U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB/A
(Amendment No. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
VideoPropulsion, Inc.
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(Name of Small Business Issuer in its charter)
Wisconsin 39-1976286
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
251 Info Highway, Slinger, WI 53086
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(Address of principal executive offices) (Zip code)
Issuer's telephone number (262) 644-1000
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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 registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of class)
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
Item 1. Description of Business
The information required by this item is contained in the sections entitled
"INTRODUCTION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," and "BUSINESS OF THE COMPANY" in the
Information Statement dated June 16, 2000 (the "Information Statement").
Item 2. Management's Discussion and Analysis of Plan of Operations.
The information required by this Item is contained in the sections of the
Information Statement entitled "FINANCING," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "BUSINESS OF
THE COMPANY," and "DIVIDEND POLICY."
Item 3. Description of Property
The information required by this Item is contained in the section entitled
"BUSINESS OF THE COMPANY" in the Information Statement.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is contained in the sections entitled
"MANAGEMENT OF THE COMPANY" and "EXECUTIVE COMPENSATION - Security
Ownership in VideoPropulsion by its Directors and Executive Officers" in
the Information Statement.
Item 5. Directors and Executive Officers, Promoters and Control Persons.
The information required by this Item is contained in the sections entitled
"MANAGEMENT OF THE COMPANY - Directors" and "MANAGEMENT OF THE COMPANY -
Executive Officers" in the Information Statement.
Item 6. Executive Compensation.
The information required by this Item is contained in the section entitled
"EXECUTIVE COMPENSATION - Historical Compensation" in the Information
Statement.
Item 7. Certain Relationships and Related Transactions.
The information required by this Item is contained in the sections entitled
"Summary of Certain Information," "THE DISTRIBUTION - Relationship Between
GENROCO and the company After the Distribution" and "BUSINESS OF THE
COMPANY - Transactions and Agreements Between the Company and GENROCO" in
the Information Statement.
Item 8. Description of Securities.
The information required by this Item is contained in the section entitled
"DISCRIPTION OF THE COMPANY'S CAPITAL STOCK," "PURPOSES AND EFFECTS OF
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION, BY-LAWS AND
WISCONSIN STATUTORY LAW," and "DIVIDEND POLICY" in the Information
Statement.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
The Information required by this Item is contained in the sections entitled
"SUMMARY - Summary of Certain Financial Information for VideoPropulsion,
Inc.," "THE DISTRIBUTION - Manner of Effecting the Distribution," "THE
DISTRIBUTION - Results of the Distribution," "THE DISTRIBUTION - Listing
and Trading of Shares of Company Stock," "THE DISTRIBUTION - Dividend
Policy." "EXECUTIVE COMPENSATION - Security Ownership in VideoPropulsion by
its Directors and Executive Officers," and "DESCRIPTION OF COMPANY -
Capital Stock" in the Information Statement.
Item 2. Legal Proceedings.
The information required by this Item is contained in the section entitled
"BUSINESS OF THE COMPANY - Legal Proceedings."
Item 3. Changes in and Disagreements with Accountants.
There have been no changes in and disagreements with accountants as defined
by Item 304 of Regulation S-B.
Item 4. Recent Sales of Unregistered Securities.
The information required by this Item is as follows: On October 4, 1999,
the Company issued one thousand shares of its common stock, in reliance
upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, for a total consideration of $10,000 in cash plus
$488,532 which represents cumulative capital contributions by the Parent
through October 4, 1999, to GENROCO, Inc. ("GENROCO") which is and will be
the Company's sole shareholder until the Distribution has been completed as
of the Distribution Date as described in the section entitled "THE
DISTRIBUTION" in the Information Statement. On June 16, 2000,
VideoPropulsion, Inc. split its stock so that it now has 4,362,312 shares
outstanding, all of which are owned by GENROCO, Inc. Subsequent to the
Distribution, GENROCO will hold no capital stock in the Company.
Item 5. Indemnification of Directors and Officers.
The information required by this Item is contained in the section entitled
"LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS" in the
Information Statement.
PART F/S
The information required by this Item is contained in the Information
Statement sections entitled "Summary of Certain Information,"
"Capitalization," "Selected Historical financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations, "
and "APPENDIX A - FINANCIAL STATEMENTS - VIDEOPROPULSION, INC." in the
Information Statement.
The Financial Statements of VideoPropulsion, Inc. (Appendix A of the
Information Statement) consist of the following:
- Report Of Independent Public Accountants
- Balance Sheets
- Statements Of Operations
- Statements Of Cash Flows
- Statements of Stockholder's Investment
- Notes To Financial Statements
PART III
Item 1. Index to Exhibits.
Exhibit Description
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2.1 Annex A - Information Statement of the Registrant dated June 16,
2000 (the "Information Statement")
3.1 Form of Amended and Restated Articles of Incorporation of the
Company is submitted as Appendix B to the Information Statement
3.2 Form of Amended By-Laws of the Company is submitted as Appendix C
to the Information Statement
4.1 Specimen form of Company stock certificate*
10.1 Form of General Assignment, Assumption and Agreement Regarding
Litigation, Claims and Other Liabilities between GENROCO and the
Company*
10.2 Form of Contribution Agreement, Plan and Agreement of
Reorganization and Distribution between GENROCO and the Company*
10.3 Form of Lease between GENROCO and the Company*
10.4 Form of Tax Sharing And Indemnification Agreement by and between
GENROCO and the Company*
10.5 Form of Transitional Trademark Use and License Agreement*
10.6 Form of Interim Administrative Services Agreement*
10.7 Form of Employee Benefits and Compensation Agreements between
GENROCO and the Company*
10.8 Form of Bill of Sale and Assumption of Liabilities*
10.9 Form of Composite Certificate of Secretary of GENROCO*
10.10 Form of Insurance Matters Agreement*
10.11 Form of Confidentiality and Non-Disclosure Agreement*
27.1 Financial Data Schedule for year ended December 31, 1998
27.2 Financial Data Schedule for year ended December 31, 1999
27.3 Financial Data Schedule for three months ended March 31, 2000
* Previously filed with Form 10 on March 23, 2000
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has dully caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto dully authorized.
VideoPropulsion, Inc.
(Registrant)
Date: June 19, 2000 By /s/ Barbara R. Pick
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Barbara R. Pick, President, Chief Executive
Officer and Director.
By /s/ Keith E. Brue
--------------------------------------------------
Keith E. Brue, Secretary, Treasurer, and Director
ANNEX A
SEC FORM 10-SB FOR VIDEOPROPULSION, INC
Filed on June 19, 2000
(GENROCO LOGO)
JUNE 19, 2000
DEAR SHAREHOLDER:
IN AUGUST OF 1999, THE BOARD OF DIRECTORS OF GENROCO INC. ("GENROCO") APPROVED
SPINNING OFF THE COMPANY'S DIGITAL VIDEO BUSINESS AS A SEPARATE PUBLIC
COMPANY. THIS SPIN-OFF IS INTENDED TO FOCUS AND STRENGTHEN THE DIGITAL VIDEO
BUSINESS UNIT AND ENHANCE THE VALUE OF YOUR INVESTMENT BY FOCUSING MANAGEMENT
TIME ON EACH CORE BUSINESS. SINCE THAT TIME, WE HAVE BEEN WORKING DILIGENTLY TO
IMPLEMENT THIS PLAN. IN OCTOBER, GENROCO FORMED A NEW SUBSIDIARY,
VIDEOPROPULSION, INC. ("VIDEOPROPULSION"), INTO WHICH GENROCO'S DIGITAL VIDEO
BUSINESS WAS TRANSFERRED, EFFECTIVE OCTOBER 4, 1999. THE SHARES OF
VIDEOPROPULSION WILL BE DISTRIBUTED TO GENROCO SHAREHOLDERS ON OR ABOUT JULY 10,
2000 TO SHAREHOLDERS OF RECORD AS OF JUNE 30, 2000 AND VIDEOPROPULSION, INC WILL
HAVE BEGUN ITS NEW LIFE AS AN INDEPENDENT COMPANY WITH YOU AS ONE OF ITS
INITIAL SHAREHOLDERS.
IF YOU ARE A GENROCO SHAREHOLDER OF RECORD AS OF THE CLOSE OF BUSINESS ON JUNE
30, 2000, YOU WILL RECEIVE ONE SHARE OF VIDEOPROPULSION, INC. COMMON STOCK FOR
EACH SHARE OF GENROCO COMMON STOCK THAT YOU OWN. VIDEOPROPULSION STOCK
CERTIFICATES WILL BE MAILED BEGINNING JULY 10, 2000. NO ACTION IS REQUIRED ON
YOUR PART TO RECEIVE YOUR VIDEOPROPULSION SHARES. YOU WILL NOT BE REQUIRED TO
EITHER PAY ANYTHING FOR THE NEW SHARES OR TO SURRENDER YOUR GENROCO SHARES AS
DESCRIBED IN MORE DETAIL IN THIS STATEMENT. THE COMPANY BELIEVES THAT THE
RECEIPT OF VIDEOPROPULSION SHARES IN THE SPIN-OFF MAY BE SUBJECT TO FEDERAL
INCOME TAX.
THE ENCLOSED INFORMATION STATEMENT DESCRIBES THE SPIN-OFF IN DETAIL AND CONTAINS
IMPORTANT INFORMATION ABOUT VIDEOPROPULSION, INCLUDING HISTORICAL FINANCIAL
STATEMENTS. I ENCOURAGE YOU TO READ IT CAREFULLY.
WE ARE ENTHUSIASTIC ABOUT THE PROSPECTS FOR VIDEOPROPULSION'S FUTURE BUSINESS.
GENROCO AND VIDEOPROPULSION ARE DEDICATED TO OBTAINING LEADERSHIP POSITIONS IN
THEIR RESPECTIVE MARKETS AND DELIVERING SUPERIOR VALUE TO THEIR SHAREHOLDERS.
THANK YOU FOR YOUR CONTINUED SUPPORT AS A SHAREHOLDER.
SINCERELY,
CARL A. PICK
CHAIRMAN AND CEO
GENROCO, INC.
(VIDEOPROPULSION, INC. LOGO)
JUNE 19, 2000
DEAR FELLOW SHAREHOLDER:
YOU ARE ABOUT TO BECOME A SHAREHOLDER OF VIDEOPROPULSION, INC.
("VIDEOPROPULSION"). ON BEHALF OF ALL OF US WHO ARE PART OF VIDEOPROPULSION, I
AM PLEASED TO WELCOME YOU AS A SHAREHOLDER.
THE DOCUMENT THAT FOLLOWS CONTAINS INFORMATION ABOUT THE SPIN-OFF OF
VIDEOPROPULSION, INC. FROM GENROCO, INC. AS WELL AS IMPORTANT FINANCIAL AND
OTHER INFORMATION ABOUT VIDEOPROPULSION. I ENCOURAGE YOU TO READ THIS DOCUMENT
AND BECOME FAMILIAR WITH YOUR NEW COMPANY.
