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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
VISCORP
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Nevada 88-0101953
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(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
111 North Canal Street, Suite 933 60606
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Chicago, Illinois (Zip Code)
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(Address of principal executive offices)
Issuer's telephone number, (312) 655-0903
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which each
to be so registered class is to be registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.01 par value
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(Title of class)
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(Title of class)
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AN INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER THE RISK FACTORS INVOLVED IN
AN INVESTMENT IN THE COMPANY, INCLUDING THE FOLLOWING: (A) THAT THE COMPANY
IS A DEVELOPMENT STAGE COMPANY THAT HAS GENERATED NO CASH REVENUES SINCE ITS
INCEPTION, (B) THE COMPANY'S HISTORY OF LOSSES, (C) THAT THE COMPANY
CURRENTLY IS INSOLVENT AND COULD BE THE SUBJECT OF BANKRUPTCY PROCEEDINGS;
(D) DOUBT AS TO WHETHER THE COMPANY CAN CONTINUE AS A GOING CONCERN, (E)
INTENSE COMPETITION IN THE INDUSTRY IN WHICH THE COMPANY OPERATES, (F)
VOLATILITY OF THE COMPANY'S STOCK PRICE AND (F) THE UNCERTAINTY OF FUTURE
FUNDING. PROSPECTIVE INVESTORS SHOULD CAREFULLY READ EACH SECTION OF THIS
REGISTRATION STATEMENT WHICH CONTAIN THESE AND OTHER RISK FACTORS.
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ITEM 1. BUSINESS.
GENERAL
Visual Information Service Corp. ("VISC") was incorporated in Illinois in
May, 1990 and was founded to develop an electronic device capable of adding
modem, video data and telephone features to an ordinary television receiver
over a telephone line. The Company is seeking to take advantage of current
and future worldwide interest in networked interactivity by introducing a
series of affordable products and services that connect the standard
television set and the telephone so that interactivity (and especially the
Internet) can become a truly mass-market phenomenon. On November 28, 1995,
VISC merged into Global Telephone and Communications, Inc. ("GTCI"). GTCI
was incorporated in Nevada on May 30, 1984. The planned operation of GTCI
was to provide consulting services for the public and private sectors. At
the time of the merger, GTCI was a shell company and not operating as a going
concern. To the Company's knowledge, GTCI never operated as a consultant nor
carried on any type of business at any time prior to the merger. The merger
was consummated because the common stock of GTCI traded on the Nasdaq
Bulletin Board, and thus, the merger provided VISC an entity which already
had a public presence. Pursuant to the merger each share of common stock of
VISC was exchanged for four shares of common stock of GTCI. Following the
merger, GTCI changed its name to Viscorp. As used herein, the Company refers
to Viscorp and its subsidiary VISC.
The Company continues to be in the development phase of operation. The
Company is developing two products -- the Universal Internet Television
Interface ("UITI") and the Electronic Device ("ED"). The Company's design
team has performed extensive research and development in connection with
these two products, including: the manufacture and implementation of
industrial and mechanical designs for the products' casing and remote control
devices, the creation of electrical designs and programmable logic, as well
as the development of new operating systems and enhancements to existing
operating systems (i.e., Amiga) to accommodate applications software. The
long range target of the Company's research and development efforts is to
create a custom chip and software component to target television
manufacturers, telephone companies and cable television companies. The
Company is also engaged in initial marketing efforts with original equipment
manufacturers ("OEMs") to incorporate the Company's technology into the OEM's
products, and with multi-level marketing groups (such as Quorom, an Arizona
company that offers marketing and sales assistance for manufacturers of
"high-end" electronic products) to discuss the marketing potential of the
UITI and the ED. Although the Company is continuing its marketing efforts,
the Company has not yet entered into any contracts with OEMs or marketing
groups in connection with its products. Since 1990,
(2)
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the Company has generated losses as a result of significant expenditures on
research and development and substantial overhead expenses.
The Company has generated losses since its inception in May, 1990 and
currently cannot generate sufficient revenues and cash flow from operations to
meet its business obligations. The Company currently is insolvent and could be
the subject of bankruptcy proceedings unless it obtains additional capital. In
prior years, the Company was able to raise capital by issuing its Common Stock
in private placements. The Company's future operations are predicated on
raising additional capital in debt or equity markets. Any implementation of the
commercialization of the UITI and the ED is dependent on obtaining additional
financing that is necessary to achieve a level of sales adequate to support the
Company's operations. In December, 1996, the Company entered into an agreement
with a placement agent, Wincap, Ltd., for a private offering (the "Offering") of
the Company's 8% Cumulative Convertible Preferred Stock, $0.01 par value per
share (the "8% Preferred Stock"). The Company is offering a minimum of
2,000,000 and a maximum of 6,666,667 shares of the 8% Preferred Stock for
consideration of between $3,000,000 and $10,000,000. This offering will not
close unless the minimum offering of 2,000,000 shares has been sold. The
Company has not reached the minimum offering level as of this date. See "Item
10 -- Recent Sales of Unregistered Securities"
PRODUCTS
The UITI is a set top device which is designed to give the home
television viewer access to the Internet, World Wide Web and other on-line
services. The ED is an enhanced set top device which, in addition to on-line
services, will feature capabilities such as telephone reception and dial-up,
facsimile, pay-per-view options and electronic mail. The UITI and the ED are
designed to be placed next to or on top of a standard television set and
connect directly to a telephone jack either through a conventional telephone
wire or through wireless radio frequency connectivity. Through the use of
specifically configured fonts, the television set presents text and graphics
that can be viewed at normal television viewing distances. The UITI and the
ED are equipped with a modem, video and audio circuitry, and a controller.
Extensive functions may also be controlled with an enhanced remote control,
currently being developed by the Company's engineers. The commodities which
constitute the raw materials for the UITI and the ED presently are either
available on the open market, or are available from select suppliers.
Negotiations currently are taking place between the Company and various other
entities in order for the Company to acquire the materials necessary to
produce the housing of the UITI and the ED boxes, and for the remote control
casing.
The UITI is a very similar product to the device currently being marketed
as "WEB-TV". The UITI is strictly an internet access device using the
customer's television set and phone line. Although the UITI technology is
similar to WEB-TV technology, the Company intends to market the UITI
technology differently. In addition to producing a set-top device, the
Company is seeking to license the UITI technology to OEMs to be built into a
television set, making the separate set-top device optional. The Company
began negotiations with various OEMs in May, 1996 but no contracts have yet
been entered into with any such OEMs. The ED incorporates the features of
the UITI and adds many features not available with WEB-TV. Some of these
include: the ability (i) to make and receive telephone calls through the
television set, (ii) to display "caller-id" information on the television
screen, (iii) to send facsimile, and (iv) to function as a television tuner.
As with the UITI, the Company is seeking to license the ED technology to OEMs
to be built into a television set, making the separate set-top device
optional.
The Company believes that recently introduced products, such as WEB-TV, are
creating market awareness and may help consumers understand such products.
However, late entry into the interactive television market could result in lost
sales opportunities for the Company and difficulty with brand recognition once
the Company's products are introduced. In addition, the Company may not have
adequate financial resources to successfully bring its products to the
marketplace. See "Item 1 -- Business-General" and "Item 2 -- Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
In April, 1996, the Company entered into an agreement with Solectron France
S.A., a US-based manufacturing company listed on the New York Stock Exchange
("Solectron"), pursuant to which Solectron produced the first 30 prototypes of
the UITI at Solectron's facilities in France. The agreement expired when
Solectron's design participation was completed upon the delivery of the UITI
prototypes to the Company in September of 1996. The total service price for the
contract was 231,000 French francs (taxes excluded). The approximate U.S. value
(3)
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of this contract is $56,000. Although the contract price was stated in
French francs, Solectron continually has billed and the Company continually
has made all payments in United States currency. Approximately $12,000
remains as an outstanding balance due Solectron pursuant to this agreement.
The Company anticipates payment being made from working capital as soon as
further capitalization is secured. Solectron's manufacturing expertise in
collaboration with the Company's design techniques produced the working
prototypes of the UITI. The Company expects the UITI product to be fully
operational and deliverable to the marketplace by mid-1997.
The Company conducted a field test of a preliminary prototype of the ED
with Booth Communications, a cable television system operator based in
Birmingham, Michigan. The ED was placed in the homes of approximately twenty
cable subscribers and connected to the existing cable set-top box to provide
access to the Internet, CompuServe and other services, including facsimile,
TV-based speaker phone, caller ID and pay-per-view ordering. Sigma Research
Management Group, an independent market-research firm, conducted a series of
quantitative and qualitative studies (including focus groups) of the
participating cable subscribers. The trial lasted approximately six months and
was concluded in March, 1996. The study revealed that some functions provided
by the ED may require redesign, changes to the feature array and expansion of
capability. Technical and market-research results from this trial have been
incorporated into the Company's revised prototype designs of the UITI and the
ED. The Company has not yet fully completed the development of the UITI and the
ED devices. Final design and testing of both hardware and software to be used
with these products is ongoing. There are several companies who have the
ability to build the products. The Company has entered into preliminary
discussions with some, including Solectron in France. The products will
ultimately be built in several locations, depending on various factors
including: destination of the products and whether the products are a stand
alone set-top box or built into a television set. If the latter were the case,
the products would be constructed by OEMs.
The Company expects the ED product to be fully operational and deliverable
to the marketplace by late-1997. The ED accesses information available from
computer sites, which is transmitted over lines provided by telephone and cable
companies, and is displayed on the television screen. The Company must rely
upon third parties to provide the foregoing signal transmission mechanisms.
However, cable companies have begun the process of installing cable lines
capable of supporting the ED system, in response to market forces calling for
the improvement of antedated cable equipment. Therefore, the Company need not
enter into any material alliances or collaborations in this regard. Although
there are no statistics available as to the actual number of cable systems so
equipped, the installation of data delivery systems within cable television
systems appears to be proceeding at a slower pace than originally anticipated.
However, both the UITI and the ED can be configured to receive all necessary
data over ordinary telephone lines.
Although the field test demonstrated the functionality of the Company's
products, there is no assurance that the Company will be able to successfully
manufacture or market the UITI and/or the ED.
PATENTS
The Company owns several patents covering the features of the UITI and the
ED, which expire commencing on March 7, 2012, assuming all maintenance fees are
paid. The Company
(4)
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relies on patents to protect its proprietary rights. The Company's success
will depend in part on its ability to obtain patent protection for its
products and to operate without infringing on the patent or other proprietary
rights of others. There can be no assurance that patent applications filed
by the Company will result in the issuance of patents of the scope and
breadth of those previously granted to the Company or that any patents now or
hereafter owned by the Company will afford protection against competitors
which develop similar technology or provide products with competitive
advantages to those designed by the Company. In addition, there can be no
assurance that any patents issued to the Company will be held valid if
subsequently challenged or that others will not claim rights in the patents
and other proprietary technology without violating any of the Company's
proprietary rights. The Company has been involved in legal proceedings with
regard to certain of its intellectual property rights. See "Item 8 -- Legal
Proceedings." There can be no assurance that others will not independently
develop similar products, duplicate the Company's products or design products
that circumvent any patents used by the Company. Patent enforcement is
expensive, and the Company may not have the resources to pursue such
protection. In the absence of patent protection, the Company's business may
be adversely affected by competitors who independently develop substantially
equivalent or superior technology.
LICENSES
In December 1995, the Company entered into an agreement with Amiga
Technologies GmbH, a German company ("Amiga"), for a nonexclusive,
nontransferable license to the Amiga computer operating system technology.
The initial term of the agreement expires December 26, 1998. Unless
terminated, in accordance with the terms of the agreement, the agreement is
renewable for subsequent three-year periods at the licensee's option. For a
detailed discussion of potential implications due to the bankruptcy of Amiga,
see "Other Material Agreements." In January 1996, the Company paid an
initial royalty deposit of $450,000 to Amiga. The Company is required to pay
usage royalties as defined in the agreement. To date, no usuage royalties
have been paid by the Company and therefore the $450,000 deposit remains
unchanged. However, because Amiga is in bankruptcy, the Company has
determined that this amount is not recoverable. The agreement provides that
the Company may sublicense its rights under the license for others to perform
any licensed acts for the Company. The Company intends to use the Amiga
operating system and chip sets in producing the UITI and the ED and also
intends to sublicense the Amiga technology to others. The Company believes
the Amiga operating system will enhance the operational capacity of the UITI
and the ED. The Company has produced a prototype of the base board utilizing
the Amiga operating system and chip sets which boards will be used to produce
the UITI and the ED which currently is in the process of being tested.
In December 1994, the Company entered into a license agreement with NTN
Communications, Inc. ("NTN"). The initial term of the agreement expires
December 31, 2001. Unless terminated, in accordance with the terms of the
agreement, the agreement will be extended for a period of seven years. The
agreement provides the Company with a nonexclusive worldwide license to
promote, market and develop an on-line computer service, which will be
provided by NTN, for use with the Company's products. The technology of this
service provides two-way interactive computerized games that are broadcast to
multiple locations, can be played by multiple participants at each location
and enables the retrieval and processing of data entered by the participants.
The Company is required to pay usage royalties as defined in the agreement.
The Company agreed to pay NTN $250,000 upon signing the agreement. To date,
the Company has paid $200,000 of this amount, with $50,000 having been due to
NTN on December 31, 1996. NTN has granted the Company an extension for the
payment of this amount which expires on March 31, 1997. The use of this
license has not yet generated any revenues for the Company.
(5)
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In January 1995, the Company entered into a license agreement with
Digital Sciences, Inc. ("Digital") to license the ED technology and services.
The agreement with Digital ("Digital Agreement") granted to Digital an
exclusive license to use the ED technology and services solely in the health
care industry in the United States and Canada for a period of ten years. On
February 27, 1995, the Company received an initial license fee payable in the
form of 250,000 shares of Digital stock valued at $2.50 per share, for a
total value of $629,688, which amount reflected a 35% discount from the
trading price of $3.875 per share or $968,750 because the shares were
restricted (the "Digital Stock"). Pursuant to a merger in April 1996, each
share of Digital Stock was converted to one share of stock of Intelligent
Decisions Systems, Inc. ("IDSI"). In November 1996, the Company transferred
all of its shares of IDSI stock to an individual in exchange for the
cancellation of a loan of $500,000 made by such individual to the Company in
October 1996. The $500,000 loan was a demand loan which bore no interest.
When the individual requested repayment, the Company negotiated a transaction
whereby the 250,000 shares of IDSI stock would be transferred to the
individual in repayment of the loan. The Company and this individual settled
on a $2.00 per share valuation on the stock because the price of the IDSI
stock which is traded on the Nasdaq Bulletin Board was fluctuating between
$1.375 and $2.19 during the period when the stock was transferred. In
addition to the initial license fee, Digital is obligated to pay additional
license fees based on a percentage of gross revenues derived from the use of
the ED technology and services. The Company did not receive any additional
license fees from Digital in 1995, other than the initial license fee, and
there is no assurance that the Digital Agreement will generate additional
license fees in the future.
OTHER MATERIAL AGREEMENTS
On July 18, 1996, the Company entered into an agreement with Amiga
(the "Amiga Agreement") to acquire certain assets of Amiga (the "Amiga Assets").
The Amiga Assets would be acquired by the Company from the bankruptcy estate of
Escom Beteiligungs GmbH (a former manufacturer and distributor of IBM compatible
computers throughout Europe) (the "bankruptcy estate of Escom").
(6)
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The Amiga Agreement was cancelled during the beginning of the fourth
quarter of 1996 because the Company was unable to secure the necessary
financing to consummate the transaction. No new agreement has been entered
into between the Company and Amiga. Although the Amiga Agreement was
cancelled, the Company intends to continue its use of the Amiga computer
operating system in accordance with the provisions of its December, 1995
licensing agreement with Amiga. If it is determined that the Company's
licensing agreement with Amiga is unenforceable because Amiga currently is
the subject of German bankruptcy proceedings, the Company intends to (i) seek
to enter into a new licensing agreement with any subsequent purchaser of
Amiga with respect to the intellectual property or (ii) to acquire the Amiga
portfolio of intellectual property in the open market. However, any
acquisition of the Amiga portfolio of intellectual property in the open
market will be dependent on obtaining additional financing in debt or equity
markets. The Company does not intend to finance any of the Amiga related
objectives with the proceeds, if any, of the sale of the 8% Preferred Stock.
COMPETITION
The Company faces intense competition within the interactive television
("ITV") industry, an industry in the midst of a period of significant
volatility due to the convergence of computing, telephony and television.
Currently, there are many companies developing, in various stages, systems
similar to the Company's products. Products or procedures may become
commercially available that are competitive with the Company's products.
Most of the Company's competitors have substantially longer operating
histories and substantially greater financial and managerial experience and
resources. However, the Company does not believe that any of these companies
currently are developing products with the same set of performance
capabilities the Company expects to develop with its products. The company
intends to have discussions with many OEMS with the intent of licensing the
UITI and the ED technology to be built into new television sets. The Company
believes that this is one of the features of their products that gives it a
competitive advantage. Currently most other planned and existing similar
products (i.e. WEB-TV) are set top devices and are not being licensed to OEMs.
The UITI is a very similar product to the device currently being marketed
as "WEB-TV". The UITI is strictly an internet access device using the
customer's television set and phone line. Although the UITI technology is
similar to WEB-TV technology, the Company intends to market the UITI
technology differently. In addition to producing a set-top device, the
Company is seeking to license the UITI technology to OEMs to be built into a
television set, making the separate set-top device optional. As of this date,
the Company has not entered into any contracts or agreements with OEMs, and
does not know if any of its competitors have entered into such agreements
with the exception of Interactive Video Publishing, Inc. ("IVP"). IVP entered
into a license agreement with Curtis Mathis Holding Inc. ("Curtis") in April,
1996 which purported to incorporate the Company's technology into television
sets produced by Curtis. The Company filed a lawsuit against IVP and three
of its employees in July, 1996 and received a preliminary injunction against
IVP's used of the Company's technology in December, 1996. See "Item 8 --
Legal Proceedings". The ED incorporates the features of the UITI and adds
many features not available with WEB-TV. Some of these include: the ability
to (i) make and receive telephone calls through the television set, (ii) to
display "caller-id" information on the television screen, (iii) to send
facsimile, and (iv) to function as a television tuner. As with the UITI, the
Company is seeking to license the ED technology to OEMs to be built into a
television set, making the separate set-top device optional.
Competitors for the Company include the following: (i) television
manufacturers such as Sony Electronics Corp. and Philips Consumer Electronics
Co. -- often working in conjunction with computer companies -- that have
introduced Internet-access set-top devices such as WEB-TV and/or "smart"
interactive TV sets; (ii) computer companies such as Oracle Corp., IBM Corp.,
Sun Microsystems Inc., Netscape Communications Corp. and Apple Computer Inc.
who have announced plans to develop "network computers", which are
stripped-down devices to be used in place of an expensive home personal
computer system to provide
(7)
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access to the Internet and e-mail; (iii) video game companies such as Sega
Genesis, Sony Electronics Corp. and Philips Consumer Electronics Co. that plan
to enhance their game machines with Internet access and on-line capabilities;
(iv) cable television set-top device manufacturers such as General Instrument
and Scientific Atlanta that are enhancing the overall performance capabilities
of their current analog and newer all-digital converter boxes; and (v)
independent companies like the Company.
