<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1998 Commission File No. 1-14559
Muse Technologies, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 85-0437001
--------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1601 Randolph, SE, Suite 210, Albuquerque, NM 87106
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(505) 843-6873
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.015 Par Value Per Share
Class A Redeemable Common Stock Purchase Warrants
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days:
Yes | | No |X| (Issuer has not been subject to
filing requirements for the
past 90 days)
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
|X|
The Company's revenues for its most recent fiscal year were $6,206,000.
As of December 21, 1998, there were outstanding 10,143,893 shares of Common
Stock (the "Common Stock") and Class A Redeemable Common Stock Purchase
Warrants (the "Warrants") to purchase 1,113,881 shares of Common Stock. Based
on the closing prices of the Common Stock and the Warrants on that date,
$11.125 and $3.75, respectively, the approximate aggregate market value of the
Common Stock and the Warrants held by non-affiliates was $79,424,590 and
$4,177,054, respectively.
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-KSB for the year ended September
30, 1998, reflects the changes to Items 9 through 12 of the Form 10-KSB. For
each of these Items, the Company's definitive Proxy Statement was intended to
be incorporated by reference. However, since the Company will not be filing the
definitive Proxy Statement within 120 days after the fiscal year ended
September 30, 1998, the Company is filing this Amendment to provide the
information required by each of such Items.
2
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Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors
- ---------
The directors of the Company as of the fiscal year ended September
30, 1998 are listed below. Other than as described herein, there is no
arrangement or understanding between any director and any other person pursuant
to which such person was elected as a director.
<TABLE>
<CAPTION>
Present Principal Occupation and
Name, Business Principal Occupation During Last Director
Address and Age Five Years; Other Activities Since
- --------------- ---------------------------- -----
<S> <C> <C>
Dr. Creve Maples Dr. Creve Maples has been Chairman of the 1995
Age 56 Board since the Company's inception in 1995.
He was the Company's President and Chief
Executive Officer from February 1997 until
May 1998 and Vice President from the
Company's inception until February 1997. For
more than three years prior to the
organization of the Company, Dr. Maples was
employed by Sandia Corporation ("Sandia"),
where he headed the development team
responsible for the development of
"MUSE(Trademark)", the Company's core software
product. Dr. Maples is a nationally
recognized expert and authority on synthetic
environments, advanced computer systems,
including highly interactive graphic
systems, language extensions, parallel mass
storage and applications development. He
holds a doctorate degree in nuclear science
from the University of California (Berkeley)
and is an honors baccalaureate graduate of
Massachusetts Institute of Technology. From
1972 to 1974, he held a fellowship from the
National Science Foundation. Dr. Maples is
the author of more than 100 papers and
articles on physics and computing. He is the
recipient of a number of awards including,
in October 1995, the New Mexico Entrepreneur
Association's Software Inventor of the Year
award for his work on MUSE.
Curtiz J. Gangi Curtiz J. Gangi has been President of the 1997
Age 53 Company since May 1998 and a Director since
November 1997. From September 1996 until May
1998, he served as the Company's Chief
Operating Officer. Mr. Gangi was Chief
Operating Officer of Visual Information
Service, Inc., a hardware and software
development company from December 1995 to
September 1996, Chief Executive Officer and
President of Foton, Inc., a computer
software developer from August 1994 to
December 1995, President and General Manager
of Timeworks, Inc., a software publisher
from March 1992 to July 1994, Director of
Marketing and Sales of Commodore
International Ltd, a computer manufacturer
and software publisher from October 1990 to
January 1992. In addition,
</TABLE>
3
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<TABLE>
<CAPTION>
Present Principal Occupation and
Name, Business Principal Occupation During Last Director
Address and Age Five Years; Other Activities Since
- --------------- ---------------------------- -------
<S> <C> <C>
Mr. Ganji was a member of the Chicago Board of
Trade and a licensed financial commodities broker.