ALTHOUGH WE ARE A NEW COMPANY, WE NONETHELESS HAVE A RICH HERITAGE THAT INCLUDES
YEARS OF PARTICIPATION IN THE ELECTRONICS INDUSTRY AS A SUPPLIER AND INNOVATOR
OF NETWORK INTERFACE EQUIPMENT . IT IS A HERITAGE THAT WE INTEND TO BUILD UPON
AS AN INDEPENDENT COMPANY.
I BELIEVE THERE ARE SIGNIFICANT OPPORTUNITIES FOR OUR COMPANY THAT WILL BE WELL
SERVED BY THE BUSINESS FOCUS RESULTING FROM THE SPIN-OFF. OUR MANAGEMENT TEAM
IS EAGER TO DISTINGUISH VIDEOPROPULSION, INC. I HOPE YOU WILL AGREE, AND SHARE
IN OUR FUTURE.
BARBARA R. PICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIDEOPROPULSION, INC.
INFORMATION STATEMENT
VIDEOPROPULSION, INC.
COMMON STOCK
CONSIDER CAREFULLY THE RISK FACTORS PRESENTED IN THIS DOCUMENT.
STOCKHOLDER APPROVAL OF THE DISTRIBUTION OF VIDEOPROPULSION COMMON STOCK IS NOT
REQUIRED. WE ARE NOT ASKING YOU FOR A PROXY AND WE REQUEST THAT YOU DO NOT SEND
US A PROXY. WHILE THE DISTRIBUTION IS EXPECTED TO BE TAXABLE AS A DIVIDEND, YOU
ARE NOT OTHERWISE REQUIRED TO MAKE A PAYMENT FOR THE VIDEOPROPULSION SHARES.
WE ARE PROVIDING THIS INFORMATION STATEMENT TO YOU AS A SHAREHOLDER OF GENROCO,
INC. IN CONNECTION WITH THE DISTRIBUTION BY GENROCO TO ITS SHAREHOLDERS OF ALL
OF THE STOCK THAT IT OWNS OF VIDEOPROPULSION, WHICH IS EQUAL TO 100% OF THE
TOTAL STOCK OF VIDEOPROPULSION.
THE SPIN-OFF DISTRIBUTION WILL BE MADE ON JULY 10, 2000 TO SHAREHOLDERS OF
RECORD ON JUNE 30, 2000. IF YOU ARE A SHAREHOLDER OF GENROCO, YOU WILL RECEIVE
ONE SHARE OF VIDEOPROPULSION FOR EVERY ONE SHARE OF GENROCO STOCK THAT YOU HOLD
ON THE RECORD DATE. CERTIFICATES FOR THE SHARES WILL BE MAILED TO YOU, OR YOUR
BROKERAGE ACCOUNT, ON OR ABOUT JULY 10, 2000. YOU WILL NOT NEED TO EXCHANGE
YOUR GENROCO CERTIFICATES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE VIDEOPROPULSION COMMON STOCK OR
DETERMINED THAT THE INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
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SUMMARY 14
THE DISTRIBUTION 14
TAX CONSEQUENCE 14
WHY IS GENROCO SPINNING OFF VIDEOPROPULSION 15
WHAT DO I HAVE TO DO TO PARTICIPATE IN THE DISTRIBUTION? 15
INTRODUCTION 16
HISTORY 16
THE DISTRIBUTION 18
REASONS FOR THE DISTRIBUTION 18
DISTRIBUTION AGENT 18
MANNER OF EFFECTING THE DISTRIBUTION 18
RESULTS OF THE DISTRIBUTION 19
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION 19
LISTING AND TRADING OF SHARES OF COMPANY COMMON STOCK 22
DIVIDEND POLICY 22
RELATIONSHIP BETWEEN GENROCO AND THE COMPANY AFTER THE DISTRIBUTION 22
REASONS FOR FURNISHING THE INFORMATION STATEMENT 23
FINANCING 23
INVESTMENT CONSIDERATIONS AND RISK FACTORS 24
TRANSACTION MAY BE DEEMED TAXABLE BY THE IRS 24
COMPANY INDEBTEDNESS 24
COMPANY'S ABILITY TO CONTINUE IN BUSINESS 25
LACK OF OPERATING HISTORY AS AN INDEPENDENT ENTITY 25
DEPENDENCE UPON CERTAIN CUSTOMERS AND SUPPLIERS 25
MARKET FOR THE COMPANY'S PRODUCTS 26
TECHNOLOGICAL CHANGES 26
ACCEPTANCE OF TECHNOLOGY 27
CUSTOMERS 27
INDUSTRY SEGMENTS 27
INABILITY TO PENETRATE THE DIGITAL VIDEO MARKET 27
COMPETITIVE PRICING PRESSURES MAY INCREASE 28
NEW PRODUCTS MAY CONTAIN UNDETECTED HARDWARE AND SOFTWARE ERRORS 28
SUPPLIERS 28
COMPONENTS 29
REGULATORY APPROVALS MAY NOT BE COMPLIED WITH 30
QUARTERLY FLUCTUATIONS 30
LOSS OF KEY PERSONNEL OR INABILITY TO HIRE
ADDITIONAL QUALIFIED PERSONNEL 30
INTELLECTUAL PROPERTY MAY NOT PROTECT THE COMPANY 31
INTERNATIONAL SALES MAY NOT MATERIALIZE 31
NO PRIOR PUBLIC MARKET FOR COMMON STOCK 32
DIVIDEND POLICY 32
COMPETITION 33
CAPITALIZATION 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 34
OVERVIEW 34
YEARS ENDED DECEMBER 31, 1999 AND 1998 34
SELECTED HISTORICAL FINANCIAL DATA 34
LIQUIDITY AND CAPITAL RESOURCES 36
BUSINESS OF THE COMPANY 37
GENERAL 37
BUSINESS STRATEGY 37
MARKETS DEFINED 37
THE COMPANY'S CURRENT PRODUCTS 38
FUTURE PRODUCTS 39
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY 39
SALES AND MARKETING / DISTRIBUTION AND SALES CHANNELS 40
MAJOR CUSTOMERS 40
COMPETITION 40
RESEARCH AND DEVELOPMENT 41
EMPLOYEES 41
FACILITIES 41
SUPPLIERS 42
FISCAL YEAR END 43
LEGAL PROCEEDINGS 43
TRANSACTIONS AND AGREEMENTS BETWEEN THE COMPANY AND GENROCO 43
MANAGEMENT OF THE COMPANY 47
DIRECTORS AND EXECUTIVE OFFICERS 47
COMMITTEES OF THE BOARD OF DIRECTORS 48
DIRECTORS COMPENSATION 48
EXECUTIVE COMPENSATION 49
HISTORICAL COMPENSATION 49
SECURITY OWNERSHIP IN VIDEOPROPULSION
BY ITS DIRECTORS AND EXECUTIVE OFFICERS 49
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) 51
EMPLOYMENT AND NON-COMPETE AGREEMENTS 51
STOCK OPTION PLAN 52
DESCRIPTION OF COMPANY CAPITAL STOCK 53
GENERAL 53
COMMON STOCK OF VIDEOPROPULSION, INC 53
AUTHORIZED CAPITAL STOCK 53
COMMON STOCK 53
PREFERRED STOCK 54
TRANSFER AGENT 54
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION, BY-LAWS AND WISCONSIN STATUTORY LAW 55
GENERAL 55
CLASSIFIED BOARD OF DIRECTORS 55
CERTAIN ANTI TAKE-OVER PROVISIONS 56
CERTAIN WISCONSIN ANTI-TAKEOVER EFFECTS 58
DIVIDEND POLICY 59
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS 59
LIMITATION ON LIABILITY OF DIRECTORS 59
INDEMNIFICATION AND INSURANCE 60
AVAILABLE SEC FILING INFORMATION 61
APPENDIX A - FINANCIAL STATEMENTS -VIDEOPROPULSION, INC. 62
APPENDIX B - ARTICLES OF INCORPORATION, VIDEOPROPULSION, INC. 73
APPENDIX C - BY-LAWS OF VIDEOPROPULSION, INC. 76
Exhibit 27.1 - Financial Data Schedule for period ended December 31, 1999
Exhibit 27.2 - Financial Data Schedule for period ended December 31, 1998
Exhibit 27.3 - Financial Data Schedule for period ended March 31, 2000
SUMMARY
This Summary is qualified by the more detailed information set forth
elsewhere in this Information Statement which should be read in its entirety.
Capitalized terms used but not defined in this summary are defined elsewhere in
this Information Statement. To better understand the distribution, and the
business and financial position of VideoPropulsion, you should review the entire
document.
THE DISTRIBUTION
Distributing Company GENROCO, Inc. a Wisconsin corporation
("GENROCO").
Distributed Company VideoPropulsion, Inc., a Wisconsin corporation
in the development stage (the "Company" or
"VideoPropulsion"), which will design,
develop, manufacture and market its Digital
Video Broadcast ("DVB") products to be sold to
customers within the digital video industry
worldwide.
Distribution Ratio One share of Company common stock for every
one share of GENROCO stock held as of the
Record Date.
Securities to be Distributed There are 4,362,312 shares of GENROCO common
stock outstanding as of June 19, 2000. Shares
of VideoPropulsion, equal in number of shares
of Genroco stock outstanding as of June 30,
2000 (approximately 4,400,000). will be
distributed. The Company anticipates declaring
a 4 for 1 stock split within ten days after the
record date. In the event that this happens,
each record holder will receive three
additional shares of VideoPropulsion common
stock on the distribution date.
Record Date June 30, 2000 (close of business).
Distribution Date July 10, 2000.
TAX CONSEQUENCE Because of accumulated losses to date, the
Company believes that the amount of the
distribution to the recipient will be treated,
for federal income tax purposes, as a return
of capital to the extent of the recipients
basis in GENROCO shares and, to the extent
that the amount of the distribution exceeds
the basis of a recipients shares in GENROCO,
capital gain will result if the GENROCO shares
are held as a capital asset by the recipient.
Risk Factors See "Investment Considerations and Risk
Factors" for a discussion of the risk factors
that should be considered in connection with
the shares received in the Distribution.
Principal Office of Company VideoPropulsion, Inc., 251 Info Highway,
Slinger, WI 53086 Phone # 262-644-1000
Why is GENROCO spinning off GENROCO is creating an independent company for
VideoPropulsionion? its digital video business because GENROCO's
management believes the combined value of two
separate businesses will be greater than the
value of GENROCO as a whole. VideoPropulsion
will focus solely on its business and the
market will be able to directly value
VideoPropulsion's activities.
What do I have to do to Nothing. If you own GENROCO's shares on the
participate in the distribution? record date (June 30, 2000), you will receive
one share of VideoPropulsion common stock for
each share of GENROCO common stock. The
number of shares of GENROCO common stock
outstanding will not change as a result of the
distribution.
Will the distribution affect Yes. After the distribution, the trading
the trading price of GENROCO price of GENROCO common stock is likely to
common stock ? trade lower. Until the market has fully
analyzed VideoPropulsion's business, the price
of both GENROCO and Video Propulsion will
likely fluctuate.