The Company believes that recently introduced products, such as WEB-TV, are
creating market awareness and may help consumers understand such products.
However, late entry into the interactive television market could result in lost
sales opportunities for the Company and difficulty with brand recognition once
the Companies' products are introduced. In addition, the Company may not have
adequate financial resources to successfully bring its products to the
marketplace. See "Item 1 -- Business-General" and "Item 2 -- Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
EMPLOYEES
In addition to its officers, the Company has five employees in its office
in Chicago. The Company also routinely utilizes the services of consultants.
(8)
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ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements, related notes and other information included in this
Memorandum (See "Exhibit A - Financial Statements of the Company"). The
statement of operations data set forth below for each of the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 are derived from the financial
statements of the Company, all of which, except for the statement of operations
for 1991, have been audited by Blackman Kallick Bartelstein, LLP, independent
auditors. The selected financial data for the nine months ended September 30,
1995 and 1996 and the statement of operations data for the year ended December
31, 1991 are unaudited and include, in the opinion of the Company, all
adjustments, consisting of only normal recurring accruals, that the Company
considers necessary for a fair presentation of its results for such periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
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1991 1992 1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Income . . . . . . . . . . . . . 0 0 0 0 (629,688)(1) (629,688)(1) 0
Operating Expenses
Research and development . . . 75,592 199,924 622,428 701,460 1,134,262 652,641 1,124,236
Travel and entertainment . . . 11,633 53,233 122,840 194,162 620,012 442,330 355,738
Legal fees . . . . . . . . . . 34,553 66,078 150,133 28,508 552,109 264,217 665,750
Consulting . . . . . . . . . . 6,678 39,711 17,789 73,786 353,915 333,175 312,934
Other general and
administrative including
salaries . . . . . . . . . . 117,357 239,085 335,170 316,448 562,191 331,594 741,619
---------- ---------- ---------- ---------- ----------- ------------ ----------
Total Operating Expenses . . 245,813 598,031 1,248,360 1,314,364 3,222,489 2,023,957 3,180,277
Operating Losses . . . . . . . . 245,813 598,031 1,248,360 1,314,364 2,592,801 1,394,269 3,180,277
Other expense (income)
Interest expense - other
(stockholder debt) . . . . . 32,380 67,552 109,429 2,910 0 17,126
Interest expense - other . . . 0 0 0 0 1,103 0 0
Interest income. . . . . . . . 0 0 0 (4,095) (8,761) (1,693) (6,321)
Loss on disposal of
equipment. . . . . . . . . . 0 0 2,817 757 0 0 0
---------- ---------- ---------- ---------- ----------- ------------ ----------
Net loss . . . . . . . . . . 278,193 665,583 1,360,606 1,311,026 2,588,053 1,392,576 3,191,082
</TABLE>
(9)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
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1991 1992 1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
Average shares outstanding . . . 982,000 982,000 7,104,092 11,775,976 17,190,915 16,042,308 21,595,781
Loss per share . . . . . . . . .28 .68 .19 .11 .15 .08 .15
BALANCE SHEET DATA
Total assets . . . . . . . . . . 46,246 29,492 16,982 664,328 1,258,853 822,748 1,060,055
Total liabilities. . . . . . . . 424,807 1,073,636 1,622,532 170,576 552,217 910,058 2,264,488
Shareholders equity (deficit). . (378,561) (1,044,144) (1,605,550) 493,752 706,636 (87,310) (1,204,433)
</TABLE>
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(1) Represents the estimated market value of the 250,000 shares of Digital
received by the Company as the initial license fee under the Digital
License Agreement. See "Business - Licenses".
(10)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The information in this section should be read together with the
consolidated financial statements and notes thereto that are included elsewhere
in this Registration Statement.
The Company has incurred net losses in its last three fiscal years.
Moreover, there can be no assurance that the ED or the UITI will ever generate
significant revenues, will generate any revenues or that they will do so in the
time periods estimated by the Company. There can be no assurance that any of
the Company's products will be introduced or marketed successfully, or that the
Company will ever achieve a profitable level of operations or, if profitability
is achieved, that it can be sustained.
The Company's auditors have included an explanatory paragraph in their
report with respect to the Company's financial statements included herein which
states that the Company cannot currently generate sufficient revenues and cash
flow from operations to meet its business obligations and, therefore, future
operations are predicated on raising additional capital in debt or equity
markets.
The Company and two directors, Jerome Greenberg and Roger Remillard, and
a former director, William Buck, are defendants in a lawsuit filed by a
former employee, Nolan Bushnell. This lawsuit currently is being tried in
the United States District Court for the Northern District of California.
The second amended complaint dated April 30, 1996 alleges multiple claims
including breach of fiduciary duty, breach of oral agreement, wrongful
termination of employment, interference with contract, breach of employment
agreement and fraudulent misrepresentation, all arising out of the
plaintiff's employment over a period of 2 1/2 months as the Company's
President, the termination of his employment and the aborted negotiations for
a proposed merger between the Company and the plaintiff's company. Damages
claimed are in excess of $10 million for failure to transfer approximately
four million shares of the Company's stock allegedly promised to the
plaintiff, salary and expenses arising out of his employment relationship and
punitive damages. The dollar amount of damages claimed is dependent upon the
current per share price of the Company's stock. The Company's first summary
adjudication motion, challenging the plaintiff's claim for failure to
transfer approximately four million shares of Company stock, was granted by
the District Court on August 29, 1996, thus precluding the plaintiff from
recovering any shares of stock from the Company. Although this claim has
been dismissed, the plaintiff filed a motion for reconsideration, which was
heard by the District Court on October 11, 1996. On December 6, 1996, the
District Court denied the plaintiff's motion for reconsideration. The Company
filed a summary adjudication motion against the plaintiff on all his
remaining claims, which also was heard by the District Court on October 11,
1996. On December 6, 1996, the Court granted the Company's summary
adjudication motion and dismissed all of the plaintiff's remaining claims.
It remains possible that the summary adjudication orders could be overturned
on appeal. Should the orders be overturned, and should the plaintiff prevail
on these claims, the Company may be materially adversely affected by the
outcome.
(11)
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The Company filed a lawsuit against three individuals formerly associated
with the Company, David Serlin, Steve Owens and Kaori Kuwata, and the
corporation which currently employs each of the foregoing individuals,
Interactive Video Publishing, Inc., on July 25, 1996 in the United States
District Court for the Northern District of California. The Company's complaint
alleges misappropriation of trade secrets, conversion and breach of fiduciary
duty arising out of the individual defendants' previous confidential
relationships with the Company, access to proprietary information including the
technology, hardware design, software, parts selection, feature set and
architecture of the ED technology and subsequent transmittal of this proprietary
information to the defendant corporation for its beneficial use. The Company is
seeking declaratory and injunctive relief, as well as monetary damages. The
defendants filed various counterclaims against the Company on September 13, 1995
alleging intentional interference with economic advantage, intentional
interference with contractual relations and unfair competition arising out of
the same set of occurrences. The defendants are seeking damages for lost
profits, injury to business reputation, diminution of value of proprietary data,
loss of customers and loss of investments. In addition, the defendants are
seeking a declaratory judgment of no misappropriation of trade secrets,
injunctive relief and punitive damages.
The Company has filed a motion for a preliminary injunction, which motion
was heard by the District Court on October 25, 1996. On December 4, 1996, the
District Court granted the Company's motion and issued a preliminary injunction
against the defendants. The injunction enjoins the defendants, during the
pendency of the action, from using any of the Company's trade secrets or
technology. Because the lawsuit is still in the discovery stage, it is not
possible to determine the probable likelihood of an adverse ruling on the
defendants' counterclaims. However, if the defendants succeeded on their
counterclaims, and were awarded significant monetary damages, and/or injunctive
or declaratory relief against the Company, the Company could be materially
adversely affected. The Company believes the allegations in the defendants'
counterclaims are without merit and intends to vigorously defend itself against
the actions.
An additional lawsuit was filed against the Company by David Serlin and
another individual formerly associated with Company, Marvin Lerch, on December
20, 1996 in the United States District Court for the Northern District of
California. The complaint alleges multiple claims including breach of contract,
fraud, negligent misrepresentation, breach of fiduciary duty, wrongful
termination and conversion, all arising out of the plaintiffs' employment with
the Company during 1995. Damages claimed are for failure to transfer 400,000
shares of the Company's stock and 284,000 options to purchase the Company's
stock allegedly promised to each of the plaintiffs, lost profits and business
opportunities arising out of the employment relationships and punitive damages.
The dollar amount of damages claimed is dependent upon the current per share
price of the Company's stock.
(12)
<PAGE>
Because the lawsuit has not yet reached the discovery stage, it is not
possible to determine the probable likelihood of an adverse ruling on the
plaintiffs' claims. However, if the plaintiffs succeeded on their claims, and
were awarded significant monetary damages against the Company, the Company could
be materially adversely affected. Although the Company has not had enough time
to respond to the complaint, the Company intends to vigorously defend itself
against the action.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
The Company had no license income in the first nine months of fiscal 1996
compared to $629,688 in the first nine months of fiscal 1995. The $629,688
represented the value of the 250,000 shares of Digital stock received by the
Company as an initial license fee pursuant to the Digital Agreement in 1995.
Research and Development Expenses increased to $1,124,236 for the first
nine months of 1996 from $652,641 for the first nine months of fiscal 1995, an
increase of $471,595. This increase was due to the increased activity relating
to the production of a prototype of the ED, hiring additional engineers and
amortization of Amiga licence agreement prepaid royalties.
Travel and entertainment expenses decreased to $335,738 for the first nine
months of fiscal 1996 from $442,330 for the first nine months of fiscal 1995, a
decrease of $106,592. The decrease was due to the reduction in travel by
executive officers in connection with work relating to the Company's patents.
Legal fees increased to $665,750 for the first nine months of fiscal 1996
from $264,217 for the first nine months of fiscal 1995, an increase of $401,533.
This increase was due to increased activity relating to the Bushnell litigation
and Serlin litigation.
Other general and administrative expenses increased to $741,619 for the
first nine months of 1996 from $331,594 for the first nine months of 1995, an
increase of $410,025. This increase was due to preparation and production of
marketing and advertising materials and to the relocation of the Company into
larger office facilities and hiring additional employees.
1995 COMPARED TO 1994.
License income for 1995 was $629,688 which represented the value of 250,000
shares of Digital stock issued to the Company in payment of an initial license
fee pursuant to the Digital Agreement. The value of the stock of Digital
received by the Company reflected a discount from the trading price because the
stock was restricted.
(13)
<PAGE>
Research and Development Expenses increased to $1,134,262 for fiscal 1995
from $701,460 for fiscal 1994, an increase of $432,802. This increase was due
to: (i) costs related to the field test of the ED with Booth Communications;
(ii) additional costs related to the continuing development of the printed
circuit layout for the base board, including fees for engineers and consultants;
and (iii) costs of producing design and mechanical drawings for manufacturers of
the prototypes of the UITI and the ED.
Travel and Entertainment Expenses increased to $620,012 for fiscal 1995
from $194,162 for fiscal 1994, an increase of $425,850. Because the Company was
successful in developing a prototype of the UITI and the ED during 1995, the
Company significantly increased its marketing efforts to develop relationships
with companies to manufacture and distribute the Company's products and to raise
additional equity financing.
Legal fees increased to $552,109 for fiscal 1995 from $28,908 for fiscal
1994, an increase of $523,201. This increase was due to: (i) legal fees
related to a lawsuit filed against the Company in December 1994 by a former
director and officer of the Company; (ii) legal fees related to the merger of
VISC and GTCI; and (iii) legal fees related to the negotiation and documentation
of the license agreements with Amiga and Digital.
Consulting fees for consultants other than engineers increased to $353,915
for fiscal 1995 from $73,786 for fiscal 1994, an increase of $280,129. This
increase was primarily due to the consulting fees associated with the
formulation of the Company's business plan in 1995.
Other general and administrative expenses increased to $562,191 for fiscal
1995 from $316,448 for fiscal 1994, an increase of $245,743. This increase was
primarily due to the increased salaries resulting from the hiring of additional
personnel, directors fees paid to the Chairman and printing costs associated
with the preparation of the Company's business plan.
1994 COMPARED TO 1993.
Research and Development Expenses increased to $701,460 for fiscal 1994
from $622,428 for fiscal 1993, an increase of $79,032. This increase was due to
a general increase in activity of the Company in the continuing developing of
its products.
Travel and Entertainment Expenses increased to $194,162 for fiscal 1994
from $122,840 for fiscal 1993, an increase of $71,322. The increase reflects
increased marketing efforts to develop relationships with companies to
manufacture and distribute the Company's products.
Legal fees decreased to $28,908 for fiscal 1994 from $150,133 for fiscal
1993, a decrease of $121,225. This decrease was primarily due to capitalizing
legal expenses in connection with the Company's patents.
Consulting fees for consultants (other than engineers) increased to $73,786
for fiscal 1994 from $17,789 for fiscal 1993, an increase of $55,997. This
increase was due to the increase in the number of consultants retained in 1994.
(14)
<PAGE>
The Company had no interest expense for fiscal 1994 compared to $109,429 in
fiscal 1993. Such amount represented interest accrued on a loan by Jerome
Greenberg to the Company, which loan was exchanged for common stock in November
1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated losses since its inception in May, 1990 and
cannot currently generate sufficient revenues and cash flow from operations to
meet its business obligations. In July, 1996, the Company entered into a
purchase agreement with Amiga to acquire the Amiga Assets for a purchase price
of $20 million less certain administrative costs. However, the Amiga Agreement
was cancelled during the beginning of the fourth quarter of 1996 because the
Company was unable to secure the necessary financing to consummate the
transaction. Although the Amiga Agreement was cancelled, the Company intends to
continue its use of the Amiga computer operating system in accordance with the
provisions of its December, 1995 licensing agreement with Amiga. If it is
determined that the Company's licensing agreement with Amiga is unenforceable
because Amiga currently is the subject of German bankruptcy proceedings, the
Company intends to (i) seek to enter into a new licensing agreement with any
subsequent purchaser of Amiga with respect to the intellectual property or (ii)
to acquire the Amiga portfolio of intellectual property in the open market.
However, any acquisition of the Amiga portfolio of intellectual property in the
open market will be dependent on obtaining additional financing in debt or
equity markets. The Company does not intend to finace any of the Amiga
related objectives with the proceeds, if any, of the sale of the 8% Preferred
Stock.
In addition, the Company paid approximately $45,000 out of working
capital to Solectron through September, 1996, pursuant to the April 9, 1996
agreement with Solectron. The payment was made upon delivery of the 30 UITI
prototypes by Solectron. Approximately $12,000 remains as an outstanding
balance due Solectron pursuant to this agreement. The Company anticipates
payment being made from working capital as soon as further capitalization is
secured. Should the Company enter into further agreements with Solectron,
working capital will be used to pay for additional prototypes.
The Company anticipates no future need for any material capital
expenditures. Any future manufacturing or assembly projects will be
sub-contracted out, bypassing the need for any infrastructure investment. In
prior years, the Company was able to fund its operations through the issuance
of its Common Stock in transactions exempt under the Securities Act of 1933,
and through stockholder loans. Any implementation of the commercialization
of the UITI and the ED is dependent on obtaining additional financing that is
necessary to achieve a level of sales adequate to support the Company's
operations. The Company is insolvent and cannot currently generate
sufficient revenues and cash flow from operations to meet its business
obligations. Therefore, future operations are predicated on raising
additional capital in debt or equity markets. The Company has entered into an
agreement with a placement agent for a private offering of its shares of the 8%
Preferred Stock. See "Item 10--Recent Sales of Unregistered Securities."
(15)
<PAGE>
ITEM 3. PROPERTIES.
The Company currently leases its 3,100 square foot office facility pursuant
to a lease that expires on February 28, 1997. The annual base rent for this
facility is approximately $44,000. The Company believes that its facilities are
in good condition and adequate for its current operations.
(16)
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 20, 1997 by (a) each director and
executive officer of the Company, (b) each person known by the Company to own
beneficially five percent or more of the Common Stock and (c) all current
executive officers and directors as a group.
NUMBER OF
SHARES
DIRECTORS, OFFICERS AND BENEFICIALLY PERCENT OF COMMON
FIVE PERCENT STOCKHOLDERS OWNED STOCK OUTSTANDING
--------------------------------- ------------- -------------------
Jerome Greenberg(A).............. 6,658,000(1) 29
William H. Buck(B)............... 2,384,000(2) 10.4
Roger Remillard(A)............... 1,744,000(3) 7.6
Donald Gilbreath(C).............. 1,230,400(4) 5.4
Robert E. Reid................... 65,000(5) *
Mitchell J. Melamed.............. 40,000(5) *
David Rosen...................... 25,000(5) *
Hugh Jencks...................... 25,000(5) *
Robert Wussler................... 25,000(5) *
Thomas Glenndahl................. 25,000(5) *
All directors and officers as a
group (ten persons)............ 12,221,400 56.3
- - --------------------
* Less than one percent.
(A) The address for Messrs. Greenberg and Remillard is c/o VisCorp, III N.
Canal Street, Suite 933, Chicago, Illinois 60606.
(B) The address of Mr. Buck is II Bis Rue Du Dobropol, 75017, Paris France
(C) The Address of Mr. Gilbreath is 543 Powell Lane, Westchester, Pennsylvania
19380
(1) Includes 100,000 shares which may be acquired pursuant to the exercise of
vested stock options.
(2) Includes 384,000 shares which may be acquired pursuant to the exercise of
vested stock options.
(3) Includes 488,000 shares which may be acquired pursuant to the exercise of
vested stock options.
(4) Includes 230,400 shares which may be acquired pursuant to the exercise of
vested stock options.
(5) Represents shares which may be acquired pursuant to the exercise of
vested stock options.
(17)
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company as of December 18, 1996:
NAME AGE POSITION
---- --- --------
Jerome Greenberg......... 70 Chairman of the Board of Directors,
Vice President
Treasurer and Director
Lawrence D. Siegel....... 48 Interim President
Roger Remillard.......... 47 Vice President - Technology and a
Director
Donald Gilbreath......... 38 Vice President - Engineering
David Rosen.............. 56 Vice President - Marketing
Hugh A. Jencks........... 52 Vice President
Mitchell J. Melamed...... 52 Secretary
Robert J. Wussler........ 59 Director
Robert E. Reid........... 77 Director
Thomas Glenndahl......... 50 Director
JEROME GREENBERG. Mr. Greenberg is a co-founder and major shareholder of
the Company and has been the Chairman and Treasurer from its inception in
May, 1990 and a Vice President since December 1996. From 1982 and 1989 he
was the principal shareholder and President of Leader Communications Inc.
("Leader"), a Chicago-based cellular phone and two-way radio company. In
1989, Mr. Greenberg sold Leader to Fleet Call, Inc., which subsequently
changed its name to NextTel. Mr. Greenberg is also the President of Hampden
Green Management Corporation, a private real estate management and
development company, which is not an active entity at this time.
LAWRENCE D. SIEGEL. Mr. Siegel was appointed to assume temporarily the
duties previously performed by Mr. Buck who resigned all positions from the
Company on January 8, 1997. The Board appointed Mr. Siegel to serve in such
capacity for a period of two months beginning January 22, 1997. From 1994 to
the present, Mr. Siegel has been the President of Yellow Pearl, Inc., a software
company founded by him in 1994. From 1992 to 1994, Mr. Siegel was the President
of T-HQ, Inc., a software company. From 1988 to 1992, he was the President of
Atari Corporation.