David Durgin David L. Durgin has been a Director of the 1995
Age 59 Company since its inception. Mr. Durgin was
also the Company's Executive Vice President
from the Company's inception until April
1997. He is a founder, executive officer and
director of Quatro Corporation ("Quatro"),
Technology Business Associates Inc. ("TBA"),
a technology commercialization firm, and a
founder, director and past chairman of
Industry Network Corporation, a non-profit
economic development company. Mr. Durgin was
previously a Senior Vice President with Booz
Allen & Hamilton, Inc. and a Vice President
of BDM International, a leading defense
contractor. Mr. Durgin resigned from the
Board of Directors effective as of December
31, 1998.
Benjamin Huberman Benjamin Huberman has been a Director of the 1995
Age 60 Company since its inception. Since 1990, Mr.
Huberman has been the President of the
Huberman Consulting Group, based in
Washington, D.C., and consults on technology
issues, including the areas of aerospace,
electronics, and nuclear power. Mr. Huberman
is a member of the Chief of Naval
Operations' Executive Panel, which provides
strategic and topical assistance to the
Chief of Naval Operations. Mr. Huberman is a
past member of the Secretary of Energy's
Advisory Board and of the Galvin Task Force
evaluating alternative futures for the
national laboratories of the Department of
Energy. From 1977 to 1980, he was Associate
Director of the White House Office of
Science and Technology Policy ("OSTP") and a
member of the National Security Council
Staff. In 1981, Mr. Huberman served as
Deputy Director of OSTP. Mr. Huberman
resigned from the Board of Directors
effective as of January 7, 1999.
Edward A. Masi Edward A. Masi has been a Director of the 1997
Age 51 Company since January 1997. Since June 1997,
Mr. Masi has been a private consultant for a
variety of companies. From March 1992 until
June 1997, Mr. Masi was a corporate Vice
President at Intel Corporation, responsible
for the management of the super-computer
business and the commercial server product
development division. From May 1980 until
June 1992, Mr. Masi was Executive Vice
President of Sales, Marketing, and Service
at Cray Research. Prior to his work for
Cray, Mr. Masi held various sales and
marketing positions at IBM, where he began
his career.
</TABLE>
4
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During the fiscal year ended September 30, 1998, the Company's
Board of Directors held 9 meetings, which were each attended by 100% of the
then current directors in person or by telephone.
All directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Directors
receive compensation for serving on the Board of Directors as described below.
Until November 15, 2001, HD Brous & Co., Inc. ("Brous"), the underwriter of the
Company's initial public offering, has the right to designate one nominee,
reasonably acceptable to the Company, for election to the Board of Directors.
However, no such nominee has as yet been designated by Brous. The Company has
established an Audit Committee initially composed of Messrs. Durgin, Huberman
and Masi, all non-employee directors, to determine the adequacy of internal
controls and other financial reporting requirements. The Company has
established a Compensation Committee initially composed of Messrs. Durgin and
Masi to review general policy matters relating to compensation and benefits of
employees. During the fiscal year ended September 30, 1998, the Compensation
Committee held two meetings. Officers are elected annually by the Board of
Directors and serve at the discretion of the Board (and in the case of certain
executive officers pursuant to employment agreements as described below).
Messrs. Durgin and Huberman resigned from the Board of Directors effective as
of December 31, 1998 and January 7, 1999, respectively. The Board is in the
process of interviewing qualified nominees to fill such vacant Board seats.
There is no family relationship among any of the directors or
executive officers of the Company.
Executive Officers
- ------------------
The executive officers of the Company as of the fiscal year end are
listed below. There is no arrangement or understanding between any executive
officer and any other person regarding selection as an officer.
NAME AGE POSITION
---- --- --------
Dr. Creve Maples 56 Chief Technical Officer and Chairman of the Board
Curtiz J. Gangi 53 President and Director
Brian Clark 40 Chief Financial Officer, Secretary and Treasurer
Douglas Harless 51 Vice President-Sales and Marketing
For biographical information concerning Dr. Creve Maples and Mr.
Curtiz J. Gangi, see "Directors".
Brian Clark has been Chief Financial Officer of the Company since
October 1996 and is also the Company's Treasurer and Secretary. Prior to
becoming associated with the Company, Mr. Clark was an executive with Optimax
Securities Corporation, a corporation engaged in investment banking, from 1995
until October 1996; Chief Financial Officer of Softcop International, a
software development company, from 1993 to 1995; Manager of Business
Development for Royal Insurance Company of Canada, from 1989 to 1993; and a
Chartered Accountant with Deloitte & Touche from 1985 to 1989.