What happens to the Unless you exercise prior to the record date,
GENROCO warrants? the warrant price and the number of shares
underlying the warrant will be adjusted as
set forth in Section 4 of the warrant. The
distribution will cause GENROCO to adjust the
number of shares and price depending on the
trading price of GENROCO ten days before and
after the record date. Once this calculation
is completed, the warrant holder will then be
given the choice of receiving a portion of
the adjustment in the form of warrants (with
no registration rights) in VideoPropulsion
common stock
Who do I contact for Before the distribution, please contact
more information? GENROCO, Inc.
Attention: Carl A. Pick, Chairman and CEO
Phone: 414-732-7433
E-Mail: [email protected]
----------------
Or
Attention: Keith Brue, Executive Vice
President and Chief Financial Officer
Phone 414-732-5356
E-Mail: [email protected]
-----------------
After the Spin-off, please contact
VideoPropulsion, Inc.
Attention Barbara R. Pick, President and CEO
Phone: 414-732-5433
E-Mail: [email protected]
------------------------
Or
Attention: Keith E. Brue, Secretary and
Treasurer
Phone 414-732-5356
E-Mail: [email protected]
-------------------------
Relationship with GENROCO GENROCO will have no stock ownership in the
after the Distribution Company after the Distribution. The Company
and GENROCO have entered into several
agreements for the purpose of giving effect to
the Distribution and defining their ongoing
relationships. These include agreements
providing for the transfer to the Company of
substantially all of the assets and
liabilities of the digital video business,
pursuant to which GENROCO generally will
indemnify the Company against liabilities,
litigation and claims arising out of all
GENROCO operations not transferred to the
Company, and the Company generally will
indemnify GENROCO against liabilities,
litigation and claims arising out of the
digital video business. In addition,
following the Distribution Date, the Company
and GENROCO intend to continue other
commercial transactions pursuant to arms-
length negotiations in the ordinary course.
See "BUSINESS OF THE COMPANY."
INTRODUCTION
HISTORY
VideoPropulsion designs and sells a range of digital video products which
provide enabling technology for a variety of applications that allow
consumers to use their TV sets for interactive services including email,
home shopping, web browsing, video-on-demand and Internet based telephony.
A typical application for the Company's products is providing connectivity
between the video servers (which store media that is available to be sent,
via cable TV, to a set-top decoder box at a consumers location) in the
central office of any given cable TV provider and the cable headend (which
is the electronic device in the central office of the cable company that
forwards all TV signals from the central office to the cables leading to
the consumers' set-top box).
GENROCO (VideoPropulsion's sole shareholder) designs, manufactures and
sells a range of high-performance network interface cards, bridges and
switches. GENROCO's products are used in Storage Area Networks (SANs) that
connect data storage to computer processors.
VideoPropulsion's principal executive offices are located at 251 Info
Highway, Slinger, WI 53086.
Telephone (262)-644-1000.
Internet address is: www.videopropulsion.com.
-----------------------
GENROCO's principal executive offices are located at 255 Info Highway,
Slinger, WI 53086.
Telephone (262)-644-8700
Internet address is: www.genroco.com
---------------
GENROCO operates two segments - a storage area network (SAN) segment and a
digital video segment.
The Board of Directors of GENROCO has declared a distribution (the
"Distribution"), payable in accordance with the terms of the Contribution
Agreement to the holders of GENROCO common stock at the close of business
on June 30, 2000 (the "Record Date"), of one Share of VideoPropulsion
common stock for each Share of common stock of GENROCO (the "Distribution
Ratio") held on the Record Date. The Shares to be distributed will
constitute all of the outstanding Shares of the Company. See "DISCRIPTION
OF COMPANY CAPITAL STOCK". The Distribution is scheduled to occur on July
10, 2000 (the "Distribution Date"). See "THE DISTRIBUTION - Manner of
Effecting the Distribution."
The Company is voluntarily registering its common stock under the
Securities Exchange Act of 1934 (as amended) by filing an SEC Form 10-SB.
This filing will serve to obligate the Company to be a reporting company
under Section 13 or 15 (d) of the Securities and Exchange Act of 1934 (as
amended). There is not currently a public market for VideoPropulsion
Shares and there can be no assurance that an active market will develop
following the Distribution.
In its resolutions authorizing the Distribution, the GENROCO Board of
Directors has reserved the right to abandon or postpone the distribution at
any time prior to the Distribution Date, although such action is not
anticipated. See "THE DISTRIBUTION - Manner of Effecting the Distribution"
and "FINANCING."
The fair market value of the forthcoming VideoPropulsion spin-off, which
GENROCO believes may be treated as a taxable dividend, has been estimated
by an independent third-party professional appraisal firm on January 1,
2000 to be approximately $400,000 in the aggregate (approximately $.09 per
share based upon 4,362,312 shares estimated to be issued upon the
Distribution). The company has not requested an update but notes that,
during the three months ended March 31, 2000, the Company has lost
approximately $206,000.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The primary reason for the distribution is to enhance total shareholder
value over the long run. Even though some technological overlap exists,
the general markets and customer bases served by GENROCO's SAN and digital
video businesses are different. GENROCO's management believes that the
different customer base of each business unit requires that a separate
sales, distribution and service infrastructure be put into place in order
to maximize the chances for economic success for each of the entities.
Given that these infrastructures already include unrelated groups of
strategic business alliances, management has determined that it will be in
the best interest of GENROCO's current shareholders to cause each company
to be operated as a separate entity.
In determining whether the Distribution was in its shareholders' best
interests, GENROCO considered a number of factors, including the short,
intermediate and long-term business impact on GENROCO and the Company, the
tax consequences of the distribution, the likelihood of completing the
transaction and the costs to be incurred in connection with the
transaction. GENROCO recognizes that the formation of the Company may
entail additional incremental costs for management, staff, systems and
support functions, however, GENROCO believes the benefits to GENROCO and
its shareholders outweigh these incremental costs.
DISTRIBUTION AGENT
The distribution agent ("Distribution Agent") is Fidelity Transfer Company,
Registrar & Transfer Agent, 1800 South West Temple, Suite #301, Box 53,
Salt Lake City, UT 84115 (801) 484-7222.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on July 10, 2000 to shareholders of record
of GENROCO common stock at the close of business on the Record Date. Prior
to the Distribution Date, and in accordance with the terms of the
Contribution Agreement, GENROCO will deliver all of the outstanding shares
owned by it to the distribution agent for distribution. The distribution
agent will mail, beginning on or about the Distribution Date, certificates
representing the Shares to GENROCO shareholders of record on the Record
Date. Each GENROCO shareholder will receive one Share of VideoPropulsion
common stock for every one Share of GENROCO common stock held on the Record
Date. GENROCO shareholders will not be required to pay for Shares received
in the Distribution, or to surrender or exchange GENROCO common stock in
order to receive Shares of the Company. No vote of GENROCO shareholders is
required or sought in connection with the Distribution, and GENROCO
shareholders have no appraisal rights in connection with the distribution.
IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF THE COMPANY IN THE
DISTRIBUTION, GENROCO SHAREHOLDERS MUST BE SHAREHOLDERS AT THE CLOSE OF
BUSINESS ON THE RECORD DATE.
RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be an independent, public
reporting company. Immediately after the Distribution, the Company expects
to have approximately 170 shareholders of record and approximately
4,400,000 Shares outstanding, based on the estimated number of record
shareholders and outstanding Shares of common stock of GENROCO on the
Record Date, and the Distribution ratio of one Share of VideoPropulsion
common stock for every one Share of GENROCO common stock. The actual
number of Shares to be distributed will be determined as of the Record
Date. The Distribution will not affect the number of outstanding Shares of
GENROCO common stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
THIS TAX CONSEQUENCE DISCUSSION IS INTENDED ONLY AS A DESCRIPTION OF THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION. IT IS NOT A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE
DISTRIBUTION. THE DISCUSSION DOES NOT ADDRESS ALL OF THE TAX CONSEQUENCES
THAT MAY BE RELEVANT TO PARTICULAR TAXPAYERS IN LIGHT OF THEIR PERSONAL
CIRCUMSTANCES OR TO TAXPAYERS SUBJECT TO SPECIAL TREATMENT UNDER THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") SUCH AS INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS, DEALERS IN SECURITIES, TAX EXEMPT
ORGANIZATIONS, FOREIGN CORPORATIONS, FOREIGN PARTNERSHIPS OR OTHER FOREIGN
ENTITIES AND INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES.
The distribution of the shares of VideoPropulsion, Inc. should be treated
as a taxable distribution with respect to the GENROCO common stock,
however, because of accumulated losses to date, the Company believes that
the distribution will be treated as a return of capital, in whole or in
part, to each holder of GENROCO stock depending on each holders tax basis
in the GENROCO stock.
The amount of the distribution received by each holder of GENROCO common
stock will equal the fair market value of the shares of VideoPropulsion,
Inc. received. If a trading market develops for the shares of
VideoPropulsion, Inc. within a reasonable period after the Distribution,
the fair market value of the VideoPropulsion, Inc. stock should be based on
the selling price in the market. If no selling prices are available, then
the fair market value of the VideoPropulsion, Inc. stock should be
determined taking into account all of the facts and circumstances
including, without limitation, VideoPropulsion, Inc.'s net worth,
prospective earning power, dividend paying capacity and other relevant
factors. Based on an appraisal by an independent third-party professional
appraisal firm, the fair market value of VideoPropulsion, Inc. stock, as of
December 31, 1999, was approximately $.09 per share (based upon
approximately 4,400,000 shares to be issued upon the Distribution).
The amount of the distribution to each holder of GENROCO common stock would
generally, for federal income tax purposes, be treated as a dividend
includable in gross income to the extent of the holder's pro rata share of
GENROCO's earnings and profits. If the amount of the distribution to the
holder exceeds the holder's pro rata share of the GENROCO earnings and
profits, the distribution to the extent of such excess will be applied
against and reduce the basis of the holder's GENROCO common stock (but not
below zero) and any remaining amount will be treated as a capital gain
(provided that the GENROCO common stock is held as a capital asset). Such
capital gain will be a long-term capital gain if the GENROCO common stock
has been held for more than twelve months.
To the extent the amount of the distribution is treated as a dividend to a
corporate holder of GENROCO common stock, for federal income tax purposes
the holder will be (1) eligible for a deduction of a portion (generally
70%) of the amount of the dividend received (subject to special
limitations); and (2) subject to the "extraordinary dividend" provisions of
the Code. Under recently enacted legislation, in the case of a dividend to
a corporate stockholder that has held GENROCO stock for 2 years or less at
the time of the Distribution which constitutes an extraordinary dividend as
defined in Section 1059(c) of the Code, the nontaxed portion of any such
dividend would reduce a corporate stockholder's basis in the GENROCO stock
but not below zero and would thereafter be taxable as a capital gain
(provided that the GENROCO stock was held as a capital asset). Generally,
an extraordinary dividend is a dividend with respect to a share of stock if
the amount of the dividend exceeds one of several threshold percentages
(generally 10%) of the tax basis in the share of stock. Dividends paid
within certain periods may be aggregated and treated as one dividend for
this purpose. Various exceptions and special rules apply in determining
whether a dividend is an extraordinary dividend.