(18)
<PAGE>
ROGER REMILLARD. Mr. Remillard is a co-founder of the Company and has
served as a director and Vice President - Technology since the Company's
inception. Mr. Remillard is the inventor of the ED and has filed several
patents relating to interactive television technology. Prior to 1990, Mr.
Remillard served as a consultant in the communications industry, specializing in
the field of two-way, rapid cellular telephony and data-radio communications.
DONALD GILBREATH. Mr. Gilbreath has served as Vice President - Engineering
since he joined the Company in November 1994. Prior to November 1994, he worked
for the Company as a consultant and was instrumental in designing, and producing
the initial prototypes of, the ED. He formed Gilbreath Systems Inc. ("Gilbreath
Systems") a general engineering consulting company in 1992. From 1980 to 1991,
Mr. Gilbreath worked for Commodore International Ltd., a computer manufacturer
which filed for bankruptcy in April 1994, where he served in various capacities,
including Director of Product and Market Development (1987 to 1991), Director of
Research and Development (1985 to 1987) and Manager, Consumer Products Research
and Development (1985 to 1987). Under his direction, Commodore developed the
first consumer-priced multimedia compact disc player.
DAVID ROSEN. Mr. Rosen became the Vice President - Marketing when he
joined the Company in April, 1996. Prior to such date, he was a consultant to
the Company. In 1992, he formed his own consulting company called Praxis. Upon
joining the Company full-time in April, 1996, however, Mr. Rosen withdrew from
his consulting partnership. Although some of his former clients were in the
communications and media area, he no longer provides any consulting services to
them. From 1990 to 1992, he was director of international marketing of
Commodore International.
HUGH A. JENCKS. Mr. Jencks was elected to the position of Vice President
of the Company in December, 1996. Prior to such date, he was a consultant to
the Company since July 1996. Mr. Jencks has been an active Director of the
Michigan Cable Telecommunications Association for many years and currently
serves as its Associate Director. In July, 1996, Mr. Jencks completed a special
project for Michigan Governor John Engler, by designing and building Michigan
Government Television. From 1982 to August 1996, Mr. Jencks was the General
Manager of Booth Communications ("Booth") in Birmingham, Michigan. During his
tenure at Booth he led a cable television system into several trials of
interactive technology with Cableshare of London, Ontario, Ameritech, NTN and
the Company.
MITCHELL J. MELAMED. Mr. Melamed has served as Secretary of the Company
since May 1990. Mitchell Melamed is a practicing attorney and is presently a
partner in the law firm of Frank, Miller, Melamed & Tabis, P.C., in Chicago,
Illinois. He has been with this firm and its predecessors since 1975.
ROBERT J. WUSSLER. Mr. Wussler was elected to the Board of Directors on
May, 1996. From 1992 to the present he has been the President and Chief
Executive Officer of the Wussler Group, located in Potomac, Maryland, advising
companies in TV, cable, interactive and other related activities. From 1989 to
1992, he was the President and CEO of COMSAT Video Enterprises which was in the
business of satellite delivery of entertainment to the U.S. lodging industry.
ROBERT E. REID. Mr. Reid was appointed to the Board of Directors in May,
1996. Mr. Reid has been the President of Engis Corporation ("Engis") based in
Wheeling, Illinois, since 1972. Engis is in the business of utilizing
industrial diamonds in machinery.
THOMAS GLENNDAHL. Mr. Glenndahl was elected to the Board of Directors on
August 5, 1996. He is the founder and, since 1982 has been the Chief Executive
Officer of the Aspect Group, an international education group with offices in 26
countries.
(19)
<PAGE>
BOARD OF DIRECTORS
The Board of Directors consists of six directors, divided into two classes.
The first class is made up of non-employee directors who serve one-year terms
and the second class is made up of employee directors who serve three-year
terms. At the August 5, 1996 meeting of shareholders, the shareholders elected
three directors in each class to serve for terms expiring at the 1997 and 1999
annual meetings, respectively. The three individuals elected as non-employee
directors were: Robert J. Wussler, Robert E. Reid and Thomas Glenndahl. The
three individuals elected as employee directors were: Jerome Greenberg, William
H. Buck and Roger Remillard. Executive officers of the Company are appointed by
the Board of Directors and serve at its discretion.
Mr. Buck resigned from his position as a Director and President of the
Company on January 8, 1997. The remaining board members accepted Mr. Buck's
resignation and approved the Severance Agreement dated as of January 8, 1997
between the Company and Mr. Buck. As of January 22, 1997, the Board has
appointed Lawrence D. Siegel to temporarily assume the duties previously
performed by Mr. Buck for a period of two months.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth certain information with respect to
compensation for fiscal years 1993, 1994 and 1995 paid to the Company's Chief
Executive Officer. No other executive officers of the Company received
compensation in excess of $100,000 during such periods.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)
- - ------------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William H. Buck 1995 60,000 -- -- --
Chief Executive Officer 1994 5,000 -- 384,000 --
and Director................. 1993 -- -- -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE APPRECIATION FOR
SHARES OPTIONS OPTION TERM
UNDERLYING GRANTED TO ----------------------------
OPTIONS EMPLOYEES EXERCISE OR
GRANTED IN FISCAL BASE PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- - ------------------------- ---------- ---------- ----------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
William H. Buck
Chief Executive Officer 384,000 0 .625 11/11/99 66,307 382,080
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
YEAR-END (#) FISCAL YEAR-END($)(1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - ------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
William H. Buck
Chief Executive Officer.................. 384,000/0 432,000/0
</TABLE>
(20)
<PAGE>
- - --------------------
(1) The value of "in the money" options represents the difference between the
exercise price of such option and the $1.75 closing price of the Company's
Common Stock as quoted on the Nasdaq Bulletin Board on January 20, 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Roger
Remillard, Jerome Greenberg, Donald Gilbreath, David Rosen and Christa A.
Prange. Each of the employment agreements for Messrs. Remillard, Greenberg
and Gilbreath provides for an initial term expiring in November, 1997, which
is automatically renewed for one-year periods unless notice of non-renewal is
given at least 120 days prior to the end of the expiration term. The
employment agreement for Mr. Rosen provides for an initial term expiring on
January 16, 1998 and is not automatically renewable. The employment agreement
for Mr. Jencks provides for an initial term expiring August 31, 1998 and is
not automatically renewable. The employment agreement for Ms. Prange
provides for an initial term expiring on April 30, 1998 and is not
automatically renewable. Mr. Remillard's employment agreement, dated
November 12, 1994, provides for an annual base salary of $60,000 (subject to
annual increase based upon the CPI) and granted options to purchase 288,000
shares of Common Stock, at an exercise price of $.625 per share. Mr.
Greenberg's employment agreement, dated November 12, 1994, provides for an
annual base salary of $37,500 (subject to annual increase based upon the CPI)
and granted options to purchase 100,000 shares of Common Stock at an exercise
price of $.625 per share. Mr. Gilbreath's employment agreement, dated
November 12, 1994, provides for an annual salary of $48,000 (subject to
annual increase based upon the CPI) and granted options to purchase 230,400
shares of Common Stock at an exercise price of $.625 per share. Mr. Rosen's
employment agreement, dated January 7, 1996, provides for an annual base
salary of $78,000 (subject to increase based upon the Company obtaining
additional financing and annual increases of at least 5%) and granted options
to purchase, subject to a vesting schedule, up to 250,000 shares of Common
Stock, at an exercise price of $.625 per share. Mr. Jencks' employment
agreement, effective as of September 1, 1996, provides for an annual base
salary of $120,000 subject to annual increases of at least 5%. Pursuant to
the agreement, Mr. Jencks was granted options to purchase, subject to a
vesting schedule, up to 250,000 shares of common stock at an exercise price
of $.625 per share. Ms. Prange's employment agreement, dated May 1, 1996,
provides for an annual base salary of $60,000 (subject to annual increases of
at least 5%) and granted options to purchase, subject to a vesting schedule,
up to 250,000 shares of common stock, at an exercise price of $.625 per
share. The number of shares and the per share amounts for the options have
been adjusted for the merger between GTCI and VISC, and the stock split.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company made advances to Roger Remillard during 1993 totaling
$127,532. As of December 31, 1993, the receivable was forgiven and recorded
as compensation expense.
The Company loaned $39,238 to William H. Buck and $18,670 to Roger
Remillard during 1995. As of December 31, 1995, these amounts were forgiven
and recorded as compensation expense.
(21)
<PAGE>
Should these amounts become uncollectible, they will be deemed additional
compensation for Mr. Buck and Mr. Remillard during 1996.
ITEM 8. LEGAL PROCEEDINGS.
The Company and two directors, Jerome Greenberg and Roger Remillard and
a former director, William Buck, are defendants in a lawsuit filed by a
former employee, Nolan Bushnell. This lawsuit was filed on December 15, 1994
in the California Superior Court and was subsequently removed to the United
States District Court for the Northern District of California. The second
amended complaint dated April 30, 1996 alleges multiple claims including
breach of fiduciary duty, breach of oral agreement, wrongful termination of
employment, interference with contract, breach of employment agreement and
fraudulent misrepresentation, all arising out of the plaintiff's employment
over a period of 2 1/2 months as the Company's President, the termination of
his employment and the aborted negotiations for a proposed merger between the
Company and the plaintiff's company. Damages claimed are in excess of $10
million for failure to transfer approximately four million shares of the
Company's stock allegedly promised to the plaintiff, salary and expenses
arising out of his employment relationship and punitive damages. The dollar
amount of damages claimed is dependent upon the current per share price of
the Company's stock.
The Company has filed a claim against the plaintiff for fraud, breach of
fiduciary duty, declaratory relief, rescission and negligent interference with
prospective business advantage arising out of the same set of occurrences as the
plaintiff's complaint. The Company's first summary adjudication motion,
challenging the plaintiff's claim for failure to transfer approximately four
million shares of Company stock, was granted by the District Court on August 29,
1996, thus precluding the plaintiff from recovering any shares of stock from the
Company. Although this claim has been dismissed, the plaintiff filed a motion
for reconsideration, which was heard by the District Court on October 11, 1996.
On December 6, 1996, the District Court denied the plaintiff's motion for
reconsideration. The Company filed a summary adjudication motion against the
plaintiff on all his remaining claims, which also was heard by the District
Court on October 11, 1996. On December 6, 1996, the Court granted the Company's
summary adjudication motion and dismissed all of the plaintiff's remaining
claims. It remains possible that the summary adjudication orders could be
overturned on appeal. Should the orders be overturned, and should the plaintiff
prevail on these claims, the Company may be materially adversely affected by the
outcome.
(22)
<PAGE>
The Company filed a lawsuit against three individuals formerly associated
with the Company, David Serlin, Steve Owens and Kaori Kuwata, and the
corporation which currently employs each of the foregoing individuals,
Interactive Video Publishing, Inc., on July 25, 1996 in the United States
District Court for the Northern District of California. The Company's complaint
alleges misappropriation of trade secrets, conversion and breach of fiduciary
duty arising out of the individual defendants' previous confidential
relationships with the Company, access to proprietary information including the
technology, hardware design, software, parts selection, feature set and
architecture of the ED technology and subsequent transmittal of this proprietary
information to the defendant corporation for its beneficial use. The Company is
seeking declaratory and injunctive relief, as well as monetary damages. The
defendants filed various counterclaims against the Company on September 13, 1995
alleging intentional interference with economic advantage, intentional
interference with contractual relations and unfair competition arising out of
the same set of occurrences. The defendants are seeking damages for lost
profits, injury to business reputation, diminution of value of proprietary data,
loss of customers and loss of investments. In addition, the defendants are
seeking a declaratory judgment of no misappropriation of trade secrets,
injunctive relief and punitive damages.
The Company has filed a motion for a preliminary injunction, which motion
was heard by the District Court on October 25, 1996. On December 4, 1996, the
District Court granted the Company's motion and issued a preliminary injunction
against the defendants. The injunction enjoins the defendants, during the
pendency of the action, from using any of the Company's trade secrets or
technology. Because the lawsuit is still in the discovery stage, it is not
possible to determine the probable likelihood of an adverse ruling on the
defendants' counterclaims. However, if the defendants succeeded on their
counterclaims, and were awarded significant monetary damages, and/or injunctive
or declaratory relief against the Company, the Company could be materially
adversely affected. The Company believes the allegations in the defendants'
counterclaims are without merit and intends to vigorously defend itself against
the actions.
An additional lawsuit was filed against the Company by David Serlin and
another individual formerly associated with Company, Marvin Lerch, on December
20, 1996 in the United States District Court for the Northern District of
California. The complaint alleges multiple claims including breach of contract,
fraud, negligent misrepresentation, breach of fiduciary duty, wrongful
termination and conversion, all arising out of the plaintiffs' employment with
the Company during 1995. Damages claimed are for failure to transfer 400,000
shares of the Company's stock and 284,000 options to purchase the Company's
stock allegedly promised to each of the plaintiffs, lost profits and business
opportunities arising out of the employment relationships and punitive damages.
The dollar amount of damages claimed is dependent upon the current per share
price of the Company's stock.
Because the lawsuit has not yet reached the discovery stage, it is not
possible to determine the probable likelihood of an adverse ruling on the
plaintiffs' claims. However, if the plaintiffs succeeded on their claims, and
were awarded significant monetary damages against the Company, the Company could
be materially adversely affected. Although the Company has not had enough time
to respond to the complaint, the Company intends to vigorously defend itself
against the action.
(23)
<PAGE>
(24)
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's shares have been traded on a limited basis on the Nasdaq
Bulletin Board under the symbol VICP since December 27, 1995. The following
table sets forth the range of high and low sales prices as reported on the
Nasdaq Bulletin Board. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
PERIOD LOW HIGH
Fourth Quarter of 1995 (beginning December 8, 1995) 5-1/8 5-3/8
First Quarter of 1996 7-1/2 8-1/4
Second Quarter of 1996 8-1/8 11-3/8
Third Quarter of 1996 8-1/8 11-3/8
Fourth Quarter of 1996 1-1/4 9-5/16
First Quarter of 1997 (through January 20, 1997) 1-1/4 1-7/8
There were 122 shareholders of record of the Common Stock as of January
20, 1997.
DIVIDENDS
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future, but
intends to retain future earnings, if any, for reinvestment in the future
operation and expansion of the Company's business and related development
activities. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and such other
factors as the Board of Directors deems relevant, as well as the terms of any
financing arrangement.
(25)
<PAGE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, the Company entered into an agreement with a placement
agent, Wincap Ltd. ("Wincap"), for a private offering to be consummated by
offshore transactions exempt pursuant to Regulation S of the Securities Act.
The Company is offering a minimum of 2,000,000 and a maximum of 6,666,667
shares of the Company's 8% Preferred Stock, at a price of $1.50 per share for
a total consideration of between $3,000,000 and $10,000,000. This offering
will not close unless the minimum offering of 2,000,000 shares has been sold.
AS of this date, the Company has not reached the minimum offering level. As
compensation for its services and costs, Wincap will receive, among other
things, a placement fee equal to eleven percent (11%) of the aggregate
offering price of all shares sold.
The Company conducted the following sales of unregistered securities
between 1993 and 1996. The sales were made pursuant to negotiated transactions
between the parties, and the price per share for each transaction was a result
of the negotiations. Prices quoted on the NASDAQ Bulletin Board reflect
interdealer prices without retail mark-up, mark-down or commission and may not
represent actual transactions. The number of shares and per share amounts for
the following transactions have been adjusted for the merger between GTCI and
VISC, and the stock split. See "Item 1--Business--General."
On May 13, 1993, upon the exercise of an option to purchase Common Stock
by Jerome Greenberg, the Company issued 3,196,800 shares to Mr. Greenberg
at a price of $.25 per share. On December 31, 1993, upon the exercise of an
option to purchase Common Stock by Roger Remillard, the Company issued
799,200 shares to Mr. Remillard at a price of $.25 per share.
In November 1994, the Company entered into an agreement with a placement
agent, West America Securities ("West"), for a private offering to be
consummated by a transaction not involving a public offering exempt pursuant
to Regulation D of the Securities Act. This private offering resulted in the
sale of 2,000,000 units at a purchase price of $.625 per unit for a total
consideration of $1,250,000. The securities were sold to various investors,
as diagrammed by the following chart.
(26)
<PAGE>
NOVEMBER 1994 PRIVATE PLACEMENT
- - --------------------------------------------------------------------------------
INVESTOR UNITS PURCHASED TOTAL VALUE
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Altafin Anstalt 160,000 $100,000
Avatar Business Corp. 388,000 $242,500
Benton Enterprises, LTD. 400,000 $250,000
Paine Webber CDN/FBO 16,000 $10,000
Claire L. Blue & Raymond F. Blue
TRUA 3/17/87 16,000 $10,000
CCD Consulting Commerce
Distribution AG 400,000 $250,000
Comstar Biocapital NV 40,000 $25,000
Mr. Robert M. Gabriel 36,000 $22,500
Clifford and Alva Johnson
Intervivos Trust 3/3/76 40,000 $25,000
Pawnee Trading Company 80,000 $50,000
Mr. Robert E. Reid 40,000 $25,000
Mr. Barry Rice 40,000 $25,000
Mr. Alan J. Newman,
Trustee of the Rose Leigh Trust 320,000 $200,000
Mr. Anthony Veschio
Mrs. Patricia Veschio 24,000 $15,000
- - --------------------------------------------------------------------------------
TOTAL 2,000,000 $1,250,000
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Each unit consisted of one share of Common Stock, one Class A warrant and one
Class B warrant. Each Class A warrant entitled the registered holder to
purchase one share of Common Stock at an exercise price of $1.25 at any time
on or before March 1, 1995. Each Class B warrant entitled the registered
holder to purchase one share of Common Stock at an exercise price of $1.88 at
any time on or before April 30, 1995. None of the Class A warrants or Class
B warrants were exercised prior to the expiration date. West received
200,000 shares of Common Stock and 48,000 units valued at $155,000 as
compensation for its services and costs. Attorneys' and finders' fees
totalling $108,833 were incurred and are included as stock issuance costs.
One of the consultants participating in the private placement received
$25,000 in cash, 40,000 shares of Common Stock with a deemed value of $25,000
and an option, exercisable until November 27, 2000, to purchase 120,000
shares of Common Stock at $.625 per share.
(27)
<PAGE>
In November, 1994, the Company issued 640,000 shares of Common Stock to
Jerome Greenberg upon conversion of a $400,000 loan Mr. Greenberg made to
VISC in a transaction not involving a public offering exempt pursuant to
Section 4(2) of the Securities Act of 1933, as amended ("Securities Act").
In April and May 1995, the Company issued 212,000 shares of Common Stock for
an aggregate offering price of $265,000 in a transaction not involving a
public offering exempt pursuant to Regulation S of the Securities Act. Of
the 212,000 shares, 52,000 shares were purchased by Swiss American
Securities, Inc. (BBC) for a purchase price of $65,000, and the remaining
160,000 shares were purchased by Haus & Company for a purchase price of
$200,000.