Douglas Harless has been the Vice-President--Sales and Marketing of
the Company since September 1997. Prior to becoming associated with the
Company, Mr. Harless was National Account Specialist of NCR, Inc., a computer
hardware company, from July 1996 to August 1997, Regional Sales Manager of
Maximum Strategy, Inc., a computer hardware company, from March 1995 until June
1996, Sales Manager of Minnesota Supercomputer Center, Inc. from January 1994
until January 1995, and Director of Sales of Petroleum Industry, a computer
hardware company, from 1988 until January 1994.
5
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Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
The Company believes that all filing requirements under Section
16(a) of the Securities Exchange Act of 1934, as amended, applicable to its
officers, directors and greater than 10% beneficial owners were complied with
during the fiscal year ended September 30, 1998.
Item 10. EXECUTIVE COMPENSATION.
Executive Compensation
- ----------------------
The following tables set forth the compensation earned by the
Company's Chief Executive Officer and all other executive officers earning in
excess of $100,000 for the fiscal years ended September 30, 1998, 1997 and
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Securities
Underlying
Name and Principal Position Year Salary Bonus Other Options
- --------------------------- ---- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C>
Dr. Creve Maples, 1998 $137,585 $20,000 -- 428,028
Chief Technical Officer (Chief 1997 $120,000 -- -- --
Executive Officer from 2/97- 1996 $100,000 -- -- --
5/98) and Chairman of the Board
Curtiz J. Gangi, 1998 $178,846 -- $172,467(1) 466,447
President and Director 1997 $112,500 -- -- 361,842
Brian Clark, 1998 $130,000 -- $172,467(1) 150,395
Chief Financial Officer, 1997 $120,000 -- -- 197,368
Secretary and Treasurer
Douglas Harless, 1998 $134,785 $478,155(1) -- 124,079
Vice President - Sales and 1997 $ 10,000(2) -- -- 378,289
Marketing
</TABLE>
- -------------------
(1) Includes amounts received in connection with (i) the Company's
distribution agreement (the "CRI Agreement") with Continuum Resources
International ASA ("CRI"), a Norwegian company, and (ii) CRI's purchase
of 1,000,000 shares of Common Stock and warrants to purchase an
additional 1,000,000 shares of Common Stock.
(2) Reflects that portion of Mr. Harless' salary earned in fiscal 1997.
6
<PAGE>
The information in the table below sets forth each grant and
exercise of stock options during the last completed fiscal year by each of the
named executive officers and the fiscal year-end value of unexercised options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percentage of Total
Number of Securities Options Granted to Exercise or Base
Name Underlying Options Granted Employees in Fiscal Year Price Expiration Date
- ---- -------------------------- ------------------------ ----- ---------------
<S> <C> <C> <C> <C>
Dr. Creve Maples 117,500 8.3% $7.50 06/08
310,528 21.9% $2.50(1) 02/08
Curtiz J. Gangi 375,000 26.5% $7.50 06/08
91,447 6.5% $2.50(1) 02/08
Brian Clark 117,500 8.3% $7.50 06/08
32,885 2.3% $2.50(1) 02/08
Douglas Harless 117,500 8.3% $7.50 06/08
6,579 0.5% $2.50(1) 02/08
</TABLE>
- -----------------------
(1) Exercise price of options granted under the Company's Stock Option
Plan were repriced from $7.60 to $2.50 in April 1998.
The table below sets forth information with respect to option
exercises during the last fiscal year and the value of all options held at
fiscal year end for each of the named executive officers. No SARs have been
granted by the Company to date and no options were exercised by the named
executive officers during fiscal 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Underlying Value of Unexercised In-the-
Acquired on Value Exercised Options of FY-End Money Options at FY-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dr. Creve Maples -- -- 310,526/117,500 $ 1,707,893/$58,750
Curtiz J. Gangi -- -- 349,122/479,167 $1,920,171/$760,419
Brian Clark -- -- 230,263/117,500 $1,266,447/$ 58,750
Douglas Harless -- -- 264,254/238,114 $ 66,557/$722,127
</TABLE>
- ---------------------
(1) The values of unexercised in-the-money options represent the
aggregate amount of the excess of $8.00, the market value of the
Common Stock as of the fiscal year-end, over the relevant exercise
price of such options.