The tax basis of the shares of VideoPropulsion, Inc. stock received by a
holder of GENROCO stock in the Distribution will be equal to the fair
market value of such shares of VideoPropulsion, Inc. at the time of
Distribution.
After the end of GENROCO's current fiscal year ending March 31, 2001,
GENROCO will furnish each holder an information statement indicating the
amount of the distribution to the holder which is treated as a dividend, if
any.
GENROCO should incur a gain on the distribution of the shares to the holder
of GENROCO common stock equal to the excess of the fair market value of the
VideoPropulsion, Inc. shares distributed over GENROCO's tax basis for the
shares.
THIS TAX CONSEQUENCE SUMMARY IS NOT INTENDED TO BE, NOR SHOULD IT BE
CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF GENROCO
STOCK. GENROCO SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THE SHAREHOLDER OF THE DISTRIBUTION
INCLUDING INCOME TAX RETURN REPORTING REQUIREMENTS AND THE APPLICABILITY
AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
LISTING AND TRADING OF SHARES OF COMPANY COMMON STOCK
The Company has filed an SEC Form 10-SB. There is not currently a public
market for VideoPropulsion Shares and there can be no assurance that an
active market will develop following the Distribution.
The Shares distributed to GENROCO shareholders will be freely tradable,
except for Shares received by persons who may be deemed to be "affiliates"
of the Company under the Securities Act of 1934, as amended (the "Exchange
Act"). Persons who may be deemed to be affiliates of the Company after the
distribution generally include individuals or entities that control, are
controlled by, or are under common control with the Company and may include
directors and certain officers of the Company, as well as principal
shareholders of the Company.
Persons who are affiliates of the Company will be permitted to sell Shares
owned by them only pursuant to an effective registration statement under
the Securities Act of 1933 as amended ("Securities Act") or an exemption
from the registration requirements of the Securities Act, such as under
Rule 144. It is not expected that Rule 144 will be available for the
sale of Shares by affiliates until approximately August 23, 2000 (90 days
after the effectiveness of the Company's registration statement referred to
herein under "Available Information"). It is believed that persons who may
be deemed to be affiliates of the Company after the Distribution will own
approximately 58.2% of the outstanding Shares. See "MANAGEMENT OF THE
COMPANY - Security Ownership of Directors and Executive Officers."
DIVIDEND POLICY
The Company does not intend to pay cash dividends on the Company Common
Stock in the foreseeable future. Rather, it is currently anticipating that
any Company earnings will be retained for use in its business. The future
payment of dividends will depend on business decisions that will be made by
the Company's Board of Directors from time to time, based on the results of
operations and financial condition of the Company and such other business
considerations as the Board of Directors considers relevant.
RELATIONSHIP BETWEEN GENROCO AND THE COMPANY AFTER THE DISTRIBUTION
After the Distribution, GENROCO will have no stock ownership interest in
the Company. A series of agreements have been entered into between GENROCO
and the Company providing for, among other things, the transfer of certain
assets to, and the assumption of certain liabilities by the Company. As a
result of these arrangements, substantially all of the assets and
liabilities of the digital video business, reflected in the financial
information and related notes included elsewhere herein, have been
transferred to the Company. See "CAPITALIZATION - Summary of Historical
Financial Data" and "BUSINESS OF THE COMPANY - Transactions and Agreements
between the Company and GENROCO." See also the "APPENDIX A - FINANCIAL
STATEMENTS OF VIDEOPROPULSION, INC.". In addition, the parties have
provided for certain cross-indemnities, principally to place financial
responsibility for the digital video business with the Company and to place
financial responsibility for other GENROCO business with GENROCO.
The Company also has entered into agreements with GENROCO that fix the
respective responsibilities of GENROCO and the Company regarding the
following: Employee benefit and compensation matters, taxes, intellectual
property rights, certain interim administrative services, insurance,
litigation and other claims, the transfer of real estate and other
miscellaneous matters. See "BUSINESS OF THE COMPANY - Transactions and
Agreements between the Company and GENROCO." The Company and GENROCO
intend to continue to engage in commercial transactions pursuant to arms-
length negotiations in the ordinary course of business.
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This Information Statement is being furnished by GENROCO solely to provide
information to shareholders of GENROCO, who will receive Shares in the
Distribution. It is not, and should not to be construed as, an inducement
or encouragement to buy or sell any securities of GENROCO or the Company.
The information contained in this Information Statement is believed by
GENROCO to be accurate as of the date set forth on the cover of this
Information Statement. Changes may occur after that date, and neither
GENROCO nor the Company will update the information, except as required by
law in the normal course of their respective public disclosure practices.
FINANCING
GENROCO intends to provide interim financing in amounts, believed by
management, adequate to allow the Company to meet its financial obligations
for a period of one year. However, there is no guarantee that GENROCO will
have the financial ability to meet all obligations. In the case that
GENROCO is unable to provide additional support for one year, the Company
will need to raise additional capital either through a private placement or
an offering of Company stock. Further the Company will need to raise
capital to fund operation beyond 2000. There can be no assurances that
there will be a market for Company stock or that capital can be raised
through any private placement. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources".
INVESTMENT CONSIDERATIONS AND RISK FACTORS
Shareholders of GENROCO should be aware that the Distribution and ownership
of the Shares involves certain investment considerations and risk factors,
including those described below and elsewhere in this Information
Statement, which could adversely affect the value of their holdings.
Neither GENROCO nor the Company makes, nor is any other person authorized
to make, any representations as to the future market value of the Shares.
Any forward-looking statements contained in this Information Statement
should not be relied upon as predictions of future events. Such statements
are necessarily dependent on assumptions, data or methods that may be
incorrect or imprecise and that may be incapable of being realized.
Investors are hereby notified that such information reflects the opinions
of Company management as to the future. Investors should use their own
judgment as to the significance of this information to their individual
investment decisions.
TRANSACTION MAY BE DEEMED TAXABLE BY THE IRS
Shareholders of GENROCO should be aware that there are circumstances under
which the amount of the distribution to each holder should, for federal
income tax purposes, be treated as a dividend includable in gross income,
to the extent of the holder's pro rata share of GENROCO's earnings and
profits as a result of this transaction. Because of accumulated losses in
excess of $1,800,000 as of March 31, 2000 and the prospects of continued
losses in the near term, GENROCO does not believe that inclusion of the
$400,000 appraisal value in fiscal 2001 earnings will serve to eliminate
GENROCO's accumulated losses during this tax year. Accordingly, the
transaction is being treated as a return of capital transaction..
The Company has not sought an IRS ruling or a legal opinion on this matter.
There are no assurances that the Company's position will not be overturned
by the IRS. The Company may also incur costs of defending the action and
the IRS may conclude that GENROCO owes a significant amount of corporate
taxes.
COMPANY INDEBTEDNESS
The Company needs additional working capital to operate and expand.
GENROCO provided interim financing in amounts, believed by management,
adequate to allow the Company to meet its financial obligations until the
spin-of and intends to continue to provide balance sheet support for the
balance of 2000, however, there is no guarantee that GENROCO will have the
financial ability to meet all obligations. In the case that GENROCO is
unable to provide additional support, the Company will need to raise
additional capital either through a private placement or an offering of
Company stock. Further the Company will need to raise capital to fund
operation beyond 2000. There can be no assurances that there will be a
market for Company stock or that capital can be raised through a private
placement. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Liquidity and Capital Resources".
COMPANY'S ABILITY TO CONTINUE IN BUSINESS
The Company's financial statement assumes that it will continue as a going
concern. Absent the sale of profitable products, or the raising of capital, the
Company may not be successful. There can be no assurances that the Company will
raise funds on favorable terms, if at all.
LACK OF OPERATING HISTORY AS AN INDEPENDENT ENTITY
The digital video business has been conducted as a product line under the
direction of a product manager for approximately four years and,
accordingly, the Company does not have an operating history as an
independent public company. The Company was formed in October 1999 solely
for the purpose of effecting the Distribution, and will own and conduct the
business previously conducted by the digital video business product line
management team. Management of the Company has historically relied upon
GENROCO for substantially all administrative services required by the
Company. After the Distribution Date, the Company will be responsible for
maintaining its own administrative functions, except for certain
transitional services provided by GENROCO. See "THE DISTRIBUTION -
Relationship between GENROCO and the Company after the Distribution,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "BUSINESS OF THE COMPANY - Transactions and Agreements
between the Company and GENROCO."
Following the Distribution, the Company will be responsible for obtaining
and maintaining its own financing relationships, except for a transitional
loan from GENROCO on an interim basis. See "FINANCING."
DEPENDENCE UPON CERTAIN CUSTOMERS AND SUPPLIERS
The Company's business is highly focused in the Digital Video Broadcast
industry with 100% of sales coming from approximately 15 manufacturers of
video servers and video signal transmission equipment providers. Details
on customers are included in the following pages. There can be no
assurances that these relationships will continue nor that the Company will
be successful in its efforts to provide goods and services to a larger
customer base.
MARKET FOR THE COMPANY'S PRODUCTS
A market for the Company's products may not develop, or if developed,
remain in existence. If a significant market for digital video products
does not develop, the Company's business may fail. The Company's growth
will be limited if DVB technology and solutions do not become widely
accepted. The Company's product development and marketing efforts are
focused on the digital video market, which has only recently begun to
develop and is evolving rapidly. The markets for new technology frequently
develop more slowly than the technology targeted to these markets.
TECHNOLOGICAL CHANGES
The Cable Television (CATV) market is subject to rapid technological
change. These include changes in customer requirements, frequent new
product introductions and enhancements and evolving industry standards.
The Company's success depends in part on its ability to keep pace with
technological developments and emerging industry standards. The Company
must also respond to evolving customer requirements by enhancing its
current products and developing new products. There is a risk that if the
Company fails to anticipate or respond rapidly to advances in technology by
adapting its products appropriately, its products may become obsolete. If
this occurs, the business could be adversely affected.
ACCEPTANCE OF TECHNOLOGY
The Company's business strategy includes the sale of technology which
depends on industry acceptance of DVB as a standard of choice. This
technology is also dependent on the availability of software and thus the
loss of significant numbers of key software development personnel would
adversely impact the future results of the Company.
CUSTOMERS
The demands of customers are constantly changing. The increased demand of
customers and the increasing presence of the Internet in everyday markets,
are creating a customer base that demands a quicker response time. This
customer expectation, coupled with the global economies, make meeting these
expectations a constant challenge, especially for small companies who may
not be able to attract the capital resources needed to meet these demands.
The Company's customer portfolio is composed of a few global companies who
issue purchase orders that to date have not been large multi-year
contracts. The Company's dependence on key customers exposes it to
sporadic order rates, which require higher than normal inventory levels to
support the business.
INDUSTRY SEGMENTS
The Company operates in only one industry segment as a developer, marketer
and manufacturer of DVB based computer hardware, and thus the Company will
be significantly impacted by changes in the industry.
INABILITY TO PENETRATE THE DIGITAL VIDEO MARKET
The Company's ability to penetrate the digital video market is a function
of its:
1. Success in implementation of software drivers for various platforms.
2. Ability to join with appropriate Video Server suppliers as strategic
technology partners.
3. Ability to join with appropriate integration, installation, and
maintenance partners.