In April and May, 1995, the Company issued 706,000 shares of Common
Stock for an aggregate valuation of $425,000 in a transaction not involving a
public offering exempt pursuant to Section 4(2) of the Securities Act. Of
the 706,000 shares: (i) 40,000 shares valued at $25,000 were issued to
Associated Interchange, Limited at the direction of a consultant, to whom the
Company intended to issue such shares as a bonus for securing a placement
agent for the Company, which consultant wished to extinguish a debt owing to
Associated Interchange, (ii) 66,000 shares valued at $25,000 were issued to
West America Securities Corp as additional compensation for securities
placement services with respect to the offering which was commenced in
November 1994, and (iii) the remaining 600,000 shares valued at $375,000 were
issued to Donald Gilbreath as a bonus.
On August 30, 1995, the Company issued 32,000 shares of Common Stock to
Synalgest for an aggregate offering price of $20,000 in a transaction not
involving a public offering exempt pursuant to Regulation S of the Securities
Act.
During 1995, the Company issued a total of 4,400,000 shares of Common
Stock for an aggregate offering price of $2,750,000 in a transaction not
involving a public offering exempt pursuant to Regulation S of the Securities
Act. The securities were sold to various investors, as diagrammed by the
following chart.
(28)
<PAGE>
1995 REGULATION "S" OFFERINGS
INVESTOR SHARES PURCHASED TOTAL VALUE
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Ankerbank 500,000 $312,500
Lyckle Kuipers 800,000 $500,000
Haus & Company 372,000 $232,500
Affida Bank 800,000 $500,000
Ankerbank 320,000 $200,000
Avatar Business Corp. 160,000 $100,000
Lucio Cerquiglini 48,000 $30,000
Haus & Company 400,000 $250,000
Investmentbank Austria 200,000 $125,000
Investmentbank Austria 800,000 $500,000
- - --------------------------------------------------------------------------------
TOTAL 4,400,000 $2,750,000
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Dextro Establishment, a Liechtenstein company, the placement agent, received
finder's fees totalling $330,000 in connection with this offering, which were
included as stock issuance costs.
In February 1996, the Company issued 20,000 shares of Common Stock for
an aggregate offering price of $50,000 in a transaction exempt pursuant to
Regulation S of the Securities Act. Grammont, Inc., a French brokerage firm,
received $5,000 in connection with this offering.
From March 1996 to April 1996, the Company issued 500,000 shares of Common
Stock for an aggregate offering price of $1,000,000 in a transaction not
involving a public offering exempt pursuant to Regulation D of the Securities
Act. Of the 500,000 shares, 200,000 shares were purchased by Darier, Hentsch
for a purchase price of $400,000, 200,000 shares were purchased by the Affida
Bank for a purchase price of $400,000, and the remaining 100,000 shares were
purchased by the Anker Bank for a purchase price of $200,000.
On April 26, 1996, upon the exercise of an option to purchase Common Stock
by a shareholder, Dextro Establishment, the Company issued 400,000 shares of
Common Stock to such shareholder at a price of $.625 per share.
(29)
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The authorized capital of the Company consists of 50,000,000 shares of
Common Stock, par value $0.01 per share and 10,000,000 shares of Preferred
Stock, par value $0.01 per share. The class of Preferred Stock may be issued
in series, from time to time, with such designations, relative rights,
priorities, preferences, qualifications, limitations and restrictions
thereof, as the Board of Directors may determine. The rights, priorities,
preferences, qualifications, limitations and restrictions of different series
of preferred stock may differ with respect to dividend rates, amounts payable
on liquidation, voting rights, conversion rights, redemption provisions,
sinking fund provisions and other matters. The Board of Directors may
authorize the issuance of preferred stock which ranks senior to the Common
Stock with respect to the payment of dividends and the distribution of assets
on liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effected while any shares of preferred stock are outstanding.
The Board of Directors may issue, without stockholder approval, preferred
stock with voting and conversion rights which could adversely affect the
voting power of the holders of Common Stock. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change of control
of the Company.
The Board of Directors have authorized the issuance of up to 6,666,667
shares of the 8% Preferred Stock. The shares of 8% Preferred Stock will
accrue dividends at the rate of 8% per annum on its purchase price of $1.50
per share, which dividends will be payable quarterly, each March 31, June 30,
September 30 and December 31, beginning on March 31, 1997, (the "Dividend
Payment Date") to the holders of the Shares. Dividends on each share of 8%
Preferred Stock will accrue cumulatively, based upon a three-hundred sixty
(360) day year for the actual number of days occurring between the interval
beginning on the most recent Dividend Payment Date and ending on and
including the day immediately preceding the next succeeding Dividend Payment
Date (the "Dividend Period"). Dividends on the Preferred Stock shall be paid
before any dividends or distribution is made in respect of any Common Stock.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of the 8% Preferred Stock will be entitled to be paid,
before any distribution or payment is made in respect of any Common Stock as to
distribution on liquidation, dissolution or winding up, an amount in cash equal
to the aggregate Stated Value of all Shares outstanding plus all accrued but
unpaid dividends.
Holders of the 8% Preferred Stock will have the right to convert each share
into one share of Common Stock. The Preferred Shareholders will have the right
to convert their Shares as follows: (a) 25% of the shares 90 days following the
date such shares were purchased (the "Initial Conversion Date"); and (b) 25% of
the shares at the end of each of the three consecutive 90-day periods following
the Initial Conversion Date. As of this date, the Company has not issued any
shares of the 8% Preferred Stock. See the first paragraph under "Recent
Sales of Unregistered Securities".
The foregoing summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the Company's Articles of Incorporation and Bylaws that are
included as exhibits to this Registration Statement and by provisions of
applicable law.
As of January 20, 1997 there were 21,728,000 shares of Common Stock of
the Company issued and outstanding. Each stockholder is entitled to one vote
for each share of Common Stock held of record on all matters submitted to a
vote of stockholders, including the elections of the members of the Board of
Directors of the Company. Holders of Common Stock have no preemptive rights
and no rights to convert their Common Stock into any other securities, and
there are no redemption provisions with respect to such shares. Upon
liquidation, dissolution or winding up of the Company, the holders of the
Common Stock are entitled to share ratably in all assets remaining after
payment of the Company's liabilities. All outstanding shares of Common Stock
are fully paid and non-assessable.
The Company currently is in good standing in Illinois.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Corporate Stock
Transfer in Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 20, 1997, there were approximately 4,700,000 shares of
Common Stock which were sold by the Company in reliance upon Regulation S.
These shares may be sold without restriction,
(30)
<PAGE>
assuming the holder could properly claim an exemption under the 1933 Act.
Under Rule 144 under the Securities Act the shares held by Messrs.
Greenberg, Remillard, Buck and Gilbreath will be available for sale, subject to
the volume limitations of Rule 144, in November 1997. The number of shares
currently held by these individuals equals 12,010,400 shares in the aggregate
(which include shares issuable upon the exercise of vested options).
In general, under Rule 144 as currently in effect, a stockholder, including
an "affiliate" of the Company, as that term is defined in Rule 144 (an
"Affiliate"), who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least two years from the later of the
date such securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of one percent
of the then outstanding shares of Common Stock (approximately 217,280 shares as
of January 20, 1997) or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144, provided certain requirements concerning availability
of public information, manner of sale and notice of sale are satisfied. In
addition, under Rule 144(k), if a period of at least three years has elapsed
between the later of the date restricted securities were acquired from the
Company and the date they were acquired from an Affiliate of the Company, a
stockholder who is not an Affiliate of the Company at the time of sale and has
not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
Stock options have been granted to certain individuals pursuant to a plan
under Rule 701 under the Securities Act. Pursuant to Rule 701, 90 days after an
issuer becomes subject to the reporting requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the securities issued in compliance with
Rule 701 may be resold: (a) by persons other than Affiliates in reliance on
Rule 144 without compliance with the volume limitation or holding period
requirement of Rule 144, and (b) by Affiliates in reliance on Rule 144 without
compliance with the holding period requirement of Rule 144. Options to purchase
1,712,480 shares of Common Stock have been granted by the Company pursuant to
this plan.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section XIV of the Company's Articles of Incorporation provides that the
Company shall indemnify and hold the officers and directors of the Company
harmless and free from liability for any claims against said officer and/or
director arising out of the performance of their duties on behalf of the Company
and shall, further, reimburse said person for any legal expenses incurred in the
defense of such claim.
(31)
<PAGE>
Reference is made to Sections 2 and 3 of Article 78 of the Nevada Revised
Statutes which provides for indemnification of directors and officers in certain
circumstances.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The required financial statements are included under the Section "Financial
Statements" in this Registration Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Consolidated Balance Sheets (Unaudited) as of September 30, 1996 and
September 30, 1995
Consolidated Statements of Operations (Unaudited) for the Nine Months
Ended September 30, 1996 and September 30, 1995 and Period from
inception (May 1, 1990) to September 30, 1996
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months
Ended September 30, 1996 and September 30, 1995 and Period from
inception (May 1, 1990) to September 30, 1996
Consolidated Balance Sheets as of December 31, 1995, 1994 and 1993.
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993 and Period from inception (May 1, 1990) through
December 31, 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993 and Period from inception (May 1, 1990) through
December 31, 1995
Notes to Consolidated Financial Statements
(32)
<PAGE>
(b) Exhibits
2.1 Agreement and Plan of Reorganization dated as of October 12,
1995 by and between Global Telephone and Communications, Inc.
and Visual Information Services Corp. and its shareholders.
3.1 Articles of Incorporation, as amended, of VisCorp
3.2 Articles of Incorporation, as amended of Visual Information
Services Corp.
3.3 By-laws of VisCorp
3.4 By-laws of Visual Information Services Corp.
4.1 Form of the Company's Stock Certificate
10.1 Service Agreement dated as of April 8, 1996 between Viscorp
and Solectron France, S.A.
10.2 Technology License Agreement dated as of January 1, 1995 by
and between Visual Information Services Corp. and Digital
Sciences, Inc.
10.3 Employment Agreement between Visual Information Services Corp.
and Jerome Greenberg dated as of November 12, 1994.
10.4 Employment Agreement between Visual Information Services Corp.
and Don Gilbreath dated as of November 12, 1994.
10.5 Employment Agreement between Visual Information Services Corp.
and William Buck dated as of November 12, 1994.
10.6 Employment Agreement between Visual Information Services Corp.
and Roger Remillard dated as of November 12, 1994.
10.7 Employment Agreement between Visual Information Services Corp.
and David Rosen dated as of January 7, 1996.
10.8 Employment Agreement between Visual Information Services Corp.
and Christa A. Prange dated as of May 1, 1996.
10.9 License Agreement between Amiga Technologies GmbH and Visual
Information Service Corp. dated as of December 26, 1995.
10.10 Agreement for the Purchase of Inventories, Industrial Property
Rights and certain other Rights and Assets between Escom AG,
Amiga Technologies GmbH and VisCorp Acquisitions Inc. dated
July 18, 1996.
(33)
<PAGE>
10.11 Gateway Information Provider Agreement between NTN
Communications, Inc. and Visual Information Services Corp.
dated as of December 13, 1994.
10.12 Viscorp Stock Option Plan
10.13* Severance Agreement between Visual Information Services
Corp. and William Buck and Raquel Velasco dated as of
January 8, 1997.
10.14* Employment Agreement between Visual Information Services
Corp. and Hugh Jencks dated as of September 1, 1996.
10.15* Placement Agent Agreement between Visual Information
Services Corp. and Wincap, Ltd. dated December 6, 1996.
11.1 Earnings Per Share Computation
21 Subsidiaries
- - -----------------------
* Denotes an exhibit which has not been previously filed.
(34)
<PAGE>
FINANCIAL STATEMENTS
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets (Unaudited)
As of September 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
At September 30,
---------------------------
(Unaudited) (Unaudited)
1996 1995
--------- ---------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $79,686 $340,136
Receivables: . . . . . . . . . . . . . . . . . . . . . . . . . .
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 55,649 21,331
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . 491,689 100,000
---------- ---------
Total Current Assets. . . . . . . . . . . . . . . . . . . . 627,024 461,467
---------- ---------
PROPERTY AND EQUIPMENT, AT COST
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,719 54,050
Furniture. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,656 2,656
Test equipment . . . . . . . . . . . . . . . . . . . . . . . . . 4,883 4,883
---------- ---------
104,258 61,589
Less accumulated depreciation. . . . . . . . . . . . . . . . . . (33,852) (28,796)
---------- ---------
Total Property and Equipment, Net . . . . . . . . . . . . . 70,406 32,793
---------- ---------
OTHER ASSETS
Investment securities -- Digital Sciences, Inc.. . . . . . . . . 264,388 253,542
Intangible assets (Net of accumulated amortization). . . . . . . 92,567 74,946
</TABLE>
The unaudited interim financial statements include all adjustments which are,
in the opinion of management, necessary to a fair statement of results for
the interim periods presented.
(35)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,670 0
---------- ---------
Total Other Assets. . . . . . . . . . . . . . . . . . . . . 362,625 328,488
---------- ---------
$1,060,055 $822,748
---------- ---------
---------- ---------
</TABLE>
The unaudited interim financial statements include all adjustments which are,
in the opinion of management, necessary to a fair statement of results for
the interim periods presented.
(36)
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)(UNAUDITED)
At September 30,
------------------------
1996 1995
--------- -----------
<S> <C> <C>
(Unaudited)(Unaudited)
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $1,110,388 $358,518
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 40,489 11,540
Stockholders loans including accrued interest at a rate of 5.97% 1,113,611 540,000
--------- ----------
Total Current Liabilities . . . . . . . . . . . . . . . . . 2,264,488 910,058
--------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 217,280 3,471,615
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 8,439,498 1,669,361
Deficit accumulated during the development stage . . . . . . . . (9,495,911) (4,852,140)
Net unrealized investment losses . . . . . . . . . . . . . . . . (365,300) (376,146)
--------- ----------
Total Stockholders' (Deficit) . . . . . . . . . . . . . . . (1,204,433) (87,310)
--------- ----------
$1,060,055 $822,748
--------- ----------
--------- ----------
</TABLE>
The unaudited interim financial statements include all adjustments which are,
in the opinion of management, necessary to a fair statement of results for
the interim periods presented.
(37)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations (Unaudited)
Nine Months Ended September 30, 1996 and 1995 and
Period from May 1, 1990 (Inception) through September 30, 1996
<TABLE>
<CAPTION>
Nine Months Ended From
September 30 Inception
------------------------- (May 1, 1990)
to
September 30,
1996 1995 1996
--------- ---------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LICENSE INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $(629,688) $(629,688)
OPERATING EXPENSES
Research and development . . . . . . . . . . . . . . . . . . . . 1,124,236 652,641 4,090,224
Travel and entertainment . . . . . . . . . . . . . . . . . . . . 335,738 442,330 1,347,475
Legal fees:. . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee litigation . . . . . . . . . . . . . . . . . . . . . 368,337 123,433 662,124
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297,413 140,784 836,421
Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,934 333,175 806,546
Other general and administrative . . . . . . . . . . . . . . . . 741,619 331,594 2,167,912
---------- --------- ----------
</TABLE>
- - -------------------------------
*/THE DATA FOR THE PERIOD DECEMBER 31, 1995 TO SEPTEMBER 30, 1996 IS UNAUDITED
The unaudited interim financial statements include all adjustments which are,
in the opinion of management, necessary to a fair statement of results for
the interim periods presented.
(38)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total Operating Expenses. . . . . . . . . . . . . . . . . . 3,180,277 2,023,957 9,910,702
---------- --------- ----------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . 3,180,277 1,394,269 9,281,014
---------- --------- ----------
OTHER EXPENSE (INCOME) . . . . . . . . . . . . . . . . . . . . . .
Interest expense -- Stockholder debt . . . . . . . . . . . . . . 17,126 0 229,397
Interest expense -- Other. . . . . . . . . . . . . . . . . . . . 0 0 1,103
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . (6,321) (1,693) (19,177)
Loss on disposal of equipment. . . . . . . . . . . . . . . . . . 0 0 3,574
---------- --------- ----------
Total Other (Income) Expense, Net . . . . . . . . . . . . . 10,805 (1,693) 214,897
---------- ---------- ----------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,191,082 $1,392,576 $9,495,911
---------- --------- ----------
---------- --------- ----------
AVERAGE SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . 21,595,781 16,042,308
---------- ----------
LOSS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . $0.15 $0.08
---------- ---------
---------- ---------
</TABLE>
The unaudited interim financial statements include all adjustments which are,
in the opinion of management, necessary to a fair statement of results for
the interim periods presented.
(39)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1996 and 1995 and
Period from May 1, 1990 (Inception) through September 30, 1996
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER FROM INCEPTION
30, 30, (MAY 1, 1990) TO
(UNAUDITED) (UNAUDITED) SEPTEMBER 30,
1996 1995 1996 (1)
---------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to net cash used in
operating activities
Net loss. . . . . . . . . . . . . . . . . . . . . . . . $(3,191,082) $(1,392,576) (9,495,911)
Depreciation and amortization . . . . . . . . . . . . 9,852 13,200 69,782
License income received in stock. . . . . . . . . . . 0 (629,688) (629,688)
Services paid in stock. . . . . . . . . . . . . . . . 0 125,000 441,250
Interest on stockholder loans . . . . . . . . . . . . 17,126 0 229,397
Provision for losses on employee advances . . . . . . 0 0 299,055
Loss on disposal of equipment . . . . . . . . . . . . 0 0 3,574
(Increase) decrease in prepaid expenses . . . . . . . (391,689) (93,427) (491,689)
Increase in:
Accounts payable. . . . . . . . . . . . . . . . . . 805,499 193,022 1,060,388
Accrued expenses. . . . . . . . . . . . . . . . . . 27,555 6,480 40,489
----------- ----------- -----------
Total Adjustments . . . . . . . . . . . . . . . . 468,343 (385,433) 1,022,558
----------- ----------- -----------
Net Cash Used in Operating Activities . . . . . . (2,722,739) (1,778,009) (8,473,353)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment . . . . . . . . . . . . 0 0 500
Capital expenditures. . . . . . . . . . . . . . . . . . (43,947) (16,062) (114,103)
Advances to employee and related company. . . . . . . . (55,649) (21,331) (354,704)
Patents and other expenditures. . . . . . . . . . . . . 0 (5,873) (128,396)
----------- ----------- -----------
Net Cash Used in Investing Activities . . . . . . . (99,596) (43,266) (596,703)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of checks issued in excess of funds on deposit 0 0 0
Borrowings from stockholders and others . . . . . . . . 862,091 540,000 3,952,575
Proceeds from issuance of common stock. . . . . . . . . 1,300,000 1,068,533 5,586,000
Payment of stock issuance costs . . . . . . . . . . . . 0 0 (388,833)
----------- ----------- -----------
Net Cash Provided by Financing Activities . . . . . 2,162,091 1,608,533 9,149,742
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . (660,244) (212,742) 79,686
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . 739,930 552,878 0
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . $79,686 $340,136 $79,686
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
____________________
(1) The data for the period December 31, 1995 to September 30, 1996 is
unaudited.
