In the case of Employee, with a copy to: Cesaris, Nunziante e Breveglieri 20121 Milano Via Marte Di Pieta, 24 Milan, Italy Telephone no.: (011) 39-02.72.55.11 Facsimile no.: (011) 39-02.72.55.13.33 Attn: Avv. Luca Breveglieri and Rubin, Bailin, Ontoli, Mayer, Baker & Fry LLP 405 Park Avenue New York, New York 10022 Telephone no.: (212) 935-0900 Facsimile no.: (212) 826-9307 Attn: Joseph Rubin, Esq. Notice given as provided in this Section shall be deemed effective: (i) on the date hand delivered, (ii) on the first business day following the sending thereof by overnight courier, and (iii) on the seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter) after the depositing thereof into the exclusive custody of the U.S. Postal Service. - 9 - 12. Waivers No waiver by any party of any default with respect to any provision, condition or requirement hereof shall be deemed to be a waiver of any other provision, condition or requirement hereof; nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 13. Preservation of Intent Should any provision of this Agreement be determined by a court having jurisdiction in the premises to be illegal or in conflict with any laws of any state or jurisdiction or otherwise unenforceable, Employer and Employee agree that such provision shall be modified to the extent legally possible so that the intent of this Agreement may be legally carried out. 14. Entire Agreement This Agreement sets forth the entire and only agreement or understanding between the parties relating to the subject matter hereof and supersedes and cancels all previous agreements, negotiations, letters of intent, correspondence, commitments and representations in respect thereof among them, and no party shall be bound by any conditions, definitions, warranties or representations with respect to the subject matter of this Agreement except as provided in this Agreement. 15. Inurement; Assignment The rights and obligations of Employer under this Agreement shall inure to the benefit of and shall be binding upon any successor of Employer or to the business of Employer, subject to the provisions hereof. Employer may assign this Agreement to any person, firm or corporation controlling, controlled by, or under common control with Employer, provided that such assignee is the entity conducting the business and operations in Italy where Employee is being engaged to provide his services hereunder. Neither this Agreement nor any rights or obligations of Employee hereunder shall be transferable or assignable by Employee. - 10 - 16. Amendment This Agreement may not be amended in any respect except by an instrument in writing signed by the parties hereto. 17. Headings The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 18. Counterparts This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. 19. Governing Law This Agreement shall be governed by, construed and enforced in accordance with the internal laws of the State of New York, without giving reference to principles of conflict of laws. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. _____________________________ FLAVIO PERALDA PROJECTAVISION, INC. By:__________________________ Name: Martin J. Holleran Title: President and Chief Executive Officer - 11 - EX-27 7 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 2,280,100 0 2,146,466 (212,040) 4,617,680 9,631,788 3,154,329 290,662 19,230,400 14,623,909 0 0 10,453,512 4,585 (6,354,741) 19,230,400 3,020,874 3,020,874 2,481,763 12,196,175 (2,391,408) 0 46,622 (9,312,278) 0 (9,312,278) 0 0 0 (9,312,278) (17.04) (17.04)
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