Employment Agreements
The Company has entered into employment agreements (each an
"Employment Agreement" and collectively, the "Employment Agreements") with each
of Dr. Creve Maples, Curtiz Gangi, Brian Clark and Douglas Harless (each, an
"Executive" and collectively, the "Executives"). Under the Employment
Agreements, each Executive must devote his full business time and attention to
the affairs of the Company.
7
<PAGE>
Dr. Creve Maples has entered into a three year Employment Agreement
with the Company which commenced as of June 1, 1998, to serve as a Chief
Technical Officer of the Company at an annual base salary of $175,000. Dr.
Maples is entitled to receive a bonus of up to $76,563 upon the Company
achieving certain performance objectives. Prior to entering into such
Employment Agreement, Dr. Maples received an annual salary of $120,000. In
connection with his Employment Agreement, Dr. Maples received options to
purchase 117,500 shares of Common Stock of the Company at an exercise price of
$7.50 per share, which options vest as follows: 30,000 shares on June 1, 1999,
37,500 shares on June 1, 2000, and 50,000 shares on June 1, 2001.
Curtiz Gangi has entered into a three year Employment Agreement
with the Company which commenced as of June 1, 1998, to serve as President at
an annual base salary of $215,000. Mr. Gangi is also entitled to receive a
bonus of up to $134,375 upon the Company achieving certain performance
objectives. Prior to entering into such Employment Agreement, Mr. Gangi
received an annual salary of $150,000. In connection with his Employment
Agreement, Mr. Gangi received options to purchase 375,000 shares of Common
Stock of the Company at an exercise price of $7.50 per share, which vests as
follows: 100,000 shares on June 1, 1999, 125,000 shares on June 1, 2000 and
150,000 shares on June 1, 2001. Pursuant to his Employment Agreement, in
December 1998, Mr. Gangi received a five-year loan in the amount of $150,000 at
5% annual interest in connection with his relocation to New Mexico. The loan is
secured by vested stock options having a value equal to the principal amount of
the loan. In connection with the CRI transactions, Mr. Gangi received a payment
of approximately $172,000.
Douglas Harless has entered into a three year Employment Agreement
with the Company which commenced as of June 1, 1998, to serve as
Vice-President--Sales and Marketing at an annual base salary of $150,000. Mr.
Harless will receive commissions under a sales commission plan established by
the Board, which commissions range from 2% to 6.5% of revenues generated. Prior
to entering into such Employment Agreement, Mr. Harless received an annual
salary of $120,000. In connection with his Employment Agreement, Mr. Harless
received options to purchase 117,500 shares of Common Stock of the Company at
an exercise price of $7.50 per share, which vests as follows: 30,000 shares on
June 1, 1999, 37,500 shares on June 1, 2000 and 50,000 shares on June 1, 2001.
Mr. Harless also has the right to receive a five-year loan in the amount of
$75,000 at 5% annual interest in connection with his relocation to New Mexico.
The loan, if requested by Mr. Harless, will be secured by vested stock options
having a value equal to the principal amount of the loan. In consideration of
services rendered by Mr. Harless in connection with the CRI Agreement and the
sale of securities to CRI, options to purchase 197,369 shares of Common Stock
previously granted to Mr. Harless became exercisable at an exercise price of
$7.60 per share and the Company paid him approximately $176,000. In 1997, Mr.
Harless also purchased 11,513 shares of Common Stock for $87,500. Mr. Harless
borrowed the purchase price from the Company, which loan is secured by a pledge
of such shares and must be repaid out of any net proceeds received upon the
disposition of any securities held by Mr. Harless. Mr. Harless has agreed to
pay such loan no later than May 15, 1999.