(40)
<PAGE>
(41)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(42)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
C O N T E N T S
REFERENCE PAGE
Independent Auditor's Report 44-45
Consolidated Balance Sheets Exhibit A 46-47
Consolidated Statements of Operations Exhibit B 48-49
Consolidated Statements of Stockholders' Equity (Deficit) Exhibit C 50
Consolidated Statements of Cash Flows Exhibit D 51
Notes to Consolidated Financial Statements 52-73
Consolidated Other General and Administrative Expenses Schedule B-1 74
(43)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Stockholders
Viscorp
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of VISCORP (A
DEVELOPMENT STAGE ENTERPRISE) as of December 31, 1995, 1994 and 1993, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years then ended and for the period from May 1, 1990 (inception) through
December 31, 1995 (the cumulative period). These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of VISCORP (A DEVELOPMENT STAGE
ENTERPRISE) as of December 31, 1995, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended and for the cumulative
period, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. The company cannot currently generate
sufficient revenues and cash flow from operations to meet its business
obligations. Therefore, future operations are predicated on raising additional
capital in debt or equity markets. These factors raise substantial doubt about
the company's ability to continue as a going concern. Any implementation of the
commercialization of the electronic device is dependent upon obtaining
additional financing as may be necessary to ultimately achieve a level of sales
adequate to support the company's operations. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
(44)
<PAGE>
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedule
of operating expenses is presented for analysis purposes and is not a required
part of the basic financial statements. Such information has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/ Blackman Kallick Bartelstein, LLP
- - -------------------------------------
Chicago, Illinois
March 21, 1996, except for the second
paragraph of Note 9, and Notes 12 and 14,
as to which the date is October 22, 1996
- 2 -
(45)
<PAGE>
EXHIBIT A
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 3) $ 739,930 $ 552,878 $ -
Receivables
Officers (Net of allowance for doubtful
accounts of $57,908 in 1995) - - -
Other (Net of allowance
for doubtful accounts of $25,000 in 1995) - - -
Prepaid expenses 100,000 6,573 -
---------- ---------- ----------
Total Current Assets 839,930 559,451 -
---------- ---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Equipment 52,772 37,988 17,985
Furniture 2,656 2,656 6,801
Test equipment 4,883 4,883 4,883
---------- ---------- ----------
60,311 45,527 29,669
Less accumulated depreciation (26,028) (15,596) (13,687)
---------- ---------- ----------
Total Property and Equipment, Net 34,283 29,931 15,982
---------- ---------- ----------
OTHER ASSETS
Investment securities - Digital Sciences, Inc.
(Notes 4, 11 and 14) 284,375 - -
Intangible assets (Net of accumulated
amortization) (Note 5) 94,595 74,946 1,000
Other 5,670 - -
---------- ---------- ----------
384,640 74,946 1,000
---------- ---------- ----------
$1,258,853 $ 664,328 $ 16,982
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
(46)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Checks issued in excess of funds on deposit $ - $ - $ 31,745
Accounts payable 304,889 165,516 75,285
Due to affiliated company - - 18,689
Accrued expenses 12,934 5,060 2,652
Stockholder loans including accrued
interest at a rate of 5.97% 234,394 - -
----------- ---------- -----------
Total Current Liabilities 552,217 170,576 128,371
STOCKHOLDER LOANS, INCLUDING ACCRUED
INTEREST AT A RATE OF 10% - - 1,494,161
----------- ---------- -----------
Total Liabilities 552,217 170,576 1,622,532
----------- ---------- -----------
STOCKHOLDERS' EQUITY (DEFICIT) (Exhibit C)
(Note 6)
Common stock 212,080 2,541,167 800,200
Additional paid-in capital 7,144,698 1,669,361 -
Deficit accumulated during the
development stage (6,304,829) (3,716,776) (2,405,750)
Net unrealized investment losses (Note 4) (345,313) - -
----------- ---------- -----------
Total Stockholders' Equity (Deficit) 706,636 493,752 (1,605,550)
----------- ---------- -----------
$ 1,258,853 $ 664,328 $ 16,982
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
(47)
<PAGE>
EXHIBIT B
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
Year Ended December 31, 1995, 1994 and 1993 and
Period from May 1, 1990 (Inception) through December 31, 1995
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
May 1, 1990
(Inception)
through
December 31,
1995 1994 1993 1995
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
LICENSE INCOME (Note 11) $ (629,688) $ - $ - $ (629,688)
----------- ----------- ----------- -----------
OPERATING EXPENSES
Research and development 1,134,262 701,460 622,428 2,965,988
Travel and entertainment 620,012 194,162 122,840 1,011,737
Legal fees
Employee litigation 287,990 5,797 - 293,787
Other 264,119 22,711 150,133 539,008
Consulting 353,915 73,786 17,789 493,612
Other general and administrative 562,191 316,448 335,170 1,426,293
----------- ----------- ----------- -----------
Total Operating Expenses 3,222,489 1,314,364 1,248,360 6,730,425
----------- ----------- ----------- -----------
OPERATING LOSS 2,592,801 1,314,364 1,248,360 6,100,737
----------- ----------- ----------- -----------
OTHER EXPENSE (INCOME)
Interest expense - Stockholder debt 2,910 - 109,429 212,271
Interest expense - Other 1,103 - - 1,103
Interest income (8,761) (4,095) - (12,856)
Loss on disposal of equipment - 757 2,817 3,574
----------- ----------- ----------- -----------
Total Other (Income)
Expense, Net (4,748) (3,338) 112,246 204,092
----------- ----------- ----------- -----------
NET LOSS $(2,588,053) $(1,311,026) $(1,360,606) $(6,304,829)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
AVERAGE SHARES OUTSTANDING 17,190,915 11,775,976 7,104,092
(Note 2) ----------- ----------- -----------
----------- ----------- -----------
LOSS PER SHARE (Note 2) $ (.15) $ (.11) $ (.19)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
(48)
<PAGE>
EXHIBIT C
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 1995, 1994, and 1993 and
Period from May 1, 1990 (Inception) through December 31, 1995
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value
(25,000,000 Shares
Authorized)
--------------------------------
Date of
Transaction Shares Amount
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance, May 1, 1990 (Inception)
Sale of Stock for Cash ($1 per share*) 5/90 $ - -
Net Loss through 1991 - -
----------- -----------
Balance, through 1991 - -
Net Loss for the Year - -
----------- -----------
Balance, December 31, 1992 - -
Exercise of Stock Options, Stock Issued for
Retirement of Stockholder Advances ($1 per
share*) (Note 10) 5/93 - -
Net Loss for the Year - -
----------- -----------
Balance, December 31, 1993 - -
Exercise of Stock Options, Stock Issued for
Retirement of Stockholder Advances ($1 per
share*) (Note 10) 8/94 - -
Three-for-one Stock Split (Note 1) 11/94 - -
Stock Sold for Cash ($2.50 per share**; class A
and B Warrants Valued at $0) (Note 6) 11/94 - -
Stock Issued in Exchange for Cancellation of
stockholder debt ($2.50 per share**) 11/94 - -
Stock Exchanged for Consulting Services
($2.50 per share**) (Note 6) 11/94 - -
Stock Issuance Costs (Note 6) - -
Net Loss for the Year - -
----------- -----------
Balance, December 31, 1994 - -
Sale of Stock for Cash ($2.50 per share**) (Note 6) Various - -
Sale of Stock for Cash ($5.00 per share**) (Note 6) Various - -
Stock Issued for Consulting Services ($2.50 per share**)
(Note 6) Various - -
Stock Issued for Consulting Services ($2.50 per share**)
(Note 6) Various - -
Stock Issuance Costs (Note 6) - -
Effect of Merger (Note 2) 21,208,000 212,080
Net Loss for the Year - -
----------- -----------
Balance, December 31, 1995 21,208,000 $ 212,080
----------- -----------
----------- -----------
</TABLE>
*$.0833 as adjusted for subsequent stock split and merger
**$.625 as adjusted for merger
***$1.25 as adjusted for merger
****Not restated
The accompanying notes are an integral part of the financial statements.
(49)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 1995, 1994, and 1993 and
Period from May 1, 1990 (Inception) through December 31, 1995
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
No Par Value Deficit
- - --------------------------------- Accumulated
Additional during the
Paid-in Development
Shares**** Amount Capital Stage
- - ------------- --------------- ---------------- -----------------
<S> <C> <C> <C>
1,000 $ 1,000 $ - $ -
- - - (379,561)
---------- ----------- ----------- -----------
1,000 1,000 - (379,561)
- - - (665,583)
---------- ----------- ----------- -----------
1,000 1,000 - (1,045,144)
799,200 799,200 - -
- - - (1,360,606
---------- ----------- ----------- -----------
800,200 800,200 - (2,405,750)
199,800 199,800 - -
2,000,000 - - -
500,000 1,250,000 - -
160,000 400,000 1,669,361 -
62,000 155,000 - -
- (263,833) - -
- - - (1,311,026)
---------- ----------- ----------- -----------
3,722,000 2,541,167 1,669,361 (3,716,776)
1,108,000 2,770,000 - -
53,000 265,000 - -
150,000 375,000 - -
26,500 66,250 - -
- (330,000) - -
(5,059,500) (5,687,417) 5,475,337 -
- - - (2,588,053)
---------- ----------- ----------- -----------
$ - $ - $7,144,698 $(6,304,829)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
(50)
<PAGE>
EXHIBIT D
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 and
Period from May 1, 1990 (Inception) through December 31, 1995
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
May 1, 1990
(Inception)
through
December 31,
1995 1994 1993 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,588,053) $(1,311,026) $(1,360,606) $(6,304,829)
----------- ----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 13,136 4,798 19,993 59,930
License income received in stock (629,688) - - (629,688)
Services paid in stock 441,250 - - 441,250
Interest on stockholder loans 2,910 - 109,429 212,271
Provision for losses on advances (25,000) - - 36,509
Loss on disposal of equipment - 757 2,817 3,574
(Increase) decrease in prepaid expenses (93,427) (6,573) 1,425 (100,000)
Increase in
Accounts payable 164,373 40,231 16,794 279,889
Accrued expenses 7,874 2,408 1,717 12,934
----------- ----------- ----------- -----------
Total Adjustments (68,572) 41,621 152,175 316,669
----------- ----------- ----------- -----------
Net Cash Used in Operating
Activities (2,656,625) (1,269,405) (1,208,431) (5,988,160)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment - 500 - 500
Capital expenditures (14,784) (20,004) (11,725) (70,156)
Advances to related company (25,000) - - (36,509)
Patents and other expenditures (28,023) (73,946) - (128,396)
----------- ----------- ----------- -----------
Net Cash Used in Investing Activities (67,807) (93,450) (11,725) (234,561)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayments of) checks issued in excess
of funds on deposit - (31,745) 30,156 -
Borrowings from stockholders 231,484 775,000 1,190,000 3,090,484
Repayments to affiliated company - (18,689) - -
Proceeds from issuance of common stock 3,035,000 1,250,000 - 4,286,000
Payment of stock issuance costs (355,000) (58,833) - (413,833)
----------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities 2,911,484 1,915,733 1,220,156 6,962,651
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 187,052 552,878 - 739,930
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 552,878 - - -
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 739,930 $ 552,878 $ - $ 739,930
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
(51)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company and
its wholly owned subsidiary after eliminating material intercompany balances
and transactions.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the company considers all
highly liquid debt investments purchased with original maturities of three
months or less and money market accounts to be cash equivalents. As of
December 31, 1995, substantially all funds are held in a money market account
at one financial institution. The company does not believe it is exposed to
any significant credit risk on cash equivalents.
INVESTMENT SECURITIES
As of December 31, 1995, marketable equity securities have been categorized as
available for sale and as a result are stated at fair value. These securities
are held for noncurrent uses, such as capital expenditures, business expansion
or acquisitions and therefore are classified as long-term assets. Unrealized
holding losses are included as a component of stockholders' equity until
realized.
PROPERTY AND EQUIPMENT
The company's policy is to depreciate property and equipment over the estimated
useful lives of the assets as indicated in the following tabulation by use of
accelerated methods.
Years
-----
Equipment 5
Furniture 7
Test equipment 5
LOSS PER SHARE
Loss per share is based upon the weighted average number of shares outstanding
during the year
(Note 2).
(52)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
COMMON STOCK SPLIT
In November 1994, the board of directors authorized a three-for-one stock
split of common shares effective immediately, which resulted in an increase
of authorized shares from 1,000,000 as of December 31, 1993 to 10,000,000 as
of December 31, 1994. All loss per share and share amounts, other than those
otherwise described, included in these financial statements have been
adjusted for the stock split and merger described in Note 2.
INTANGIBLES
Legal fees incurred for patents allowed and/or pending have been capitalized.
The company received approval for several patents in 1995 which are being
amortized over 5 years, which is management's current estimate of their
useful lives. No amortization is being taken on patents not yet issued as of
December 31, 1995. Legal fees incurred for trademarks pending have been
capitalized. No amortization was taken in 1995 as the trademarks had not
been issued as of December 31, 1995.
MANAGEMENT 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.
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents and stockholder loans are a
reasonable estimate of their fair value. Investment securities are carried at
their fair value.
(53)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(54)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK OPTIONS
The company has completed an initial review of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," which will become effective for 1996. As is permitted under
SFAS 123, the company has decided to continue accounting for employee stock
compensation under the rules of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," but will disclose pro forma
results using the SFAS 123 alternative accounting method.
NOTE 2 - NATURE OF OPERATIONS
The company was formed in Chicago, Illinois in May 1990. The company is a
development stage enterprise and was founded to develop an electronic device
(ED) capable of adding modem, video data and telephone features to an ordinary
television receiver over a telephone line. The company is currently engaged in
the continuing development of that product and certain initial marketing
efforts. In 1995, the product has reached the demonstration stage, and the
company is seeking partners with software capabilities to utilize the ED
technology.
On November 28, 1995, the company merged with Global Telephone and
Communications, Inc. (GTCI) and reorganized under Section 368(a)(1)(B) of the
Internal Revenue Code. Pursuant to the merger, four shares of GTCI stock were
exchanged for every share of Viscorp stock, resulting in the stockholders of
the former Viscorp retaining voting control over the merged entity.
Accordingly, for accounting purposes, the acquisition has been treated as a
recapitalization of Viscorp with Viscorp as the acquiror (reverse
acquisition).
Upon completion of the reorganization, GTCI changed its name to Viscorp. Pro
forma results of operations have not been presented because the effects of this
acquisition were not significant.
NOTE 3 - CASH AND CASH EQUIVALENTS
(55)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
1995 1994
---- ----
Cash $ 8,547 $ 5,564
Money market funds* 731,383 -
U.S. Treasury Bill* - 547,314
-------- --------
$ 739,930 $ 552,878
--------- ---------
--------- ---------
*At cost (which approximates fair value)
(56)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 4 - INVESTMENT SECURITIES
Investment securities classified as noncurrent assets as of December 31, 1995
include marketable equity securities with a cost of $629,688, gross
unrealized losses of $345,313 and an estimated fair value of $284,375.
NOTE 5 - INTANGIBLES
Intangible assets consist of the following:
1995 1994
--------- ---------
Patents and patents pending $ 80,194 $ 73,946
Trademark and trademarks pending 17,105 1,000
--------- ---------
97,299 74,946
Less accumulated amortization (2,704) -
--------- ---------
$ 94,595 $ 74,946
--------- ---------
--------- ---------
NOTE 6 - COMMON STOCK
In November 1994, the company issued 640,000 shares of common stock at $.625 per
share in exchange for the cancellation of a loan from a stockholder. The
difference between the stated value of the common stock ($400,000) and the
balance of the stockholder loan ($2,069,361) was recorded as additional paid-in
capital. The conversion was not part of the original terms of the loan. The
transaction was an extinguishment of debt between the company and a principal
stockholder and as such was accounted for as a capital transaction.
(57)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
NOTE 6 - COMMON STOCK (Continued)
In November 1994, the company entered into an agreement with a placement
agent for a private offering. This private offering resulted in the sale of
2,000,000 units at a purchase price of $.625 per unit for a total
consideration of $1,250,000. Each unit consisted of one share of common
stock, one class A warrant and one class B warrant. The placement agent
received 200,000 shares of common stock and 48,000 expense units valued at
$155,000 as compensation for its services and costs. Each expense unit was
composed of one share of common stock, one class A warrant and one class B
warrant. In addition, attorney and finder's fees totaling $108,833, paid or
to be paid in cash, $25,000 of which relates to an officer of the company,
were incurred and are included as stock issuance costs. Of the $108,833,
$50,000 was payable at December 31, 1994 to one consultant. In addition the
consultant was granted an option, exercisable until March 8, 1998, for the
purchase of 80,000 shares of common stock at the exercise price of $.625 per
share. During 1995, the Company and the consultant revised the fee
structure. In exchange for the cancellation of the $50,000 obligation and
the option to purchase 80,000 shares, the consultant received $25,000 in
cash, 40,000 shares of common stock with a deemed value of $25,000 and an
option, which is exercisable until November 27, 2000, for the purchase of
120,000 shares at the price of $.625 per share.
In both cases, the options granted to purchase common stock were assigned a
fair value of $0 and were accounted for accordingly.
Each class A warrant entitled the registered holder to purchase one share of
common stock at an exercise price of $1.25 at any time on or before March 1,
1995. Each class B warrant entitled the registered holder to purchase one share
of common stock at an exercise price of $1.88 at any time on or before April 30,
1995. None of the class A warrants were exercised by the March 1, 1995
expiration date, nor were any class B warrants exercised by the April 30, 1995
expiration date.
During 1995, the company entered into an agreement with Dextro Establishment,
located in Liechtenstein in Europe to raise equity financing solely from
offshore purchasers and purchasers
(58)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31, 1995, 1994 and 1993
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
who may be deemed "accredited investors" as those terms are generally defined
under Regulation S and Regulation D, respectively, promulgated by the U.S.
Securities and Exchange Commission. A total of 4,400,000 shares of the
company's stock were issued at a purchase price of $.625 per share for a total
of $2,750,000. The placement agent received finder's fees totaling $330,000
which are included as stock issuance costs.
(59)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 6 - COMMON STOCK (Continued)
Prior to signing the agreement with Dextro, the company was able to raise
$285,000 through the issuance of 212,000 shares at a purchase price of $1.25 per
share and 32,000 shares at a purchase price of $.625 per share.
In addition, an officer of the company and outside consultants received 600,000
and 106,000 shares, respectively, during 1995 as payment for services rendered,
valued at the price of $.625 per share. Shares of common stock issued for other
than cash have been assigned amounts equivalent to the fair value of the service
or assets received in exchange.
NOTE 7 - INCOME TAXES
The company had elected to be taxed as an S corporation under provisions of the
Internal Revenue Code. Under these provisions, the company did not pay federal
and state corporate income taxes on its taxable income but was responsible for
state replacement taxes. The election was terminated effective November 12,
1994.
Of the years presented, the company was an S corporation during the year ended
December 31, 1993. There would be no change in the tax expense, net loss and
net loss per share, taking into consideration the pro forma effect of applying C
corporation statutory rates then in effect. No material book versus tax
temporary differences exist upon which deferred income taxes would be
calculated. The company incurred a loss in all periods prior to and including
1993.
The company has net operating loss carryforwards of approximately $3,325,000 for
federal and Illinois tax return purposes that may be offset against future
taxable income. If not used, the carryforwards will expire as follows:
Operating
(60)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
LOSSES
----------
2009 $1,076,200
2010 2,249,000
---------
$3,325,200
---------
---------
Because of the uncertainty of ever utilizing the loss carryforwards, a deferred
tax asset of approximately $1,330,100 has been offset in total by a valuation
allowance.