Failure to accomplish any one or all of the above could cause the business
to fail. There can be no assurance that the Company will be profitable or
meet its goals.
COMPETITIVE PRICING PRESSURES MAY INCREASE
Because of competitive pricing pressures, the average price of the
Company's products may decline, resulting in a decrease in revenues and
gross margins. The Company expects that the average price of its products
will decrease in the future in response to competitive pricing pressures
and changes in product mix and other factors. If the Company is unable to
offset these decreases by increasing its sales volumes, its revenues and
profits will decline. In addition, to maintain its gross margins, the
Company must develop and introduce new products and product enhancements,
and it must continue to reduce the manufacturing cost of its products. If
the Company fails to do this, its business could suffer.
NEW PRODUCTS MAY CONTAIN UNDETECTED HARDWARE AND SOFTWARE ERRORS
New products that the Company develops may contain undetected hardware and
software errors, which could require significant expenditures of time and
money to correct, harm its relationships with existing customers, and
negatively impact its reputation in the industry.
Despite its testing and quality control efforts, the Company anticipates
that errors may be found from time to time in new or enhanced products
after commercial introduction. In addition, the Company's products are
combined with products from other vendors. As a result, when problems
occur, it may be difficult to identify the source of the problem. If the
Company is unable to rapidly correct any errors, this could result in the
following consequences, among others:
1. Delay or loss of market acceptance of the Company's products.
2. Significant warranty or other liability claims.
3. Diversion of engineering and other resources from product development
efforts.
4. Significant customer relations problems.
5. Loss of credibility in the market.
6. Inability to sell its products until any errors are corrected.
The Company's growth depends on its digital video products and if any of
the above events occur, the Company's business could be adversely impacted.
SUPPLIERS
If the Company's subcontractors do not meet its manufacturing needs, it may
not be able to produce and sell its products. The Company subcontracts a
majority of its production activities, including the manufacture and
assembly of certain products from GENROCO (totaling $132,269, or 100% of
the cost of goods sold in 1999).
The Company and its major supplier (GENROCO) currently depend upon
qualified suppliers to deliver high-quality products in a timely manner,
but they cannot assure that these suppliers will continue to perform
satisfactorily. The Company currently does not have a long-term supply
contract with any of its subcontractors. The Company's subcontractors are
not obligated to supply products for any specific period, or in any
specific quantity, except as may be provided in a particular purchase
order.
The Company generally places orders with its subcontractors between one and
three months before scheduled delivery of products to customers.
Accordingly, if the Company inaccurately forecasts demand for its products,
it may be unable to obtain adequate manufacturing capacity from its
subcontractors to meet its customers' delivery requirements, or it may
accumulate excess inventories. Poor performance by one of the Company's
subcontractors would have a material adverse effect on business until it
finds an alternative subcontractor. The Company cannot assure that it
would be able to find an alternative subcontractor to deliver quality
products at an acceptable price. If the Company experiences problems with
any of its subcontractors, the Company's business could be adversely
affected.
In addition, future growth may cause the Company to increase orders to its
subcontractors. If this happens, the Company may not be able to accurately
forecast its needs or manage its relationship with its subcontractors
during the transition.
Frequently, manufacturers encounter delays or difficulties in beginning
volume production of new product lines. If the Company or any of its
subcontractors is not able to effectively manage the anticipated increase
in production volumes, the Company's business could suffer.
COMPONENTS
The Company's dependence on a limited number of suppliers and the possible
unavailability of some key components may prevent it from being able to
produce its products.
Some of the components the Company uses in its products are available only
from a single supplier, or from a limited number of suppliers. These
components may occasionally be in short supply or unavailable from a sole
source supplier. The following factors could each have an adverse effect
on the Company's ability to obtain components for the Company's products:
1. Scarce quantities of components.
2. A reduction or interruption in component supply.
3. A disruption of existing supplier relationships.
4. An inability to develop alternative sources.
5. A significant increase in the price of components.
If the Company is unable to purchase components on a timely basis, it may
not be able to produce its products.
REGULATORY APPROVALS MAY NOT BE COMPLIED WITH
If the Company fails to comply with evolving regulatory approvals or
government regulations, it may be unable to sell its products. The
Company's products must comply with various regulations and standards
defined by the Federal Communications Commission and Underwriters
Laboratories in the United States. Products sold internationally will also
be required to comply with standards established by authorities in various
countries. To date the Company believes it has met such standards, but
those standards may change.
QUARTERLY FLUCTUATIONS
Quarterly revenues and operating results may fluctuate. The Company's
quarterly revenues and operating results have varied significantly in the
past and are likely to vary significantly in the future. The primary
factors that affect quarterly results include the following:
1. The overall strength of the economy, timing, size and terms of
customer orders.
2. Changes in customer buying patterns.
3. Uncertainties associated with the introduction of any new product or
product enhancement.
4. The timing of the announcement and introduction of new products by the
Company or its competitors.
5. The mix of products sold and the mix of distribution channels through
which products are sold.
6. Deferrals of customer orders in anticipation of new products, services
or product enhancements introduced by the Company or its competitors.
7. Technological developments affecting the data communication network
and storage market.
LOSS OF KEY PERSONNEL OR INABILITY TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The loss of the services of any key management employees (especially
Barbara Pick, President and Chris Good, Executive Vice President) or
inability to attract and retain qualified personnel or delays in hiring
required personnel, particularly engineers and sales personnel, could delay
the development and introduction of, and negatively impact the Company's
ability to sell, its products. In addition to key management personnel,
the Company's success depends on its ability to attract and retain highly
skilled managerial, engineering, sales and marketing and other personnel.
Competition for these personnel is intense. In recent years, there has
been a strong demand for qualified skilled and unskilled employees in the
Wisconsin area, where the Company's main operations are located, and in
other areas where it operates. There is a risk that it will be
unsuccessful in attracting and retaining the personnel it needs for its
business.
INTELLECTUAL PROPERTY MAY NOT PROTECT THE COMPANY
The Company's business is dependent on its intellectual property, and its
success in protecting its intellectual property could negatively affect its
ability to compete.
To establish and protect the Company's intellectual property rights, the
Company will rely on a combination of patent, copyright, trademark and
trade secret laws and restrictions on disclosure. The Company also enters
into confidentiality or license agreements with consultants, customers and
corporate partners. The Company cannot be certain that the steps it takes
to protect its intellectual property will adequately protect its
proprietary rights, or that others will not independently develop or
otherwise acquire equivalent or superior technology. In addition, the laws
of some of the countries in which the Company's products are, or may be
sold, may not protect the Company's proprietary rights as fully as the laws
of the United States.
The Company may be a party to intellectual property litigation, either to
protect its intellectual property or as a result of an alleged infringement
of others' intellectual property. Any litigation or dispute, regardless of
its success would likely result in substantial costs and be time consuming.
An adverse determination could:
1. Subject the Company to significant liabilities from third parties.
2. Invalidate the Company's proprietary rights and require it to seek
licenses from or pay royalties to third parties.
3. Require the Company to develop appropriate alternative technology.
4. Require the Company to stop using the challenged intellectual property
and/or stop selling its products that incorporate it.
Any of these events could have an adverse effect on the business, financial
condition and results of operations.
INTERNATIONAL SALES MAY NOT MATERIALIZE
The Company may not be successful in its international sales activities,
which could adversely affect its growth. The Company's international sales
will be limited if it is unable to establish and maintain relationships
with international distributors and original equipment manufacturers. Even
if the Company increases its international sales efforts, it cannot be
certain that it will increase demand for its products in these markets.
The Company's international operations are subject to a number of risks,
including:
1. Longer sales cycles.
2. Difficulty in collecting accounts receivable.
3. Political and economic instability.
4. Reduced protection of intellectual property rights.
5. Protectionist laws and business practices that favor local
competition.
6. Dependence on local vendors.
To date, none of the Company's international revenues and costs have been
denominated in foreign currencies. As a result, an increase in the value
of the U.S. dollar relative to foreign currencies could make the Company's
products more expensive and therefore less competitive in foreign markets.
A portion of the Company's international revenues may be denominated in
foreign currencies in the future, which would subject it to risks
associated with fluctuations in those foreign currencies.
NO PRIOR PUBLIC MARKET FOR COMMON STOCK
There is presently no public market for the Company's common stock and
there can be no assurance that an active market will develop following the
Distribution. The prices at which the shares trade will be determined by
the market place and could be subject to significant fluctuations in
response to many factors, including, among others, variations in the
Company's quarterly operating results, changing economic conditions in the
industries in which the Company participates and changes in government
regulations. In addition, the general stock market has in recent years
experienced significant price fluctuations, often unrelated to the
operating performance of the specific companies whose stock is traded.
Market fluctuations, as well as economic conditions, may adversely affect
the market price of the Company common stock. Furthermore, given the
relatively small market capitalization of the Company, the market for the
Shares may be subject to greater volatility than would be the case for a
larger company. See "The Distribution - Listing and Trading of Shares of
Company common Stock."
DIVIDEND POLICY
The Company does not intend to pay cash dividends on the Company Common
stock in the foreseeable future. Rather, it is currently anticipating that
any Company earnings will be retained for use in its business. The future
payment of dividends will depend on business decisions that will be made by
the Company's Board of Directors from time to time based on the results of
operations and financial condition of the Company and such other business
considerations as the Board of Directors considers relevant. Certain
covenants in the Company's credit agreement may restrict the payment of
dividends by requiring the maintenance of certain financial ratios. See
"THE DISTRIBUTION - Dividend Policy" and "FINANCING."
COMPETITION
The Company competes with domestic and foreign-based competitors on the
basis of custom product design, engineering support, quality and price.
While the number of direct competitors is at the moment relatively small,
the emergence of the Digital TV market will encourage competition among
potential suppliers.
CAPITALIZATION
Historically, the Company has been capitalized 100% through equity
contributions from GENROCO. It will now have to generate working capital
to fund its operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company's objective is to maximize stockholder value by executing
strategies that focus on a balance of three priorities: growth,
profitability and liquidity.
During the first three years of its existence, as a division within
GENROCO, the Company focused its efforts on product and market development
activities with a focus on positioning the Company to be a supplier of
networking equipment for the digital video market. In the view of
management, the time for VideoPropulsion, Inc. to operate as a separate
publicly owned and traded company has arrived.
As a result, GENROCO has capitalized the Company at a level which
management feels will allow it to function as a separate entity and,
hopefully, enable it to attract additional investors and equity capital.
The Company will likely require additional capital as described below to
grow the company in the years ahead.
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
FOR YEAR ENDED DECEMBER 31, FOR THREE MONTHS ENDED MARCH 31,
--------------------------- -------------------------------
1999 1998 2000 1999
-------- -------- -------- --------
(Audited) (Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 598,482 $ 329,120 $ 124,075 $ 142,298
COST OF GOODS SOLD 132,269 88,404 33,389 33,856
--------- --------- --------- ---------
GROSS PROFIT 466,213 240,716 90,686 108,442
% 77.9% 73.1% 73.1% 76.2%
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT 261,389 169,145 94,197 62,690
SALES AND MARKETING AND
CUSTOMER SERVICE 170,240 84,803 112,374 35,071
GENERAL AND ADMINISTRATIVE 82,764 38,258 82,772 11,246
--------- --------- --------- ---------
TOTAL 514,393 292,206 289,343 109,007
--------- --------- --------- ---------
OPERATING LOSS $ (48,180) $ (51,490) $(198,657) $ (565)
</TABLE>
Net sales for 1999 were $598,482, compared to $329,120 for 1998. Net sales
for the three months ended March 31, 2000 were $124,075, compared to
142,298 for the three months ended March 31, 1999.