Brian Clark has entered into a three year Employment Agreement with
the Company which commenced as of June 1, 1998, to act as Chief Financial
Officer at an annual base salary of $150,000. Mr. Clark is also entitled to
receive a bonus of up to $65,625 upon the Company achieving certain performance
objectives. Prior to entering into such Employment Agreement, Mr. Clark
received up to $10,000 a month under a Consultant Service Agreement. In
connection with his Employment Agreement, Mr. Clark received options to
purchase 117,500 shares of Common Stock of the Company at an exercise price of
$7.50 per share, which vests as follows: 30,000 shares on June 1, 1999, 37,500
shares on June 1, 2000 and 50,000 shares on June 1, 2001. Pursuant to his
Employment Agreement, in January 1999, Mr. Clark received a five-year loan in
the amount of $75,000 at 5% annual interest in connection with his relocation
to New Mexico. The loan is secured by vested stock options having a value equal
to the principal amount of the loan. In connection with the CRI transactions,
Mr. Clark received a payment of approximately $172,000.
Under the Employment Agreements, if the Executive is terminated by
the Company other than "for cause" (as defined in each Employment Agreement),
or if the Executive dies or becomes permanently disabled or terminates for
"good reason" (as defined in each Employment Agreement), all stock options of
the Executive shall immediately vest upon such termination and such Executive
shall receive severance payments in an amount equal to one year's base salary
8
<PAGE>
in the case of Messrs. Gangi and Clark, two year's base salary in the case of
Dr. Maples, and either three months base salary if termination occurs prior to
March 1, 1999 or one year's base salary if termination occurs thereafter in the
case of Mr. Harless. Each of the Employment Agreements also contain provisions
relating to severance payments equal to one year's base salary (two year's base
salary in the case of Dr. Maples) in the event of a change of control (as
defined in the Employment Agreement).
Each of the Employment Agreements prohibits disclosure of
proprietary and confidential information regarding the Company and its business
to anyone outside the Company both during and subsequent to employment. In
addition, each Executive has agreed, for the duration of his employment with
the Company and for a period of one year thereafter (three years in the case of
Dr. Maples), if the Executive is terminated for any reason or resigns, not to
engage in any competitive business activity; provided, however, that such
non-compete shall be in effect for so long as the Company continues to pay the
Executive's monthly base salary.
The Employment Agreements provide that the Company will indemnify
the Executive to the fullest extent permitted by the laws of Delaware and in
accordance with the Company's By-Laws and Certificate of Incorporation.
Directors' Compensation
- -----------------------
The Company pays each non-employee director a fee of $500 for
attendance at each board meeting and reimburses its non-employee directors for
expenses incurred in connection with their attendance at such meetings. Non-
employee directors receive options to purchase 5,000 shares of Common Stock
upon initial election to the Board of Directors and options to purchase 8,000
shares of Common Stock upon re-election at each annual meeting of stockholders,
exercisable after one-year at an exercise price equal to the fair market value
on the date of grant. Additionally, in connection with the closing of the
Company's initial public offering, current non-employee directors, Messrs.
Durgin, Masi and Huberman, each received options to purchase 5,000 shares of
Common Stock, exercisable after one year at an exercise price equal to $7.50
per share. The options received by Messrs. Durgin and Huberman expired upon
their resignations from the Board of Directors.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of December
31, 1998 with respect to the number of shares of Common Stock beneficially
owned by (i) those persons known to the Company to be the owners of more than
five percent of Common Stock of the Company, (ii) each director of the Company
(two of whom are executive officers of the Company) and (iii) all directors and
executive officers of the Company as a group. Unless otherwise indicated, each
of the listed persons has sole voting and investment power with respect to the
shares beneficially owned by such stockholder.
Amount and
Nature Percent of
of Beneficial Common Stock
Name and Address(1) Ownership(2)(3) Outstanding
- ------------------- --------------- -----------
Creve Maples(4) 1,258,883 12.1%
Continuum Resources International ASA (5) 1,000,000 9.9%
2424 Wilcrest
Houston, TX
Craig Peterson(6) 745,065 7.3%
9
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Curtiz J. Gangi(7) 349,122 3.3%
David Durgin(8) 323,027 3.2%
Douglas Harless(9) 275,767 2.6%
Brian Clark(10) 230,263 2.2%
Benjamin Huberman(11) 83,553 *
Edward A. Masi(12) 8,224 *
All directors and executive officers as a 3,273,902 28.3%
group (8 persons)(13)
- -------------------------
* less than 1%.
(1) Except for Continuum Resources International ASA ("CRI"), the address of
each of these persons is c/o the Company, 1601 Randolph, SE, Suite 210,
Albuquerque, New Mexico 87106.