(61)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (Continued)
Principal reasons for variations between the statutory federal rate and the
effective rates were as follows:
1995 1994
------- -------
U.S. federal statutory income tax rate 34.00% 34.00%
State income taxes, net of federal tax benefit - 4.71
Permanent differences regarding compensation - 17.85
S Corporation income - (25.29)
Valuation allowance (34.00) (32.01)
Other - .74
-% -%
------ --------
------ --------
NOTE 8 - OPERATING LEASES
The company entered into one-year leases for its office facilities. The lease
for one of its offices is with a significant stockholder. Total rental expense
for all operating leases, except those with terms of one month or less that were
not renewed, was $8,400, $15,650 and $17,100 for the years ended December 31,
1995, 1994 and 1993, respectively. The amount of related party rent expense
included above was $8,400, $9,100 and $8,400 for the years ended December 31,
1995, 1994 and 1993, respectively. Effective March 1, 1996, the company entered
into a one-year lease with a nonrelated party at an annual rental of $43,960.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
(62)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
The company has entered into separate employment agreements with four of its
officers and two other employees. The agreements for the four officers expire
November 11, 1997, and automatically renew for an additional one-year period
unless the company or the employee notifies the other party not less than 120
days prior to the expiration of the agreement of the company's or the employee's
intent to let the agreement expire. The agreements for the two other employees
expire in 1998, and do not automatically renew.
(63)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
LITIGATION
In December 1994, a former director and officer of the company filed a lawsuit
in a California court against the company and several of its officers and
directors alleging that the company violated an alleged agreement with him to
become an executive officer of the company and claiming damages in excess of
$10,000,000. The lawsuit alleges multiple claims including breach of fiduciary
duty, breach of oral agreement, wrongful termination of employment, interference
with contract, breach of employment agreement and fraudulent misrepresentation.
The company has filed a counterclaim for fraud, breach of fiduciary duty,
declaratory relief, rescission and negligent interference with prospective
business advantage. The lawsuit was subsequently removed to the United States
District Court for the Northern District of California, which granted the
company's first summary adjudication motion on August 29, 1996. The District
Court has postponed ruling on the company's remaining summary judgment motion,
but may rule on it at any time. The company believes the allegations are
without merit and intends to continue to vigorously defend itself and its
directors and officers against the action.
The Company filed a lawsuit against three individuals formerly associated with
the Company and the corporation which currently employs each of the foregoing
individuals on July 25, 1996 in the United States District Court for the
Northern District of California. The Company's complaint alleges
misappropriation of trade secrets, conversion and breach of fiduciary duty
arising out of the individual defendants' previous confidential relationships
with the Company, access to proprietary information including the technology,
hardware design, software parts selection, feature set and architecture of the
ED technology and subsequent transmittal of this proprietary information to the
defendant corporation for its beneficial use. The Company is seeking
declaratory and injunctive relief, as well as monetary damages. The defendants
filed various counterclaims against the Company on September 13, 1995 alleging
intentional interference with economic advantage, intentional interference with
contractual relations and unfair competition arising out of the same set of
occurrences. The defendants are seeking damages for lost profits, injury to
business reputation, diminution of value of proprietary data, loss of customers
and loss of investments. In addition, the defendants are seeking a declaratory
judgment of no misappropriation of trade secrets, injunctive relief and punitive
damages.
The Company has filed a motion for a preliminary injunction, which motion was
heard by the District Court on October 25, 1996. The District Court has yet to
rule on this motion. Because the lawsuit is in the very early stages of
discovery, it is not possible to determine the probable likelihood of an adverse
ruling. However, if the defendant succeeded on their counterclaims, and were
awarded significant monetary damages, and/or injunctive or declaratory relief
against the Company, the Company could be materially adversely affected. The
Company believes the allegations in the defendants' counterclaims are without
merit and intends to vigorously defend itself against the actions.
(64)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
(65)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
NOTE 10 - STOCK OPTIONS
On May 13, 1993, the company granted two stockholders (holders) an option to
purchase 9,590,400 and 2,397,600 shares of common stock. The option price was
$.0833 per share. The option could only be exercised by the holder for no less
than all of the shares. As of December 31, 1993, options to purchase 2,397,600
shares of common stock were outstanding.
(66)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS (continued)
On May 13, 1993 and August 31, 1994, options were exercised for 9,590,400 and
2,397,600 shares, respectively. Payment was executed by retiring stockholder
advances in the amount of $799,200 and $199,800, respectively.
In November 1994, the Company, pursuant to employment agreements, granted
options to purchase 1,002,400 shares of common stock at an exercise price of
$.625 per share. These options were issued to officers of the Company. Options
to purchase 212,800 shares of the common stock were immediately vested with the
balance of the options vesting over a two-year period commencing February, 1,
1995. These options will expire in November 2004. None of these options were
exercised during 1994, so 1,002,400 options to purchase shares of common stock
were outstanding as of December 31, 1994.
In September 1995, the Company adopted a stock option plan that reserved a total
of 2,400,000 shares of authorized, but unissued shares of common stock. Options
under the plan may be granted to employees and/or parties who render services to
the Company. The final date on which options can be granted is June 30, 1996.
All options expire on June 30, 2001 if not previously exercised.
During 1995, 525,200 options were granted to employees under the stock option
plan. No options under the plan were exercised during 1995.
In addition, during September 1995, 440,000 stock options were granted to
parties under various settlement agreements. These options under the settlement
agreements expire in September 2000. None of these options were exercised
during the year ended December 31, 1995.
NOTE 11 - LICENSE FEE INCOME
In January 1995, the company entered into a license agreement with Digital
Sciences, Inc. to license the ED technology and services and received an initial
license fee paid in the form of 250,000 shares of Digital Sciences, Inc. common
stock. The shares received on February 27, 1995 had a trading price of $968,750
and a fair value of $629,688, reflecting a 35% discount from trading price, as
the shares were not yet registered (the "Digital Stock"). The company
recognized this stock receipt as income during 1995 as all the requirements of
the company under the agreement were completed during the year.
(67)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
In addition, Digital Sciences, Inc. will pay a license fee based on a
percentage of gross revenue derived from the use of the ED technology and
services. The company did not receive any such license fees in 1995.
(68)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 12 - LICENSE FEE EXPENSE
In 1994, as part of an agreement with NTN Communications, Inc. (NTN), the
company incurred and expensed a license fee of $250,000. Of this fee, $200,000
was paid in 1994, with the remainder due on December 31, 1996. The initial term
of the agreement expires December 13, 2001. Unless terminated, in accordance
with the terms of the agreement, the agreement will be extended for a period of
seven years. The company has a nonexclusive worldwide license to promote,
market and develop an online computer service (service), which will be provided
by NTN, for use with the company's product. The technology of the service
provides two-way interactive computerized games that are broadcast to multiple
locations, can be played by multiple participants at each location and allow the
retrieval and processing of data entered by the participants. The company is
required to pay usage royalties as defined in the agreement.
NOTE 13 - UNCERTAINTY - GOING CONCERN
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. The company cannot currently generate
sufficient revenues and cash flow from operations to meet its business
obligations. Therefore, future operations are predicated on raising additional
capital in debt or equity markets. These factors raise substantial doubt about
the company's ability to continue as a going concern. Any implementation of the
commercialization of the electronic device is dependent upon obtaining
additional financing as may be necessary to ultimately achieve a level of sales
adequate to support the company's operations. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management is continuing its efforts to obtain additional funding from private
and venture capital sources and, with its merger with GTCI (Note 2), from public
sources so the company can meet its obligations and sustain future operations.
See Note 14 for additional information.
(69)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 14 - SUBSEQUENT EVENTS
AMIGA
In January 1996, the company finalized an agreement with Amiga Technologies GmbH
(Amiga), a German company, for a nonexclusive, nontransferable license to the
Amiga computer operating system technology. The initial term of the agreement
expires December 26, 1998. Unless terminated, in accordance with the terms of
the agreement, the agreement is to be renewable for subsequent three-year
periods at the licensee's option. In January 1996, the company paid an initial
royalty deposit of $450,000 to Amiga. The company is required to pay usage
royalties as defined in the agreement.
In April 1996, the company signed a letter of understanding with Amiga and its
parent, Escom AG, to acquire inventory and intellectual property, including
patents and the Amiga computer operating system referred to above. The
tentative acquisition price of the aforementioned assets was $40 million and was
subject to normal due diligence and the completion of the transaction. Escom
subsequently filed for bankruptcy in Germany.
On July 18, 1996, the company entered into a new agreement ("Amiga Agreement")
to acquire certain assets of Amiga (the "Amiga Assets"). The Amiga Assets would
be acquired by the company from the bankruptcy estate of Escom Beteiligungs GmbH
(a former manufacturer and distributor of IBM compatible computers throughout
Europe) (the "bankruptcy estate of Escom"). The purchase price for the Amiga
Assets would be $20.0 million less certain administrative costs associated with
releasing the inventory to the company, estimated to be approximately $1.3
million. The company intends to liquidate the inventory through distribution
agreements. The primary purpose for which the company is seeking to enter into
the agreement is to incorporate Amiga's patented technology as an integral
component of the ED device. The purchase price would be payable in three
installments, with the first installment being due 30 days after the company
posts a bank guarantee for such payment, which guarantee was to be secured
within 30 days of the Amiga Agreement. The first payment of $10.0 million was
due approximately 60 days from the date of the Amiga Agreement, or on or about
September 18, 1996, with additional payments of $5.0 million and $3.7 million to
occur 60 and 90 days, respectively, after posting such bank guarantee.
The Amiga Assets are to be acquired by a newly formed Delaware corporation
("Acquisition Corp.") which was formed expressly for the contemplated
transaction. The company intends to establish an operating entity in
Switzerland, which will enter into a series of sales representation agreements
with sales organizations located throughout the European community.
Prior to the company posting the bank guarantee for the purchase price, Amiga is
obligated to continue its ongoing operations, including the sale of existing
inventories. Any funds received by Amiga from sales between July 18, 1996 and
the date the company posts the bank guarantee will be deposited in a bank
account which will be transferred to the company as part of the purchase of the
Amiga assets. As of October 1, 1996, such sales totaled $645,814. Although the
company currently is in negotiations with certain potential investors in an
attempt to finance this transaction, the company has not obtained any
commitments for financing. Pursuant to previous negotiations with the
bankruptcy estate of Escom, the company received an extension from the earlier
due date until October 14, 1996 to obtain the necessary financing. Although the
time period to obtain financing has passed, the company currently is in active
negotiations with the bankruptcy estate of Escom to gain an additional extension
of time to secure the necessary financing. However, as of October 22, 1996, no
extension had been obtained. There is no assurance the company will be able to
obtain a further extension or the necessary financing to consummate the Amiga
Agreement.
(70)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
(71)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
OTHER
In February 1996, the company raised $50,000 through the issuance of 20,000
shares of common stock. In addition, from March 1 through April 11, 1996, the
company raised $1,000,000 through the issuance of 500,000 shares of common stock
and $250,000 through the exercise of 400,000 options at a price of $.625 per
share which were convertible into 400,000 shares.
On February 5, 1996, the stockholders and board of directors approved an
increase in the number of authorized common shares from 25,000,000 to
50,000,000.
(72)
<PAGE>
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
Years Ended December 31,1995, 1994 and 1993
- - -------------------------------------------------------------------------------
NOTE 14 - SUBSEQUENT EVENTS (continued)
On March 22, 1996, the stockholders of Digital Sciences, Inc. (Notes 4 and 11)
approved the acquisition of Digital Sciences, Inc. by Resource Finance Group
Ltd. Digital Sciences, Inc. merged into DSI Acquisition Corp., a newly-formed,
wholly owned subsidiary of Resource Finance Group Ltd. On April 1, 1996,
Resource Finance Group Ltd. merged into Intelligent Decision Systems Inc., a
wholly owned subsidiary of Resource Finance Group Ltd. Each Digital Sciences,
Inc. common share was converted into one common share of Intelligent Decision
Systems Inc. As of April 11, 1996, Intelligent Decision Systems Inc.'s common
stock was traded on the OTC Bulletin Board at approximately $2.25 per share.
The company's per share carrying value for these shares is $1.14 as of December
31, 1995, reflecting a 35% discount from its trading value, as the shares were
not yet registered.
NOTE 15 - RELATED PARTY TRANSACTIONS
The Company made advances to stockholders of $127,532 and $57,908 during 1993
and 1995, respectively. These amounts, which were originally intended to be
recovered, were forgiven during the years in which they were advanced and
accounted for as compensation expense in 1993 and 1995.
NOTE 16 - RECLASSIFICATION
For comparability, the 1994 and 1993 financial statements reflect
reclassifications where appropriate to conform to the financial statement
presentation used in 1995.
(73)
<PAGE>
SCHEDULE B-1
VISCORP
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Other General and Administrative Expenses
Years Ended December 31, 1995, 1994, and 1993 and
Period from May 1, 1990 (Inception) through December 31, 1995
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Period from
May 1, 1990
(Inception)
through
December 31,
1995 1994 1993 1995
--------- --------- --------- -----------
Salaries $224,391 $47,427 $127,532 $476,456
Payroll taxes 10,887 3,338 - 14,225
Equipment rental - 722 - 722
Advertising - 69 38,214 46,545
Business plan 39,141 2,500 - 41,641
Accounting 59,811 46,920 14,050 136,256
Automobile - 14,159 12,829 37,773
Depreciation and amortization 8,161 3,235 19,993 53,392
Dues and subscriptions - 1,621 1,959 4,620
Delivery - 4,994 - 4,994
Office 25,812 2,489 2,182 34,912
Miscellaneous 26,820 12,152 10,471 49,845
Promotion 16,372 15,318 46,569 94,734
Repair and maintenance 1,344 131 1,312 4,875
Rent and utilities 8,610 15,969 17,653 67,231
Bank charges 486 479 1,385 2,350
Insurance 19,016 2,125 - 21,141
Telephone 58,840 34,372 26,487 137,321
Printing - 5,406 14,534 20,229
Bad debt - - - 11,509
Bad debts - Other 25,000 - - 25,000
Directors' fee 37,500 4,500 - 42,000
Outside services - 98,522 - 98,522
--------- -------- --------- ---------
Total (Exhibit B) $ 562,191 $ 316,448 $ 335,170 $1,426,293
--------- -------- --------- ---------
--------- -------- --------- ---------
(74)
<PAGE>
See independent auditor's report regarding supplemental information.
(75)
<PAGE>
SIGNATURES In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this amendment to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
VISCORP
By: /s/ JEROME GREENBERG
-----------------------------------
January 24, 1997 VisCorp, Chairman of the Board
(76)
<PAGE>
EXHIBIT 10.13
SEVERANCE AGREEMENT
Whereas, William Buck is currently a member of the Board of Directors of
Visual Information Services Corporation of Illinois and/or Viscorp Nevada
(hereinafter referred to collectively as "Viscorp"); and
Whereas, William Buck is currently President of Viscorp Nevada and is or
has acted as Chief Executive Officer and/or President of Visual Information
Services Corporation of Illinois; and
Whereas, Raquel Velasco is and or has acted as a consultant and/or employee
of Viscorp Nevada; and
Whereas, William Buck entered into an Employment Agreement dated November
12, 1994 with Viscorp for a period of three years which he acknowledges to be a
valid and binding document; and
Whereas, it is the desire of William Buck to tender his resignation as it
relates to both of the above named corporations both as an officer and a member
of the Board of Directors and terminate any other relationship he may have with
either corporate entity or its successor; and
Whereas, Raquel Velasco wishes to terminate her relationship as a
consultant and/or employee or in any other way acting on behalf of Viscorp; and
Whereas, each William Buck and Raquel Velasco claim that Viscorp owe either
salary or valid reimbursable expenses incurred by them as a direct result of
acting as and for Viscorp; and
Whereas, William Buck is a significant shareholder of Viscorp; and
Whereas, Viscorp wishes to resolve any and all outstanding claims of
William Buck and Raquel Velasco, now and forever.
FOR GOOD AND SUFFICIENT CONSIDERATION ACKNOWLEDGED BY WILLIAM BUCK AND RAQUEL
VELASCO, IT IS HEREBY AGREED BY AND BETWEEN VISCORP, WILLIAM BUCK AND RAQUEL
VELASCO, AS FOLLOWS:
A. William Buck shall immediately resign as and from the Board of Directors of
each of the corporate entities;
B. William Buck shall immediately tender his resignation as a corporate officer
of each of the corporate entities;
C. Viscorp shall pay to William Buck and Raquel Velasco a total sum of money
approximately $300,000.00 upon the submission of valid and proper approved
business expenses which sum of money shall represent full and complete
settlement of any and all monies claimed by either William Buck or Raquel
Velasco for, but not limited to salary, consultation, reimbursement or for any
other
<PAGE>
purpose or reason or claim either may have now or in the future against Viscorp.
Any funds issued to William Buck and Raquel Velasco shall be issued separately.
The payment of said funds is contingent upon VisCorp Nevada receiving funding
based on the issuance of a certain Offering Memorandum for the issuance of
Viscorp's 8% Cumulative Convertible Preferred Stock with warrants to purchase
shares of common stock as set forth in a Confidential Offering Memorandum
(Wincap deal) dated December 9, 1996 as amended from time to time. The issuance
of monies as set forth in this paragraph is also contingent upon William Buck
having agreed in writing to the terms and conditions of said Offering Memorandum
both individually and as a Board of Director as amended from time to time to
include an exclusion from the reverse stock split of 220,000 shares of common
stock and lock-up agreement owned in the name of William Buck.
D. The funds as set forth in Paragraph C above shall be paid as follows:
1. The first $225,000.00 shall be paid for valid reimbursable expenses
forthwith upon
a. The submission of valid claims to Viscorp and subsequently
approved;
b. Viscorp receiving the first $3,000,000.00 of funding.
2. The balance of valid reimbursable expenses not to exceed the total as
set forth in Paragraph C above shall be paid by VisCorp at a rate of 5% of any
additional funding received as a result of the Wincap funding, said payment to
be made monthly until paid in full.
E. Said payment as it relates to William Buck represents full and complete
payment of any and all claims pursuant to Section 4 of the Employment Agreement
dated November 12, 1994 as well as any and all other claims he may have against
Viscorp or their respective Board of Directors, officers, employees,
representatives, and advisors.
F. William Buck shall continue to cooperate in defending any actions currently
pending or subsequently brought against Viscorp or their respective directors,
officers, employees, representatives and advisors as well as Viscorp bringing
any action against any other party in the future.
G. The remaining terms and conditions of the Employment Agreement dated
November 12, 1994 shall remain in full force and effect as it relates to his
continuing obligations.
H. William Buck shall, in addition, continue to advise Viscorp from time to
time as requested by Viscorp, and shall not, even after termination, do any act
to disparage others from acting with Viscorp.
I. The following terms and conditions shall apply in addition to anything set
forth above to Raquel Velasco:
-2-
<PAGE>
1. She acknowledges that by reason of her consultant and/or employment
she has access to Confidential Information (as defined below)
concerning the business and policies of Viscorp and any affiliate
thereof. She shall not:
a. Divulge or disclose, directly or indirectly, any Confidential
Information to any person, firm, corporation or other entity, for
any purpose or reason whatsoever, or
b. Make use of any of the Confidential Information for purposes or
for the benefit of any person, firm, corporation or other
business entity except Viscorp or any affiliate thereof, except,
in each case, to the extent
i. Such Confidential Information is obtainable from public
sources (other than as a result of any breach of this
Agreement) or is known to her by reason of her prior
employment by any entity other than Viscorp or any
predecessor thereof, or
ii. Such disclosure is required by applicable law or authorized
in writing by Viscorp.