Gross profit for 1999 was $466,213 compared to $240,716 for 1998 or 77.9%
and 73.1% of net sales for 1999 and 1998, respectively. Gross profit for
the three months ended March 31, 2000 were $90,686, compared to $108,442
for the three months ended March 31, 1999.
The Company's major expense is personnel costs. Most employees are highly
skilled and thus costly due to the present state of the labor market.
Personnel costs traditionally represent approximately 65% of total overhead
costs and expenses.
For the two years ended December 31, 1999 and the three months ended March
31, 1999, operating expenses of GENROCO were allocated to the Digital Video
Division based on the percentage of hours worked for the Digital Video
Division, by employees of GENROCO, compared to total hours worked by
employees of GENROCO each year, multiplied by the GENROCO's total operating
expenses. Management estimates that, if the Company had been on a
stand-alone basis over the past two years, operating expenses would have
been substantially identical to the allocated expenses included in the
financial statements. Operating expenses for the three months ended March
31, 2000 are based on actual results.
Research and development costs are expensed as incurred. Research and
development expenses for 1999 were $261,389 compared to $169,145 in 1998,
or 43.7% and 51.4% of net sales for 1999 and 1998, respectively. Research
and development expenses for the three months ended March 31, 2000 were
$94,196, compared to $62,690 for the three months ended March 31, 1999.
The Company expects research and development costs in 2000 and 2001 to be
in excess of 35% of net sales.
Selling, customer service and general and administrative expenses for 1999
were $253,004 compared to $123,061 in 1998 or 42.3% and 37.4% of net
sales for 1999 and 1998, respectively. Selling, customer service and
general and administrative expenses for the three months ended March 31,
2000 were $195,146, compared to $46,317 for the three months ended March
31, 1999.
As of January 1, 2000, the Company and GENROCO entered into an Interim
Administrative Services Agreement. This agreement governs the
administrative and manufacturing services that GENROCO will continue to
provide to the company on an interim basis. In general GENROCO will
provide certain financial, human resource and information system services
(including use of the hardware and furniture and fixtures associated with
these services). Under the terms of the agreement, the Company will
compensate GENROCO at negotiated fees which, the Company believes, would be
comparable to rates the Company could have achieved through arms-length
negotiations.
Loss from operations in 1999 was $48,180 compared to $51,490 in 1998. Loss
from operations for the three months ended March 31, 2000 was $198,656
compared to a loss of $565 for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent position as March 31, 2000 and
December 31, 1999 was $104,030 and $9,947, respectively, as compared to
zero prior to incorporation as a wholly-owned subsidiary of GENROCO, Inc in
October of 1999. During the year ended December 31, 1999, net cash used in
operating activities was $146,150 as compared to $314,464 for the year
ended December 31, 1998. For the three months ended March 31, 2000 and
March 31, 1999, net cash used in operating activities was $105,917 and
$95,259, respectively.
Expenditures for plant and equipment prior to December 31, 1999 were zero.
Capital equipment in use by the Company is being provided by GENROCO on an
operating lease basis. The Company anticipates that it will begin
acquiring its own capital equipment during the third quarter of 2000 by
entering into capital lease agreements with a lease company.
On October 4, 1999, GENROCO purchased 1,000 shares of the Company's stock
for $10,000. GENROCO contributed $146,150 and $314,464 of equity in 1999
and 1998, respectively. On March 31, 2000, GENROCO contributed an
additional $200,000 of equity by converting the outstanding $200,000 note
receivable to additional equity in VideoPropulsion.
GENROCO's digital video business financing requirements have historically
been fulfilled by GENROCO. For the next year, GENROCO intends to continue
to provide this financial support to the Company on an arms-length business
loan basis. The Company hopes that business loans from GENROCO and cash
flow from operations, will be adequate to meet its anticipated capital
expenditure, working capital and operating expenditure requirements in the
short term. However, management is anticipating the need to raise
additional working capital during 2000 and may consider a private placement
or a public offering of VideoPropulsion common stock.
BUSINESS OF THE COMPANY
GENERAL
VideoPropulsion designs and sells a range of digital video products which
provide enabling technology for a variety of applications that allow
consumers to use their TV sets for interactive services including email,
home shopping, web browsing, video-on-demand, Internet based telephony. A
typical application for the Company's products is providing connectivity
between the video servers (which store media that is available to be sent,
via cable TV, to a set-top decoder box at a consumers location) in the
central office of any given cable TV provider and the cable headend (which
is the electronic device in the central office of the cable company that
forwards all TV signals from the central office to the cables leading to
the consumers' set-top box).
VideoPropulsion's products are enabling these solutions and providing what
the Company believes to be low cost-per-stream delivery. The Company's
Internet address is www.videopropulsion.com.
-----------------------
The Company is located in Slinger, Wisconsin (30 miles north of Milwaukee)
and has 6 employees. The Company (initially a wholly-owned subsidiary of
GENROCO, Inc.) has existed as a product line of GENROCO since 1996 and was
organized under the laws of the State of Wisconsin in 1999 as
VideoPropulsion, Inc. Initial sales of digital video products, as a
separate product line for GENROCO, occurred in March of 1997.
BUSINESS STRATEGY
The Company's initial objective is to place DVB interface cards into
digital television application servers by offering products with low cost
per video stream.
Next, the Company intends to produce additional types of hardware
interfaces to utilize the software both it and its customers have
developed.
Strategic alliances will be entered into at the product development level
as well as the sales and service levels of customer support.
MARKETS DEFINED
The market can generally be broken into three categories:
1. The "Broadcast" category which includes a wide variety of video
servers used for video editing, store-and-forward applications, pre-
production applications and archiving applications in digital studios,
as well as organizations engaged in the broadcasting of television
content via towers or satellite. This market is being addressed by
most major platform vendors, plus a variety of companies specializing
in digital video devices and applications.
2. The "Cable and Telco" category which consists primarily of products
for Video-on-Demand (VOD) and interactive services being provided by
the cable and telephone industry, as part of the widespread deployment
of the digital cable infrastructure mandated by the FCC over the next
few years.
3. "Other" which includes non-broadcast applications such as high-end
non-linear editing for content creation, hospitality services, in
flight communication, distance learning, enterprise training, etc.
The opportunities for VideoPropulsion's products are perceived to be
primarily in the Broadcast and Cable/Telco segments but VideoPropulsion
envisions becoming active with efforts to respond to opportunities in
other areas, as well.
THE COMPANY'S CURRENT PRODUCTS
1. VDOPRO DVB RAW TRANSMIT (DVP-2732AT)
VideoPropulsion's Raw DVB transmit products are DMA engines which
continuously pump a full pipe, 216Mbps, of precisely timed transport
streams. These transmit-only devices are designed with a simple
application program interface (API) that gives developers the ability
to closely couple and control the output of their data. This is the
most cost-effective offering on the market for OEMs who want to add
value and for application providers who need to lower their cost per
stream in transmission-only environments. Device drivers for Windows
NT and Solaris are currently available.
2. VDOPRO DVB RAW TRANSCEIVE (DVP-2732AF)
VideoPropulsion's VDOPro DVB ASI transceive products provide full
duplex transmission and capture of transport streams. The device can
simultaneously send and receive a full pipe, 216Mbps, of MPEG data.
Developer kits provide sample programs for sending and receiving
transport streams, as well as sources to sample programs, to assist in
interfacing to the card. The data is transmitted using a very precise
270 MHz clock. Device drivers for Windows NT and Solaris are
currently available.
3. VDOPRO DVB MULTIPLEX TRANSMIT
VideoPropulsion's VDOPro DVB ASI multiplexing products deliver a full
pipe, 216Mbps, of transport streams using patented architecture,
custom firmware, and efficient, low host-overhead device drivers.
These products are the result of extensive experience in cross-
platform support of high performance networking and video streaming
applications. A flexible API offers customers the ability to define
options and provides high levels of functionality facilitating
integration with application layers. Multiple streams of MPEG video
and encapsulated IP data are multiplexed into a single MPTS for
transmission to any other DVB ASI compliant device. The data is
transmitted using a very precise 270MHz clock and the multiplexor
inserts and modifies timing information in the streams as appropriate.
Device drivers for Windows NT and Solaris are currently available.
4. DOPRO DVBOVS TRANSMIT- DVB TRANSMIT SUPPORT FOR ORACLE VIDEO SERVER
ITV SOLUTIONS
Oracle Video Server, release 3.0, offers greatly enhanced features
such as simplified startup and system management; full VCR controls;
patented Visual Scan; integration with the Oracle8 database; patented
real-time RAID; DVB support; and a robust distribution solution for
delivering from hundreds to thousands of concurrent video streams.
VideoPropulsion has worked with Oracle's OVS team to match
VideoPropulsion's device drivers to Oracle's multiplexing and video
management software. VideoPropulsion's extensive experience and
expertise in high performance controllers for networking and digital
video in a wide variety of superserver configurations has produced
drivers that are optimally tailored. The VDOPro Raw Transmit (DVP-
2732/AT) card acts as a hardware platform for this powerful and
flexible combination. VideoPropulsion's hardware and software have
been carefully integrated into the OVS video pump to provide seamless
output of content from the Oracle Media Data Store (MDS) to digital
QAMs, QPSK, and other DVB ASI compliant devices.
VDOPro DVBASI for OVS is available on SGI Origin platforms with IRIX,
Compaq Alphastations with Tru64 UNIX, and Sun Microsystems Sparc
servers with Solaris.
FUTURE PRODUCTS
VideoPropulsion has new hardware and software under development, that
management believes, will expand and enhance its product offerings as many
new digital television requirements appear and deployment of solutions
begins in earnest. A driving force in the industry is to reduce the cost-
per-stream of delivery to the consumer. VideoPropulsion is addressing this
need with products that will reduce the cost of infrastructure.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company has a non-transferable and non-exclusive license to U.S. patent
(Patent # 5,420,984) covering peripheral controllers and methods for rapid
task switching and memory caching, which was issued on May 30, 1995 and is
owned by GENROCO, Inc.
The Company also has a license to U.S. patent (Patent # 6,026,032) covering
high speed data buffers using virtual first-in first-out registers which
was issued in February, 2000.
GENROCO has applied for other patents covering the following technologies:
(1) high-speed data buffer using a virtual first-in first-out register and
(2) buffer memory with parallel data and transfer instruction buffering and
the Company is considering obtaining the right to procure a nonassignable
license to use this technology.
GENROCO has applied for additional patents relative to the digital video
product lines, which may be available for use by the Company.