(2) Unless otherwise noted, all persons named in the table have sole voting
and dispositive power with respect to all Common Stock beneficially
owned by them.
(3) Includes currently exercisable options to purchase shares of Common
Stock.
(4) Includes 310,526 shares of Common Stock issuable upon the exercise of
options.
(5) CRI is a wholly-owned subsidiary of The Norex Group, AS, a publicly-held
Norwegian company. CRI's address is 2424 Wilcrest Drive, Suite 100,
Houston, Texas 77042
(6) Includes 65,789 shares of Common Stock issuable upon the exercise of
options.
(7) Includes 349,122 shares of Common Stock issuable upon the exercise of
options. Does not include 104,167 shares of Common Stock subject to
options exercisable through September 1999.
(8) Includes 240,790 shares of Common Stock held by Quatro Corporation, of
which Mr. Durgin is an officer and director, 57,566 shares of Common
Stock held by Technology Business Associates, Inc., of which Mr. Durgin
is a principal, and 24,672 shares of Common Stock issuable upon the
exercise of options. Mr. Durgin resigned from the Company's Board of
Directors effective as of December 31, 1998. Accordingly, the
aforementioned options to purchase 24,672 shares of Common Stock are
deemed terminated as of December 31, 1998.
(9) Includes 264,254 shares of Common Stock issuable upon the exercise of
options.
(10) Represents shares of Common Stock issuable upon the exercise of options.
(11) Includes 16,448 shares of Common Stock issuable upon the exercise of
options, which options expired as a result of Mr. Huberman's resignation
from the Company's Board of Directors effective as of January 7, 1999.
(12) Represents shares of Common Stock issuable upon the exercise of options.
(13) Represents an aggregate of 2,004,604 shares of Common Stock and
1,269,298 shares of Common Stock issuable upon the exercise of options
(including expired options pursuant to footnotes 8 and 11 above).
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company was organized in October 1995. Prior to the
organization of the Company, Dr. Creve Maples, Thomas Murphy, Arlan Andrews,
David Durgin and Craig Peterson and certain minority stockholders formed Viga
Technologies Corporation ("Viga") for the purpose of entering into a license
agreement (the "License Agreement") with Sandia.
10
<PAGE>
In October 1995, the Company issued, for nominal consideration,
6,694,080 shares of Common Stock to the stockholders of Viga, of which 950,987;
679,276; 475,758; 475,658; 339,474 and 67,105 shares were issued to Dr. Maples
and Messrs. Peterson, Murphy, Andrews, Durgin and Huberman, respectively. Dr.
Maples and Messrs. Peterson, Murphy, Andrews, Durgin and Huberman may be deemed
founders of the Company.
In December 1995, Viga agreed to transfer it assets, including the
License Agreement to the Company, which required the consent of Sandia. Pending
such transfer, Viga granted the Company a sublicense to the MUSE technology. On
July 15, 1996, the assignment of the License Agreement to the Company was
effected and the sublicense was terminated.
The purchase price for the Viga assets was $1,152,000 (exclusive of
assumed liabilities), reflecting $752,000 of computer and office equipment and
a $400,000 license fee for the sublicense of the MUSE technology. The Company
issued notes in the amounts of $222,670, representing the difference between
assets acquired and liabilities assumed, and $400,000, representing the
sublicense fee for the MUSE technology. The two notes were paid, without
interest, in 1996 from the proceeds of a private placement transaction in 1996.
In 1997, Viga agreed to reduce the sublicense fee by $55,000, for which Viga
issued its 6.5% note for such amount due November 2001.
During fiscal 1996, the Company paid Viga $15,250 in license fees
and royalties pursuant to the sublicense agreement. In addition, during fiscal
1996, Viga advanced the Company $193,000, and the Company advanced Viga $23,628
in separate transactions. All of such advances were interest free and were
repaid by September 30, 1996.
The Company entered into a consulting agreement with "TBA," a
minority stockholder of the Company. David Durgin, a director of the Company is
the founder, a director and executive officer of TBA. The Company received
executive and marketing consulting services and marketing support services from
TBA. During 1996, the Company paid $51,326 to TBA under the agreement, which
expired on September 30, 1996.