For purposes of this Agreement, "Confidential Information" shall mean all
proprietary information relating to Viscorp and its business (as currently
conducted and as proposed to be conducted), properties and assets.
She agrees that at the time of termination of her relationship with
Viscorp, regardless of the reasons, therefor, she will deliver to Viscorp and
not deliver to anyone else any and all originals and copies of all notes, files,
memoranda, paper and in general, any and all physical matter containing
confidential Information or any other information related to the conduct of the
business of Viscorp. She acknowledges that all such materials are and shall
remain the sole and exclusive property of Viscorp.
2. Non-competition.
A. She and Viscorp acknowledge and recognize that Viscorp's business
has been conducted, and sales of its Products have been and will
be made, in each State of the United States and world-wide, that
the nature of the industry in which Viscorp competes is highly
competitive and that Viscorp would find it extremely difficult or
impossible to replace her. Accordingly, in consideration of the
premises and the covenants contained herein, the consideration to
be received hereunder, she shall not, during the Non-compete
Period (as hereinafter defined):
-3-
<PAGE>
(i) Directly or indirectly engage in, whether such engagement
shall be as an employee, consultant, officer, director,
partner, stockholder (other than ownership of up to 3% of
the outstanding securities of any public company with a
market capitalization of less than $1,000,000,000, ownership
of up to 1% of the outstanding securities of any public
company with a market capitalization of $1,000,000,000 or
more of investments in mutual funds or similar investment
vehicles), affiliate or other participant in any Competitive
Business (as hereinafter defined), or represent in any way,
any Competitive Business, whether such engagement or
representation shall be for profit or not,
(ii) Interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between Viscorp and
any third party, including, without limitation, any
customer, supplier, employee, or consultant of Viscorp, or
(iii) Affirmatively assist, solicit or induce others to
engage in any Competitive Business in any manner
described in the foregoing clauses (i) and (ii).
As used herein, "Competitive Business" shall mean any business involving
the sale of products in any city or county in any State of the United States or
any other jurisdiction outside of the United States if such business or the
products sold by it are competitive, directly or indirectly, with
A. The business of Viscorp,
B. Any of the products, or
C. Any products or business being developed or conducted by Viscorp or
any subsidiaries of Viscorp during the Employment Period.
As used herein, "Noncompete Period" shall mean the 18-month period
commencing on the date of this Agreement.
B. Anything to the contrary contained herein notwithstanding,
nothing in this Section is intended to prohibit Raquel from
making any passive or personal investments, conducting her
private business affairs, donating her time for charitable
purposes or giving seminars or speeches so long as such
activities are not competitive with or adverse to Viscorp, the
Business or the Products.
C. Raquel acknowledges and agrees that the breadth of the
territorial restriction in this Section is reasonable and
necessary to protect Viscorp because, among
-4-
<PAGE>
other things, Viscorp conducts the Business throughout the United
States and outside the United States; the Business could be
located in any jurisdiction in the United States or outside the
United States; and any lesser restriction would unfairly infringe
upon Viscorp's conduct of the Business.
D. Raquel understands that the foregoing restrictions may limit her
ability to earn a livelihood in a business similar to the
Business, but she nevertheless believes that she has received and
will receive sufficient consideration and other benefits from the
transactions contemplated by the Documents and as a consultant
and/or employee of Viscorp and as otherwise provided hereunder to
clearly justify such restrictions which, in any event, given her
education, abilities and skills Raquel does not believe would
prevent her from earning a living.
3. Assignment. This Agreement shall inure to the benefit of and shall be
binding upon Viscorp, its successors and assigns. The obligations and duties of
Raquel are personal and not assignable, whether voluntarily or involuntarily or
by operation of law or otherwise.
4. Notices. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telegraph or facsimile (if
automated confirmation of full transmission is received), nationally -
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
1. If to the Corporation, to :
Viscorp
111 North Canal Street, Suite 933
Chicago, Illinois 60606
Fax: 312/655-0910
Copy to:
Mitchell J. Melamed, Esq.
Frank, Miller, Melamed & Tabis P.C.
200 South Wacker Drive, Suite 420
Chicago, Illinois 60606
Fax: 312/876-0600
2. If to William Buck:
William Buck
-5-
<PAGE>
3. If to Raquel Velasco:
Raquel Velasco
All such notices, requests, consents and other communications shall be
deemed to have been delivered (a) in the case of personal delivery or delivery
by telegraph or facsimile (if automated confirmation of full transmission is
received), on the date of such delivery, (b) in the case of dispatch by
nationally-recognized overnight courier, on the next business day following such
dispatch and (c) in the case of mailing, on the third business day after the
posting thereof.
5. Entire Agreement. This Agreement contains the entire agreement of
Viscorp and William Buck (which incorporates the terms and conditions of his
Employment Agreement) and Raquel Velasco relating to the subject matter hereof.
6. Waiver, Amendment. No provision hereof may be waived except by a
written agreement signed by the waiving party. The waiver of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
other term or condition hereof. This Agreement may be amended only by a
subsequent writing signed by the party or parties to be bound thereby.
7. Governing Law and Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois.
Jurisdiction shall be in the first instance in the Federal Court in the State of
Illinois.
8. Remedies. All remedies hereunder are cumulative, are in addition to
any other remedies provided for by law and may, to the extent permitted by law,
be exercised concurrently or separately, and the exercise of any one remedy
shall not be deemed to be an election of such remedy or to preclude the exercise
of any other remedy. William and Raquel acknowledge that in the event of any
breach of his or her respective covenants contained in this Agreement Viscorp
shall be entitled to immediate relief enjoining such violations in any court or
before any judicial body that Viscorp shall choose to have jurisdiction.
9. Severability. In the event that any provision of this Agreement would
be held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
affecting the invalidity or enforceability of such provision in any other
jurisdiction.
10. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
11. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
-6-
<PAGE>
12. Attorneys. In the event that any party hereto brings an action or
proceeding for a declaration of the rights of the parties under this Agreement,
for injunctive relief, for an alleged breach or default of, or any other action
arising out of, this Agreement or the transactions contemplated hereby, or in
the event any party is in default of its obligations pursuant hereto, whether or
not suit is filed or prosecuted to final judgment, the prevailing party in any
such action or proceeding shall be entitled to reasonable attorney's's fees, in
addition to any court costs incurred and in addition to any other damages or
relief awarded.
13. Medical Benefits to continue as is for six months.
IN WITNESS WHEREOF, Viscorp and William Buck and Raquel Velasco have
executed this Agreement as of the 7 day of January, 1997.
- - --------------------------- ---------------------------
William Buck Raquel Velasco
SUBSCRIBED and SWORN to SUBSCRIBED and SWORN to
before me this 8 day of before me this ________ day of
JANUARY, 1997. ____________________, 1997.
- - ------------------------- ----------------------------
Notary Public Notary Public
[OFFICIAL SEAL]
VisCorp Nevada Visual Information Services Corp.
By: By:
---------------------------- ---------------------------
Its Vice President Its
---------------------- ---------------------
January 5, 1997
-7-
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This document constitutes an Employment Agreement (hereinafter the "Agreement")
dated September 1, 1996 (hereinafter "Date of this Agreement"), by and between
Visual Information Service Corp., an Illinois corporation (hereinafter "Company"
or "VIScorp"), and Hugh A. Jencks (hereinafter the "Employee").
INTRODUCTION
The Employee has extensive experience in set up and management of cable
television companies including full responsibility for budgets, cash flow,
franchise negotiations and relations, staffing and day-to-day operations.
Further Employee has experience in several interactive technologies and their
roll out to a subscriber base.
Employee has served Company in a consulting basis as Chief Operating Officer
from June 19, 1996 to September 1, 1996 and has performed all associated duties
in a fully satisfactory manner. The Company wishes to secure the Employee's
talents and services, and Employee wishes to provide them to the Company.
Now therefore, in consideration of the mutual promises and agreements contained
herein, the parties agree as follows:
1. EMPLOYMENT AND TERM:
1.1 The terms of this Agreement shall be for two (2) years (hereinafter
"Term of this Agreement"), commencing on the Date of this Agreement.
Company hereby agrees to employ Employee, and Employee hereby accepts such
employment for the Term of this Agreement.
1.2 This Agreement may be terminated prior to the end of the Term of this
Agreement only as provided in the below Sections 6 and 7 of this Agreement.
2. PERFORMANCE AND SCOPE:
2.1 During the Term of this Agreement, unless otherwise mutually agreed to
in writing by Employee and Company, Employee agrees to devote his full time
and best efforts in the discharge of his duties on behalf of Company.
2.2 During the Term of this Agreement, Employee will, at a minimum, serve
as Chief Operating Officer.
2.3 During the Term of this Agreement, Employee will report to the Chief
Executive Officer.
<PAGE>
2.4 During the Term of this Agreement, Employee will be responsible for
all day-to-day operations including the establishment and implementation of
all policies and procedures in accordance with normal business practices,
and other efforts related to fulfilling the Company's overall business
mission. Employee shall perform all such other duties as may be assigned
to him which are consistent with Employee's stature, position and
experience.
3. CASH & OTHER COMPENSATION
3.1 Effective as of the Date of this Agreement, Company shall provide
Employee with an initial base cash salary of one hundred twenty thousand
dollars ($120,000.00) per year. Payment will be made twenty six (26) times
per year on every other Friday during the Term of this Agreement. The
initial base cash salary will be effective for twelve (12) months from the
Date of this Agreement.
3.2 Employee's base cash salary compensation level will be reviewed at
least annually during the Term of this Agreement and be increased at a rate
no less than five percent (5.0%) effective upon the first (1st) day of the
thirteenth (13th) and twenty-fifth (25th) months of employment, as measured
from the Date of this Agreement.
3.3 Company agrees to provide Employee with any and all fringe benefits
generally provided to Company's Senior Executives, Officers, Directors and
employees, and their dependents.
3.4 Employee will be entitled to participate in any Company cash, stock
incentive or bonus plans provided to Executives, Officers, or Directors of
the Company.
4. EQUITY INCENTIVES
4.1 In consideration for services to be provided by Employee during the
Term of this Agreement, Company will provide Employee with fully vested
common stock options at a par value of $0.625 per option on a fully diluted
basis (as defined in Section 5 below), as provided for in Sections 4.2, 4.3
and 4.4 below. Stock options may only be exercised in accordance with all
applicable laws and regulations.
Note that Sections 6 and 7 below cover arrangements regarding stock option
incentives in event of early termination of Employee's services and/or this
Agreement.
4.2 Effective as of the Date of this Agreement, Company will initially
grant to Employee an incentive stock option (hereinafter "ISO") at a par
value of $0.625 per option on a fully diluted basis. This initial ISO
grant shall consist of two hundred and fifty thousand (250,000) fully
diluted shares of Company's common stock.
2
<PAGE>
Vesting of this ISO shall be as follows:
- At Date of this Agreement: 25,000 shares
- At end of first year: 100,000 shares
- At end of second year: 125,000 shares
At the end of the first (1st) year of this Agreement, Company will, if
necessary, accelerate the vesting of the initial ISO to the Employee to
increase to the total amount of all non-vested shares.
4.3 Any additional ISOs provided pursuant to Section 4.2 will be
exercisable on the same basis as the options set forth under Section 4.1.
4.4 If in the case that Company is acquired or sold during the period of
the Term of this Agreement, any and all non-vested shares will be fully
vested at time of such acquisition or sale.
4.5 The exercise period during which Employee may exercise his/her rights
regarding all ISOs granted to Employee under the Term of this Agreements
shall extend for a minimum of three (3) years after expiration or
termination of this Agreement, without regard to the reason for expiration
or termination of this agreement, except as may be otherwise noted in
Sections 6.1 and 6.2 below.
5. DEFINITION OF "FULLY DILUTED" SHARES:
For purposes of this Agreement, "fully diluted" shares is defined as the
total common equivalent shares consisting of all outstanding common stock,
preferred stock, stock purchase warrants, stock options, debt convertible
to stock, and any other outstanding securities or rights to acquire equity
interests in Company.
6. TERMINATION
6.1 COMPANY TERMINATION FOR JUST CAUSE: The Company may only terminate
the employment of Employee for just cause limited only to nonperformance of
duties as defined in Section 2 (above) or for proven malfeasance.
If Employee is terminated for just cause, Employee will be compensated at
Employee's then-current rate of base cash compensation up to the date of
termination, plus accrued vacation or other vested benefits, if any, in
accordance with Company policy.
For the period from effective Date of this Agreement to the date of
termination, employee will be entitled to vested stock options as specified
in Section 4.2 (above). Company will, if necessary, accelerate the vesting
on options issued pursuant to Sections 4.2 and 4.3 (above) and Company shall
grant additional vested stock options, if necessary, to achieve the vested
share value pursuant to this section.
3
<PAGE>
In the event of termination for just cause, Employee will have ninety (90)
day period from the date of termination to exercise any vested stock
options as of the date of termination. Employee will not be entitled to
any further benefits under this Agreement following the date of
termination.
6.2 COMPANY TERMINATION FOR OTHER THAN JUST CAUSE: If Company terminates
the employment of Employee for any reason other than just cause, Employee
will be entitled to the following:
6.2.1 Six (6) months current base cash salary and continuance of
full benefits for a period not to exceed six (6) months from the
employee's last day of work plus payment of accrued vacation and other
vested benefits, if any;
6.2.2 Accelerated vesting of all outstanding incentive stock
options held by Employee as of the date of termination;
6.2.3 Extension of the exercise period on all vested options to
ninety (90) days from the date of termination.
6.3 EMPLOYEE VOLUNTARY TERMINATION: Employee may terminate his employment
at any time by providing two (2) months' advance notice in writing. In the
event of voluntary termination, Employee will be entitled to the
compensation arrangements set forth in Section 6.1 (above), unless such
termination is in connection with the relocation of the Company, the
acquisition or sale of the Company, or disability or death (see Sections
6.4, 6.5 and 7.3 below).
6.4 TERMINATION DUE TO COMPANY RELOCATION: If Company relocates the
facilities where Employee normally reports to work outside of a fifty (50)
mile driving distance from the Company offices as of the Date of this
Agreement, at any time during the Term of this Agreement, Employee may
elect to terminate employment and will be entitled to financial
compensation arrangements set forth in Section 6.2.2 and the stock
compensation set forth in Section 6.1.
6.5 Termination due to disability or death: In the event of forced
termination of Employee's services under this Agreement due to disability
or death, Employee or Employee's estate will be entitled to the stock
compensation arrangement set forth in Sections 4.2 and 6.2.
4
<PAGE>
7. OTHER TERMINATION EVENTS
- - -----------------------------
7.1 In addition to termination of employment pursuant to the above Section
6, this Agreement will also be terminated upon occurrence of any one, or
combination, of the following events:
7.1.1 The closing of a public offering of the Company's common
stock
7.1.2 the sale of all or substantially all of the Company's assets
to another individual, corporation or other entity, or
7.1.3 the merger or acquisition of the Company into or by any
other entity.
For the purpose of Section 7.1.3, "merger" or "acquisition" is defined
as a new investor (i.e., with no equity ownership on the date of this
Agreement), existing investor, or any combination of new and/or
existing investors, acquiring a fifty (50) percent or greater
ownership position in a single transaction or a series of transactions
within the Term of this Agreement. In the case of a merger or
acquisition occurring during the Term of this Agreement, Employee will
be entitled to the benefits set forth in Section 7.2 (below).
7.2 In the event of early termination of this Agreement pursuant to
Section 7.1, the vesting of options previously issued pursuant to Sections
4.2 and 4.3 will be accelerated and Employee will be issued fully vested
options immediately prior to the terminating event at the stated par value
(i.e. $0.625 per share).
Employee will also be entitled to the severance benefits defined in Section
6.2 (above).
7.3 In the event of termination of this Agreement due to a merger or
acquisition of the Company as defined in Section 7.1, Employee and Company
will have thirty (30) days following the date of the merger or
acquisition in which to agree to a replacement employment agreement. If no
new agreement is reached within thirty (30) day period, the Employee may,
at Employee's sole option, terminate employment with the Company and will
be entitled to all the severance benefits set forth in Section 6.2 (above),
regarding "Company termination for other than just cause".
8. NON-COMPETITION & CONFIDENTIAL INFORMATION:
- - ------------------------------------------------
Employee shall execute the Company's standard agreement regarding
non-competition and the protection of the Company's confidential
information which shall survive the termination of this Agreement for a
period of one (1) year.
5
<PAGE>
9. ENTIRE AGREEMENT, AMENDMENT:
- - ---------------------------------
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter and supersedes all prior agreements,
representations and understandings of the parties hereto with respect to
the subject matter hereof. This Agreement may be supplemented, modified or
amended only by a written instrument executed by each of the parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date below
written.
/s/ Hugh A. Jencks 9/1/96 /s/ William H. Buck 1 Sept 96
- - ----------------------------------- -----------------------------------
Hugh A. Jencks William H. Buck, CEO
Visual Information Service Corp.
111 North Canal Street
Chicago, IL 60606
6
<PAGE>
EXHIBIT 10.15
VISCORP
A NEVADA CORPORATION
PLACEMENT AGENT AGREEMENT
December 6, 1996
WINCAP, LTD.
Shirley House
50 Shirley Street
Nassau, Bahamas
Dear Sirs:
The undersigned, VISCORP, a Nevada corporation, United States of America
(the "Company"), hereby confirms its agreement with WINCAP, LTD., an
International Business Company, incorporated under the laws of the Commonwealth
of the Bahamas (the "Placement Agent"), as follows:
1. INTRODUCTION. The Company intends to offer for sale and sell, as
promulgated by the Securities and Exchange Commission (the "SEC") in a series of
"offshore transactions" as defined in Rule 902 of Regulation S ("Regulation S")
under the Securities Act of 1933, as amended (the "1933 Act"), to a number of
persons, each of whom (a) is outside the United States (the "U.S."), (b) is not
a U.S. person, as defined in Regulation S ("U.S. Person"), and (c) is not an
affiliate of the Company (as hereinafter defined, an "Affiliate"), up to
6,666,667 shares (the "Shares") of the Company's 8% Cumulative Convertible
Preferred Stock, par value $0.01 per share (the "Preferred Stock"), pursuant to
the terms of the Confidential Offering Memorandum dated December 9, 1996
(together with any exhibits, cover letters, amendments and supplements thereto,
the "Memorandum") (the "Offering"). The Placement Agent may not be the
Company's exclusive sales agent in connection with the Offering, and the Company
may make sales directly to investors, engage other placement agents or may
engage other qualified broker-dealers ("Selected Dealers") to assist in the
Offering.
This Placement Agent Agreement ("Agreement") sets forth the understandings
and agreements between the Company and the Placement Agent whereby, subject to
the terms and conditions herein contained, the Placement Agent will solicit
offers and obtain purchases for the Shares. The Placement Agent is not
obligated to purchase any Shares. The minimum offering amount will be 2,000,000
Shares (the "Minimum Offering") for US$3,000,000, and the maximum offering
amount will be 6,666,667 Shares for US$10,000,000.