SALES AND MARKETING / DISTRIBUTION AND SALES CHANNELS
The Company currently uses a direct sales force, which receives technical and
sales support from the engineering staff on an as needed basis. Products are
typically shipped from the Company's Wisconsin facility direct to the customer
via an independent shipping service.
The Company sells the majority of its products and technology in Europe, Japan
and the United States. Approximately 39.5%and 17.5% of fiscal 1999 and 1998
sales, respectively, were made to non-U.S. customers. All sales are in U.S.
dollars.
MAJOR CUSTOMERS
The following customers comprise a significant portion of the Company's
business:
CUSTOMER REVENUE AS A PERCENT OF TOTAL REVENUE
----------------------------------------------
1999 1998
------ ------
Concurrent Computer Corp. 12.0% 46.1%
Compaq - France 15.5% 17.9%
Open TV 24.2% 15.0%
SGI 24.0% 0%
Oracle 7.0% 11.0%
The balance of the business is generated from approximately 10 customers.
COMPETITION
Direct competition for the Company's digital video products comes from View
Graphics and Cogent Technologies. Additional direct competitors are
expected to emerge and the market will become more competitive.
Indirect competition for the Company's current digital video products comes
from other digital video transport mechanisms such as DHEI and ATM.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development expenses for 1999 were $261,389 compared to $169,145 in 1998,
or 43.7% and 51.4%of net sales for 1999 and 1998, respectively. Research
and development expenses for the three months ended March 31, 2000 were
$94,196, compared to $62,690 for the three months ended March 31, 1999.
The Company expects research and development costs in 2000 and 2002 to be
in excess of 35% of net sales.
EMPLOYEES
As of December 31, 1999, the Company had 6 employees, all of which were
full-time. Some of these full-time employees currently perform selected
duties for GENROCO on a contract employee basis. As of June 16, 2000, the
Company has 8 fulltime employees and may retain additional employee to
assist in sales and engineering.
None of the Company's employees are represented by a union. The Company
believes that its relations with its employees are good.
FACILITIES
The Company's primary physical presence in the United States is its
corporate headquarters in Slinger, Wisconsin, where it leases approximately
2,250 square feet of space from GENROCO, Inc. GENROCO currently occupies
approximately 14,000 square feet of this shared facility. An additional
6,000 square feet of the facility is used for warehousing and is available
for future growth.
SUPPLIERS
GENROCO produces all of the Company's products under an outsourcing
contract, on terms which management believes are arms-length basis.
GENROCO purchases its non-critical parts and services from suppliers and
distributors. The following suppliers comprise a significant portion of
the Company's cost of goods sold.
SUPPLIER COSTS AS A PERCENTAGE OF COST OF GOODS SOLD
----------------------------------------------------
1999 1998
------ ------
Multek 10% 14%
Insight 20% 20%
Hewlett-Packard 10% 10%
Wyle 4% 10%
DASH 5% 10%
GENROCO, in turn, purchases its critical parts directly from manufacturers.
In the event that a manufacturer is unable to supply parts, GENROCO would
then select an alternate supplier, which it believes are generally
available. However a select few components are single-source and if
unavailable, GENROCO would be required to redesign the product. Price
increases are generally passed along to the customer.
All circuit board fabrication and circuit board assembly work is outsourced
to high quality suppliers who are generally ISO-9001 certified and have
demonstrated the skills to produce quality products quickly.
The Company's dependence on a limited number of suppliers and the possible
unavailability of some key components may prevent it from being able to
produce its products at the level desired by customers. Some of the
components the Company uses in its products are available only from a
single supplier, or from a limited number of suppliers. These components
may occasionally be in short supply or unavailable from a sole source
supplier. The following factors could each have a material adverse effect
on the Company's ability to obtain components for the Company's products:
1. Scarce quantities of components.
2. A reduction or interruption in component supply.
3. A disruption of existing supplier relationships.
4. An inability to develop alternative sources.
5. A significant increase in the price of components.
If GENROCO is unable to purchase components on a timely basis, it may not
be able to produce the Company's products. GENROCO's distributors are
beginning to provide allocation schedule information, designed to promote
forward planning and purchase commitments, which in itself constitutes a
business risk beyond the control of the Company.
FISCAL YEAR END
The Company has a fiscal year end of December 31. The results herein
include the years ended December 31, 1999 ("1999") and December 31, 1998
("1998"). The fiscal year ending December 31, 2000 is referred to as
"2000".
LEGAL PROCEEDINGS
The Company and its parent, GENROCO, Inc. are, from time to time, party to
litigation arising in the normal course of business. The Company believes
that none of these actions will have a material adverse effect on the
financial condition or results of operations of the Company. Currently
there are no known litigation claims relating to the Company.
TRANSACTIONS AND AGREEMENTS BETWEEN THE COMPANY AND GENROCO
In order to effect the spin-off, GENROCO and VideoPropulsion have entered
into the following agreements relating to their ongoing relation subsequent
to January 1, 2000 as follows:
O Contribution Agreement, Plan and Agreement of Reorganization and
Distribution.
O Facilities Lease Agreement.
O General Assignment, Assumption and Agreement.
O Transitional Trademark Use and License Agreement.
O Insurance Matters Agreement.
O Employee Benefits and compensation Agreement.
O Tax Sharing and Indemnification Agreement.
O Interim Administrative Services agreement.
O Confidentiality and Non Disclosure Agreement.
O Bill of Sale and Assumption of Liabilities.
These agreements serve to effect the spin-off, describe the restructuring
to reorganize GENROCO, and define the ongoing relationship between the
parties after the spin-off. Because these Agreements were negotiated while
VideoPropulsion was a wholly owned subsidiary, they are not the result of
negotiations between independent parties, although GENROCO and
VideoPropulsion have set pricing terms for services believed to be
comparable to what could be achieved through arms-length negotiation.
Following the spin-off, additional or modified agreements, arrangements and
transactions may be entered into and such agreements and transactions will
be determined through arms-length negotiations.
CONTRIBUTION AGREEMENT - Pursuant to the Contribution Agreement, Plan and
Agreement of Reorganization and Distribution, immediately prior to the
spin-off, substantially all of the assets and liabilities of the digital
video business were transferred by GENROCO to VideoPropulsion.
VideoPropulsion also assumed the indebtedness associated with the certain
transferred assets of the digital video business.
FACILITIES LEASE AGREEMENT - Pursuant to the Facilities Lease Agreement,
GENROCO has agreed to lease approximately 2,250 square feet of dedicated
space to VideoPropulsion for a period of two years at a lease rate of
$2,500 per month, including utilities, taxes, insurance and maintenance
costs.
ASSIGNMENT AND ASSUMPTION AGREEMENT - Pursuant to the General Assignment
and Assumption Agreement regarding Litigation, Claims and other
Liabilities, in general VideoPropulsion assumed and agreed to indemnify
GENROCO and acquire substantially all the liabilities, litigation and
claims arising out of the digital video business including all
environmental liabilities. GENROCO retained and will indemnify
VideoPropulsion against substantially all liabilities, litigation and
claims arising out of its storage area networking business and other items
not transferred to VideoPropulsion. The indemnification obligations will
not entitle the indemnified party to recover to the extent that such
liabilities are covered by proceeds received from a third party insurer.
In circumstances in which the potential liability of GENROCO and
VideoPropulsion is joint, the parties will share responsibility for such
liability on a mutually agreed basis consistent with the principles
established in the Agreement.
TRANSITIONAL TRADEMARK USE AND LICENSE AGREEMENT - Pursuant to the
Transitional Trademark Use and License Agreement, GENROCO will grant to
VideoPropulsiton certain rights to continue to use, for a limited period of
time and under certain defined circumstances, certain GENROCO trademarks
and trade dress already inscribed upon VideoPropulsion's existing inventory
of labels, promotional materials, product materials and other materials
relating to VideoPropulstion's existing inventory of products. Also,
GENROCO has granted VideoPropulsion a royalty free, nontransferable,
nonexclusive license to use certain GENROCO trademarks and intellectual
property for a period of ten (10) years after the spin-off.
INSURANCE MATTERS - An Insurance Matters Agreement was entered into which
governs the rights and obligations of GENROCO and VideoPropulsion with
respect to various pre-existing contracts insuring GENROCO and covering
risks associated with, or arising out of, the digital video business. The
types of policies covered by the insurance Agreement include, without
limitation, automobile liability, comprehensive and general liability.
This agreement also established certain procedures for dealing with pending
litigation, new litigation and the resolution of disputes between the
parties concerning the Insurance Agreement.
EMPLOYEE BENEFIT AND COMPENSATION MATTERS - An Employee Benefits and
Compensation Agreement will govern the rights and obligations of GENROCO
and VideoPropulsion with respect to various matters and obligations
concerning employee benefits for the former GENROCO employees who became
employees of VideoPropulsion as of January 1, 2000. The Benefits Agreement
covers VideoPropulsion's assumption of certain compensation and benefits
obligations relative to VideoPropulsion's employees. Pursuant to the
Benefits Agreement, VideoPropulsion will assume responsibility for certain
benefits previously offered by GENROCO to its employees prior to the spin-
off who became employed by VideoPropulsion and will receive funds from
GENROCO for disbursement to such employees for compensation and certain
employee benefits earned prior to the spin-off.
TAX INDEMNIFICATION AGREEMENT - Pursuant to a Tax Sharing and
Indemnification Agreement (the "Tax Indemnification Agreement"),
VideoPropulsion will indemnify GENROCO for certain tax costs resulting from
Internal Revenue Service and other audit assessments relating to
VideoPropulsion's business from the spin-off. The Tax Indemnification
Agreement will also allocate responsibility for certain taxes resulting
from the transfer of assets and liabilities to VideoPropulsion pursuant to
the Contribution Agreement and the spin-off of VideoPropulsion shares in
the spin-off. In general, VideoPropulsion will indemnify GENROCO for any
liability resulting from a decision that GENROCO is liable to GENROCO's
shareholders or VideoPropulsion's shareholders because the spin-off failed
to meet the requirements of Section 355 of the Code for non-recognition of
gain or loss at the corporate level if such taxes or liability result from
a breach of any representation or covenant made by VideoPropulsion in
connection with the spin-off under the application Code provisions.
INTERIM ADMINISTRATIVE SERVICES AGREEMENT - As of January 1, 2000, GENROCO
and VideoPropulsion entered into an Interim Administrative Services
Agreement. This Agreement governs the administrative and financial
services that GENROCO will continue to provide to VideoPropulsion on an
interim basis and for which VideoPropulsion will provide GENROCO. In
general, GENROCO will provide certain financial services, human resource
services and information system services for a period of up to one year,
with certain limited exceptions. The Interim Administrative Services
Agreement will also provide for certain financial support, technical
support, and staff support services for one year. Under the terms of the
Agreement, each party will compensate the other parties for negotiated
amounts which, VideoPropulsion believes, will be comparable to rates
VideoPropulsion could have achieved through arm's-length negotiations and
approximate current intercompany rates.
CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT - As of January 1, 2000,
VideoPropulsion and GENROCO entered into a Confidentiality and
Nondisclosure Agreement whereby, subject to certain exceptions, each party
agreed to treat as confidential and not disclose certain proprietary and
other confidential information.