The Company entered into a consulting agreement with Quatro, a
minority stockholder of the Company, pursuant to which Quatro provided
accounting services, financial and business support, as well as executive,
marketing and manufacturing consulting services to the Company. David Durgin a
director of the Company, is also a stockholder, director and executive officer
of Quatro. During fiscal 1997 and 1996, the Company paid $19,324 and $33,564,
respectively, to Quatro for these services. This agreement expired on September
30, 1997 and restricts Quatro from competing with the Company until September
30, 1998.
In connection with his employment with the Company in September
1997, Mr. Harless purchased 11,513 shares of Common Stock for a purchase price
of $7.60 per share, or an aggregate of $87,500. Mr. Harless borrowed the
purchase price for such shares from the Company and issued a non-interest
bearing promissory note to the Company. The loan is secured by a pledge of such
shares, and any proceeds received by Mr. Harless upon the disposition of any
securities owned by him must be remitted to the Company to repay such loan. Mr.
Harless has agreed to pay such loan by May 15, 1999.
Pursuant to his employment agreement, in connection with the CRI
Agreement, Mr. Harless received options to purchase 197,369 shares of Common
Stock at an exercise price of $7.60 per share. Additionally, in connection with
the CRI transactions, Mr. Harless received a payment of approximately $176,000
and Messrs. Gangi and Clark each received payments of approximately $172,000.
Pursuant to their employment agreements, Messrs. Gangi, Clark and
Harless each have the right to receive five-year loans from the Company in the
amounts of $150,000, $75,000 and $75,000, respectively, in connection with
their relocation to New Mexico. The loans bear interest at the rate of 5% per
annum and are secured by the pledge of vested stock options having a value
equal to the principal amount of the loan. Messrs. Gangi and Clark received
such loans in December 1998 and January 1999, respectively.
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Additionally, for prior and continuing services rendered to the
Company, each of Messrs. Durgin, Masi and Huberman, directors of the Company,
received options to purchase 5,000 shares of Common Stock upon the closing of
the Company's initial public offering exercisable after one year at an exercise
price of $7.50 per share. The options received by Messrs. Durgin and Huberman
expired upon their resignations from the Board of Directors.
The Company believes that the transactions between the Company and
its officers, directors and employees described above are on terms no less
favorable to the Company than could have been obtained from unaffiliated
parties under similar circumstances.
From its inception, the Company has maintained and it intends to
continue to maintain at least two independent directors on its Board of
Directors. In this regard, the Company is in the process of interviewing
qualified nominees to the Board of Directors to fill the vacancies created by
the resignations of Messrs. Durgin and Huberman. In connection therewith, any
and all material transactions, including material loans with officers,
directors, stockholders holding greater than 5% of the outstanding shares or
affiliates, have been ratified and/or approved and, in the future, will be
ratified and/or approved by a majority of independent directors who do not have
an interest in the transactions, and will be on terms which are at least as
favorable to the issuer as those that can be obtained by unaffiliated third
parties, and all such transactions shall be entered into by the Company for a
bona fide purpose. Such independent directors will have full access, at the
Company's expense, to the Company's counsel or other independent counsel in
connection with such ratification or approval of any transaction.
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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 authorized.
MUSE TECHNOLOGIES INC.
By: /s/ Curtiz J. Gangi
-------------------------------
Curtiz J. Gangi, President
POWER OF ATTORNEY
Each of the undersigned hereby appoints Curtiz J. Gangi, as his
attorney-in-fact to sign his name, in any and all capacities, to any amendments
to this Form 10KSB and any other documents filed in connection therewith to be
filed with the Securities and Exchange Commission.
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: January 27, 1999 /s/ Curtiz J. Gangi
-----------------------------------
Curtiz, J. Gangi, Principal
Executive Officer, President and
Director
Date: January 27, 1999 /s/ Creve Maples
-----------------------------------
Creve Maples, Chief Technical
Officer and Director
Date: January 27, 1999 /s/ Edward Masi
-----------------------------------
Edward Masi, Director
Date: January 27, 1999 /s/ Brian Clark
-----------------------------------
Brian Clark, Chief Financial
Officer, (principal financial and
accounting officer), Treasurer and
Secretary
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