2. SALES OF SHARES.
2.1 AGENCY. On the basis of the representations, warranties and covenants
contained herein and subject to the terms and conditions set forth herein, the
Company hereby appoints the Placement Agent as its non-exclusive agent for the
period beginning on the date of this
<PAGE>
WINCAP, LTD.
December 6,1996
Page 2
Agreement and ending on March 31, 1997, subject to extension by the Company (the
"Offering Period"), subject to the earlier termination in accordance with the
terms hereof for the limited purpose of soliciting subscriptions (the
"Subscriptions") from prospective investors. On the basis of the
representations, warranties and covenants contained herein, and subject to the
terms and conditions set forth herein, the Placement Agent shall use its best
efforts as agent to obtain the Subscriptions. The Placement Agent does not
represent that its best efforts will produce any Subscriptions. In connection
therewith, the Placement Agent will not offer any Shares for sale, or solicit
any Subscriptions other than in accordance with the Memorandum.
2.2 MINIMUM OFFERING; TERMINATION DATE. All sales of Shares will be
conditioned on the receipt and acceptance before the end of the Offering Period
of Subscriptions for the Minimum Offering. At the close of business on the last
day of the Offering Period (the "Termination Date") the obligations of the
Placement Agent hereunder to use its best efforts as agent to obtain
Subscriptions shall terminate.
2.3 PRICE; MINIMUM PURCHASE. The offering price for each Share shall be
$1.50 (the "Offering Price"). A potential Investor (as hereinafter defined) is
required to purchase a minimum of 66,667 Shares for US$100,000, subject to
waiver by the Board of Directors.
2.4 ACCEPTANCE OF SUBSCRIPTIONS. No Subscription shall be effective
unless accepted by the Company. Subscription Agreements in the form attached
hereto as EXHIBIT A must be executed by potential Investors. The Shares shall
be offered subject to prior sale. The Company retains the unconditional right
to reject any Subscription in whole or in part; in such event, the funds
delivered by the potential Investor thereunder with respect to such Subscription
shall be returned to such potential Investor as promptly as practicable, and in
such event, no interest on such funds shall be paid to such potential Investor.
2.5 ESCROW. The proceeds of the Offering (the "Funds") will be held by
an escrow agent (the "Escrow Agent") in an escrow account established solely for
the purpose of depositing the Funds (the "Escrow Account") at a bank to be
mutually agreed upon by the Company, the Escrow Agent and the Placement Agent
pursuant to an escrow agreement (the "Escrow Agreement").
Such Escrow Agreement will provide that the Funds shall be released by
the Escrow Agent only upon its receipt of a joint written notice by the Company
and the Placement Agent. If Subscription Agreements for Shares constituting at
least the Minimum Offering have been received and accepted on or before the
Termination Date and the proceeds of the sale of such Shares have been deposited
into the Escrow Account (the "Initial Closing Date"), then the Company and the
Placement Agent shall jointly notify the Escrow Agent to release the Funds in
the following manner: (a) an amount of US$22,500 to the Escrow Agent as Escrow
Fee in
<PAGE>
WINCAP, LTD.
December 6,1996
Page 3
accordance with the Escrow Agreement; (b) 11% of the Funds (less US$11,250) to
the Placement Agent as commissions and fees in accordance with the provisions of
Section 2.6 herein, and (c) the remainder of the Funds shall be released to the
Company. All other rights and obligations of the Escrow Agent will be included
in the separate Escrow Agreement.
2.6 PLACEMENT FEE. In consideration of the Placement Agent's execution of
this Agreement and for the performance of its obligations hereunder, the
Placement Agent shall be entitled to a placement fee (the "Placement Fee") equal
to eleven percent (11%) of the aggregate Offering Price of all Shares sold on a
Closing Date. The Placement Fee consists of the following: (a) a commission
fee equal to 7.5% of the Offering Price; (b) an advisory fee equal to 2% of the
Offering Price; and (c) a fee equal to 1.5% of the Offering Price to cover costs
and expenses in connection with the transactions contemplated hereby and
incurred by the Placement Agent. In addition to the Placement Fee, if the
aggregate amount raised from the sale of Shares pursuant to this Offering
exceeds US$3,000,000, the Placement Agent shall receive warrants to purchase
that number of shares of Common Stock, par value $0.01 per share, of the Company
(the "Common Stock") equal to 10% of the total issued and outstanding shares of
the Common Stock, on a fully diluted basis, as of the date the Offering has been
completed, at an exercise price equal to the Offering Price. The Placement
Agent Warrants shall expire three (3) years from the date of this Agreement (the
"Placement Agent Warrants"). With respect to the warrants that the Investors
are entitled to receive upon purchase of the Shares (the "Preferred Stock
Warrants"), as more fully described in the Subscription Agreement and
Confidential Offering Memorandum, the Placement Agent shall receive a fee equal
to 5% of the proceeds paid to the Company upon the exercise of any of the
Preferred Stock Warrants. The Placement fee, any amounts owed to the Placement
Agent upon the exercise of any of the Preferred Stock Warrants by Investors or
owed by the Placement Agent upon exercise of any of the Placement Agent Warrants
shall be payable in U.S. Dollars.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to, and agrees with, the Placement Agent that:
3.1 NO REGISTRATION OF THE SHARES; REGULATION S; COMPLIANCE WITH
SECURITIES LAWS.
3.1.1 The Shares are not required to be and have not and will not
be registered with the SEC pursuant to the 1933 Act and the rules and
regulations promulgated thereunder, in connection with the Offering. The
Shares will be offered and sold outside the U.S. in reliance upon the
exemption provided by Regulation S of the 1933 Act. The Company has
complied with and will comply with the "safe harbor" requirements of Rule
903 of Regulation S in connection with the Offering.
<PAGE>
WINCAP, LTD.
December 6,1996
Page 4
3.1.2 For the purposes of this Agreement, the term "Affiliate"
means, when used with reference to a specified person, (a) any person or
entity directly or indirectly controlling, controlled by or under common
control with such specified person, and (b) any officer, director or
general partner of an entity referred to in clause (a). The term "control"
shall mean the power to direct the management and policies of a person,
directly or through one or more intermediaries, whether through the
ownership of voting securities, by contract, or otherwise.
3.2 ORGANIZATION; GOOD STANDING OF THE COMPANY. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the State of Nevada with full power and authority to acquire, own, lease and
manage its properties and assets and to conduct the business in which it is
engaged, and is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership of property or the
conduct of its business requires such qualification, except such jurisdictions
where the failure to so qualify would not have a material adverse effect on its
business, properties or condition (financial or otherwise).
4. REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENT. The Placement Agent
represents and warrants to, and agrees with, the Company, that:
4.1 SOLICITATION OF INVESTORS.
4.1.1 The Placement Agent shall use its best efforts to locate
offshore purchasers (the "Investors") who desire the opportunity to
purchase Shares pursuant to the Offering. So far as is under the Placement
Agent's control, the offer and sale of Shares shall be made in reliance
upon the exemption from the registration requirements of Section 5 of the
1933 Act provided by Regulation S and other administrative rules and
regulations interpreting the 1933 Act. The Placement Agent may rely upon
the potential Investor's representations made in the Subscription Agreement
and any additional information it may obtain from the potential Investor,
without having the obligation to make further investigations.
4.1.2 The Placement Agent shall provide a copy of the Memorandum
to each Investor prior to soliciting any offers to subscribe for or offers
to purchase any Shares. The Placement Agent is not authorized to and shall
not give any information or make any representations other than as
contained in the Memorandum. The Placement Agent has only provided copies
of the Memorandum to the potential Investors listed in writing in a letter
to the Company and its counsel by name, address and Memorandum copy number.
<PAGE>
WINCAP, LTD.
December 6,1996
Page 5
4.1.3 The Placement Agent shall control the distribution of copies
of the Memorandum in accordance with applicable U.S. federal and state and
foreign securities laws.
4.2 AMENDMENTS TO MEMORANDUM. Until the end of the Offering Period, if
any event affecting the Offering or the Company shall occur which should be set
forth in a supplement or amendment to the Memorandum, the Placement Agent
agrees, upon receipt of such supplement or amendment from the Company, to
distribute such supplement or amendment to each potential Investor who has
previously received a copy of the Memorandum from the Placement Agent and who
continues to be interested in the Offering, unless the Company shall have
advised the Placement Agent that Shares will not be sold to such potential
Investor. The Placement Agent further agrees to include such supplement or
amendment in all subsequent deliveries of the Memorandum.
4.3 PUBLIC DISCLOSURE. The Placement Agent shall not disclose to anyone
(other than the potential Investors) that it has served as a placement agent in
this transaction or any other transaction with the Company, the terms of this
Agreement, the contents of the Memorandum or any other information it has
received in connection with the Offering, except with the prior written consent
of the Company.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Placement Agent as follows:
5.1 PREPARATION OF MEMORANDUM. The Company will prepare the Memorandum,
which shall be provided to the Placement Agent prior to use.
5.2 DELIVERY OF MEMORANDUM AND OTHER DOCUMENTS. The Company will deliver
to the Placement Agent, as soon as practicable, such reasonable number of copies
of the Memorandum as the Placement Agent may reasonably request for purposes
contemplated herein. The Company also will deliver to the Placement Agent, as
soon as practicable, such numbers of copies of the Subscription Agreement as the
Placement Agent may reasonably request.
6. COVENANTS OF THE PLACEMENT AGENT. The Placement Agent covenants and agrees
with the Company as follows:
6.1 DIRECTED SELLING EFFORTS. The Placement Agent shall not offer or sell
the Shares by means or form of any "directed selling efforts" in the U.S. within
the meaning of Rule 902 of Regulation S, by undertaking any activities that
could reasonably be expected, or are intended, to condition the market with
respect to the Shares, including but not limited to: (a) performing marketing
activities in the U.S. designed to induce the purchase of the Shares
<PAGE>
WINCAP, LTD.
December 6,1996
Page 6
purportedly being distributed abroad, (b) mailing printed material to U.S.
Persons, (c) conducting promotional seminars in the U.S., or (d) placing
advertisements with television or radio stations broadcasting into the U.S. or
in publications with a general circulation in the U.S., which discuss the
Offering or are otherwise intended to condition, or could reasonably be expected
to condition, the market for the Shares.
6.2 TRANSACTIONAL RESTRICTIONS.
6.2.1 SALES MADE PRIOR TO EXPIRATION OF RESTRICTED PERIOD. The
Placement Agent shall make all offers and sales of the Shares, prior to the
expiration of the "restricted period," as defined in Rule 902 of Regulation
S (the "Restricted Period"), only: (a) in accordance with Regulation S,
(b) pursuant to registration of the Shares under the 1933 Act, or (c)
pursuant to an available exemption from the registration requirements of
the 1933 Act.
6.2.2 SALES MADE TO DISTRIBUTORS OR DEALERS. All sales of Shares
to a "distributor", a "dealer" or a "person receiving selling concessions,"
as those terms are defined in Rule 902 of Regulation S, ("Distributors")
prior to the expiration of the Restricted Period, are accompanied by a
confirmation or other notice to the purchaser stating that the purchaser is
subject to the same restrictions on offers and sales that apply to a
Distributor.
6.3 OFFERING RESTRICTIONS.
6.3.1 STATEMENTS TO BE USED IN OFFERING MATERIALS. The Placement
Agent shall ensure that all offering materials and documents (other than
press releases) used in connection with offers and sales of the Shares,
prior to the expiration of the Restricted Period, shall include statements
to the effect that the Shares have not been registered under the 1933 Act
and may not be offered or sold in the U.S. or to U.S. Persons (other than
Distributors), unless: (a) the Shares are registered under the 1933 Act, or
(b) an exemption from the registration requirements of the 1933 Act is
available. The Placement Agent may only use the offering materials and
documents delivered by the Company in connection with the offer of the
Shares.
6.3.2 PURCHASER CERTIFICATIONS; LEGENDS. The Placement Agent
shall cause all offers and sales of the Shares to be made subject to the
following conditions: (a) the purchaser of the Shares (other than a
Distributor) certifies that it is not a U.S. Person and is not acquiring
the Shares for the account or benefit of any U.S. Person or is a U.S.
Person who purchased Shares in a transaction that did not require
registration under the 1933 Act; (b) the purchaser of the Shares (other
than a Distributor) agrees to resell such
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WINCAP, LTD.
December 6,1996
Page 7
Shares (i) only in accordance with Regulation S, (ii) pursuant to
registration, or (iii) pursuant to an available exemption from
registration; and (c) the Shares contain a legend to the effect that the
transfer is prohibited except in accordance with the provisions of
Regulation S. The Placement Agent may rely upon any Share certificate with
a legend in accordance with the provisions of Regulation S issued by the
Company, as well as any Subscription Agreement signed by a potential
Investor.
7. CONDITIONS PRECEDENT TO PLACEMENT AGENT'S OBLIGATIONS. The obligations of
the Placement Agent hereunder shall be subject to the continued accuracy
throughout the Offering Period of the representations, warranties and agreements
of the Company, and to the performance by the Company in all respects of its
obligations hereunder.
8. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS. The obligations of the
Company to continue the Placement Agent's engagement pursuant to this Agreement
shall be subject to the accuracy in all material respects, as of the date hereof
and through each Closing Date, of the representations, warranties and agreements
of the Placement Agent, and to the performance by the Placement Agent in all
respects of its obligations hereunder.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE. Except
as the context otherwise requires, all representations, warranties, covenants
and agreements contained in this Agreement shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Placement Agent or the Company, or by any controlling person of either, and
shall survive the Termination Date.
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY PLACEMENT AGENT. The Placement Agent agrees to
indemnify and hold harmless the Company (and each other person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act, each
officer of the Company who signs a registration statement and each director of
the Company) from and against any losses, claims, damages or liabilities to
which the Company (or any such officer, director or controlling person) may
become subject (under the 1933 Act or otherwise), insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any failure of the Placement Agent to comply
with its covenants and agreements contained herein or any material
misrepresentation herein and the Placement Agent promptly will reimburse the
Company (or such officer, director or controlling person), as the case may be,
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim. The liability of
the Placement Agent under this Agreement will be limited in any case hereunder
solely to gross negligence or willful misconduct on its part.
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WINCAP, LTD.
December 6,1996
Page 8
10.2 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Placement Agent from and against any losses, claims, damages
or liabilities to which the Investor may become subject (under the 1933 Act or
otherwise), insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, any failure
of the Company to comply with its covenants and agreements contained herein or
any material misrepresentation herein and the Company promptly will reimburse
the Placement Agent for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim. The liability of the Company (and each other person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act, each
officer of the Company who signs a registration statement and each director of
the Company) under this Agreement will be limited in any case hereunder solely
to gross negligence or willful misconduct on its part.
10.3 INDEMNIFICATION PROCEDURE. In case any proceeding (including any
governmental investigation) shall be instituted involving any person in respect
of which indemnity may be sought pursuant to either Section 10.1 or 10.2 above,
such person (the "Indemnified Party") shall promptly notify the person against
whom such indemnity may be sought (the "Indemnifying Party") in writing.
The Indemnified Party may retain its own counsel, reasonably satisfactory
to the Indemnifying Party, at the expense of such Indemnified Party, or may
request the Indemnifying Party to retain counsel, reasonably satisfactory to the
Indemnified Party, to represent the Indemnified Party in such proceeding at the
expense of the Indemnifying Party.
It is understood that the Indemnifying Party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the fees and expenses of more than one separate firm (in addition to any local
counsel) for the Indemnified Party and that all such fees and expenses shall be
reimbursed as they are incurred.
The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there is a final judgment for the plaintiff, the Indemnifying
Party agrees to indemnify the Indemnified Party from and against any loss or
liability by reason of such settlement or judgment. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such proceeding.
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WINCAP, LTD.
December 6,1996
Page 9
11. EFFECTIVE DATE AND TERMINATION OF AGREEMENT.
11.1 EFFECTIVE DATE. This Agreement shall become effective as of the date
of execution hereof.
11.2 FAILURE TO FULFILL CONDITIONS. In the event that either party fails
to fulfill (the "Non-Fulfilling Party") any of the conditions precedent to the
performance of the obligations of the other party (the "Other Party"), the Other
Party shall elect to either (a) waive such unfulfilled condition or conditions
and consummate the transaction which is the subject hereof, in which event no
claim may be asserted against the Non-Fulfilling Party by reason of the matters
which were the subject of such conditions, or (b) terminate this Agreement as
provided below.
11.3 TERMINATION. Either party may terminate this Agreement at any time
for any reasons, without any further obligation to the non-terminating party.
12. NOTICES. Any notice, reply or other communication required or permitted by
this Agreement, except as herein otherwise specifically provided, shall be in
writing and (i) if sent to the Placement Agent, shall be mailed, delivered or
telecopied and confirmed to WINCAP, LTD., Shirley House, 50 Shirley Street,
Nassau, Bahamas, Attention: Martin Christen (telecopier: 011-809-322-6694) and
(ii) if sent to the Company, shall be mailed, delivered or telecopied and
confirmed to VisCorp, 111 North Canal Street, Suite 933, Chicago, Illinois,
60606, Attention: Jerome Greenberg (telecopier: 312-655-0910), with a copy to
Herbert S. Wander and David T. Novick, Katten Muchin & Zavis, 525 West Monroe,
Suite 1600, Chicago, Illinois 60661 (telecopier: 312-902-1061). Any party may
change its address for notice by giving notice of its new address to the other
parties in the manner specified above.
13. MISCELLANEOUS.
13.1 CONFIDENTIALITY. The Placement Agent agrees and acknowledges that
certain information furnished by the Company pursuant to the Placement Agent's
requests may be of a proprietary nature and that any information so designated
by the Company shall be kept confidential and shall not be disclosed to any
third party without the prior approval of the Company, except as may otherwise
be required by law or court order.
13.2 PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon each of the Placement Agent, the Company and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have a legal or
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WINCAP, LTD.
December 6,1996
Page 10
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained.
13.3 CONSTRUCTION. This Agreement shall be construed in accordance with
the laws of the State of Illinois, without giving effect to the principles
thereof relating to the conflict of laws.
13.4 DESCRIPTIVE HEADING; DEFINED TERMS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement. Capitalized terms not
otherwise defined in this Agreement shall have the respective meanings set forth
in the Memorandum.
13.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and, if executed in more than one counterpart, the executed
counterparts shall together constitute a single instrument.
13.6 ENTIRE AGREEMENT; WRITTEN WAIVERS. This Agreement constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations between the
parties with respect to the subject matter hereof. Neither the Company nor the
Placement Agent has relied on any written or oral representations or
inducements, other than those which are set forth in this Agreement in executing
and delivering this Agreement. No waiver, alteration or modification of any of
the provisions hereof shall be binding unless it is in writing and signed by
each of the parties hereto.
13.7 SEVERABILITY. If any of the provisions of this Agreement are rendered
or declared illegal by reason of any existing or subsequently enacted
legislation or by decree of a court of last resort, the remaining provisions of
the Agreement shall remain in full force and effect.
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WINCAP, LTD.
December 6,1996
Page 11
If the foregoing correctly sets forth the understanding between the
Placement Agent and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among the parties.
Very truly yours,
VISCORP
By:
-----------------------------------
Name: Jerome Greenberg
Title: Chairman of the Board
AGREED AND ACCEPTED:
WINCAP, LTD.
By:
-----------------------------------
Martin Christen
Managing Director