BILL OF SALE AND ASSUMPTION OF LIABILITIES AGREEMENT - As of January 1,
2000, GENROCO assigned, free and clear of liens and claims by third
parties, certain assets and liabilities directly associated with the
digital video business. This agreement sets forth the identity of the
related assets and liabilities assigned by GENROCO and assumed by
VideoPropulsion.
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Listed below is certain information concerning the Company's executive
officers. Pursuant to the Company's By-Laws, each officer is appointed by
the board of Directors and holds office until his or her resignation, death
or removal, or until the Board appoints a different person to the office.
The following is a listing of all directors and executive officers of the
Company. An officer remains in office until he or she resigns, dies or a
different person is appointed to the office. Directors shall hold office
until the next annual shareholders' meeting and until the director's
successor has been elected or until his or her resignation, death or
removal.
Initial
Term
Name Age Expires Position
---------------------------------------------------------------------------
Barbara R. Pick 49 Dec 31, 2002 Director, President and CEO
Chris Good 49 Dec 31, 2001 Director, Executive Vice
President and Chief Technology
Officer
Carl A. Pick 52 Dec 31, 2003 Director and Chairman of the
Board
Keith E. Brue 62 Dec 31, 2001 Director, Secretary and
Treasurer
CARL A. PICK - Director and Chairman of the Board. Mr. Pick is also
Director, Chairman and CEO of GENROCO, Inc., the parent company of
VideoPropulsion. Mr. Pick graduated from Yale University in 1971 with a
Bachelor's degree in Computer Engineering. He received a Master's degree in
Computer Science from Yale in 1974. He, along with Barbara Pick, his wife,
founded General Robotics Corporation ("GRC") in August 1974 and reorganized
GRC into GENROCO, Inc. in 1987. Mr. Pick is married to Barbara R. Pick.
Mr. Pick is the Chairman and Marketing Director of the High Speed
Networking Forum.
BARBARA R. PICK - Director, President and Chief Executive Officer of
VideoPropulsion, Inc. since incorporation on October 1, 1999. She is
responsible for corporate development, marketing strategy, and overall
corporate management of the Company. She served as Vice President of
Sales for GENROCO since incorporation to September 30, 1999 and Digital
Video Product manager for digital video products and President of GENROCO
from 1997 to September 30, 1999. Ms. Pick is married to Carl A. Pick and
is a director of GENROCO, Inc.
CHRIS GOOD -. Director, Executive Vice President and Chief Technological
Officer of VideoPropulsion, Inc. since incorporation on October 1, 1999. He
served as Director, Executive Vice President, Chief Technical Officer of
GENROCO, Inc from 1987 to September 30, 1999. He graduated with an honors
degree in Mathematics and Physics from King's College, University of London
in 1971. He was formerly with ITT, then Compaq Computer Corporation, UK.
KEITH E. BRUE - Director, Secretary and Treasurer of VideoPropulsion, Inc.
He is also is Executive Vice President, Chief Operations Officer, Chief
Financial Officer and Secretary of GENROCO, Inc.. He has been a director
of the GENROCO, Inc. since 1986. He is responsible for manufacturing,
materials, logistics, accounting and finance. Mr. Brue received his MBA
degree from the University of Chicago and has extensive operations
experience with a focus on dealing with mergers, acquisitions and business
systems processes. He began his career in public accounting with a
predecessor to Ernst & Young LLP and has over 20 years of experience with
several different high technology companies, including two which were
publicly held and traded on NASDAQ, as the result of initial public
offerings.
COMMITTEES OF THE BOARD OF DIRECTORS
After the Distribution, the Company's Board of Directors is expected to
establish and designate specific functions and areas of oversight to an
Audit Committee and a Compensation Committee.
DIRECTORS COMPENSATION
Directors, who are compensated as employees of the Company, will receive no
additional compensation for service as directors.
It is currently anticipated that each director, who is not an employee of
the Company, will receive a retainer of $1,000 per quarterly Board meeting
and/or committee meeting attended, payable in cash, not to exceed $6,000
per year in total.
EXECUTIVE COMPENSATION
HISTORICAL COMPENSATION
The following table sets forth the compensation paid by the Company's
parent, GENROCO, Inc. to executives for services rendered to the Company
for the calendar year 1999, 1998 and 1997.
All Other
Name and Principal Compensation ($)
Position Salary ($) Note - (1)<F1> and (2)<F2>
------------------------------- ---------- --------------------------
Barbara R. Pick,
President and CEO 1999 84,490 1,682
1998 141,663 1,627
1997 109,528 1,507
Chris Good, Executive
Vice President and CTO 1999 27,200 1,503
1998 23,500 985
1997 11,130 376
(1)<F1> Amounts are related to the value of health and life insurance
premiums allocated to the Company on behalf of the employee.
(2)<F2> VideoPropulsion, Inc. pays no director fees to its two directors
who are also employees of the Company, but compensates directors
who are not employees of the Company at the rate of $1,000 per
meeting, not to exceed $6,000 per year in total.
SECURITY OWNERSHIP IN VIDEOPROPULSION BY ITS DIRECTORS AND EXECUTIVE OFFICERS
All of the Company's outstanding Shares are currently held by GENROCO, Inc.
The following table sets forth information concerning Shares that the
Company believes will be beneficially owned after the Distribution by (i)
each person known to the Company that will own more that 5% of the shares,
(ii) each of the Directors of the Company (iii) each of the executive
officers named in the Summary Compensation Table under "Executive
compensation" and (iv) by all persons chosen to be directors and executive
officers of the Company as a group. The projections reflect the
Distribution Ratio and are based upon: the number of Shares of GENROCO
common stock owned by such persons as of June 1, 2000. Unless otherwise
noted, each person listed below has sole voting and investment power with
respect to his or her Shares. The address for each individual set forth
below is 251 Info Highway, Slinger, WI 53086.
% of
Name of Beneficial Position With Number of Outstanding
Owner (1)<F3> The Company Shares Shares
------------------------------------------------------------------------
Barbara R. Pick Director, CEO 1,000,004 22.9%
(Wife of Carl)
Chris Good Director, CTO 315,456 7.2%
Carl A. Pick Director, 1,021,631 23.4%
(Husband of Barbara) Chairman
Keith E. Brue Director, 201,435 4.6%
Sec./ Treas.
--------- -----
All Directors and
Officers as a Group
(4 persons) 2,538,526 58.2%
GENROCO ESOP (2)<F4> 409,769 9.4%
(1)<F3> The securities "beneficially owned" by a person are determined
in accordance with the definition of "beneficial ownership" set
forth in the regulations of the Securities and Exchange
Commission and, accordingly, may include securities owned by or
for, among others, the spouse, children or certain other
relatives of such person as well as other securities as to
which the person has or shares voting or investment power or
has the right to acquire within 60 days.
(2)<F4> The GENROCO ESOP owns 563,512 shares of GENROCO stock, 153,743
shares of which are associated with the officers listed above
and included in their individual totals.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
GENROCO has had an Employee Stock Ownership Plan (ESOP) since April of
1989, which owns 563,512 Shares (12.9%) of the 4,362,312 total outstanding
Shares of GENROCO, Inc. common stock. The Company anticipates forming an
ESOP in due course but has not yet established a date for such.
All employees of GENROCO, Inc. and the Company are members of the plan. The
ESOP provides for a five year vesting schedule, except that in the event of
the sale of the Company all employees become fully vested.
EMPLOYMENT AND NON-COMPETE AGREEMENTS
Each employee of the Company has signed a non-compete agreement, as a
condition of employment, which stipulates the following:
(a) Nondisclosure. Except as required in his duties to Company,
-------------
Employee shall not directly or indirectly use, disseminate,
disclose, lecture upon or publish any Confidential Information (as
defined herein) while employed by Company and for a period of two
years thereafter (the "Restricted Period").
(b) Confidential Papers. Upon termination of his employment with
-------------------
Company, all documents, drawings, sketches, designs, listings,
records, notebooks and similar repositories of or containing
Confidential Information, including copies thereof, then in
Employee's possession or under his control, whether prepared by him
or others, shall be left with or returned to Company. All such
material shall remain the property of Company.
(c) No Interference. For a period ending two years after the
---------------
termination of Employee's employment with Company for whatever
reason, Employee shall not, whether for his own account or for the
account of any other individual, partnership, firm, corporation or
other business organization (other than Company), intentionally
solicit, endeavor to entice away from Company, or otherwise
interfere with the relationship of Company, any person who is
employed by or otherwise engaged to perform services for Company.
(d) Inventions. All inventions made or conceived by Employee, whether
----------
or not during the hours of his employment or with the use of
Company facilities, materials, or personnel, either solely or
jointly with others during his employment by Company belong to the
Company.
STOCK OPTION PLAN
In due course, the Company anticipates preparing and submitting for shareholder
approval, a stock option plan for directors, officers, employees and
consultants.
DESCRIPTION OF COMPANY CAPITAL STOCK
GENERAL
The description of the Company's capital stock contained herein is
qualified by reference to the Company's Articles of Incorporation, as
amended to date, and by-laws.
COMMON STOCK OF VIDEOPROPULSION, INC
As amended, the Company's authorized capital stock consists of 24,900,000
common stock shares, par value $0.01 per share and 100,000 shares of
preferred stock, par value $.01.
AUTHORIZED CAPITAL STOCK
Under the Company's Articles of Incorporation, which are attached as
Appendix B to this Information Statement, the total number of shares of all
classes of stock that the Company shall have authority to issue is
24,900,000, par value of $.01 per Share, all of which shall be Company
common stock
Based on the number of shares of GENROCO common stock outstanding on
December 31, 1999 and the distribution Ratio, it is expected that
approximately 4,362.312 shares of Company common stock will be issued to
shareholders of GENROCO in the Distribution. The Shares to be distributed
will constitute 100% of the outstanding Company common stock immediately
after the Distribution. All of the shares to be distributed to GENROCO
shareholders in the Distribution will be fully paid and non-assessable,
except as provided under applicable Wisconsin statutory law.
COMMON STOCK
Holders of Company common Stock are entitled to one vote for each Share on
all matters voted on by shareholders. Holders of Company common stock do
not have cumulative voting rights in the election of directors. The
Company's Articles of Incorporation provide for the Company's Board of
Directors, effective upon the Distribution, to be divided into three
classes of directors serving staggered three-year terms. Accordingly,
approximately one-third of the Company's directors will be elected at the
Company's annual meeting of shareholders each year. The first annual
meeting of shareholders is expected to be held in the late summer or fall
of 2000.
Holders of Company common Stock do not have preemptive rights, or any
subscription, redemption of conversion privileges. Holders of Company
Stock are entitled to participate ratably in dividends on the Company
Common Stock as declared by the Board of Directors, and are entitled to
share ratably in all assets available for distribution to shareholders in
the event of liquidation or dissolution of the Company. See "The
DISTRIBUTION - Dividend Policy" for information concerning dividend
restrictions.
PREFERRED STOCK
The Board of Directors of the Company, without further action by the
company's shareholders, is authorized to issue preferred stock or other
senior equity securities in one or more class or series and to determine
preferences as dividends and in liquidation, and conversion, redemption and
other rights of such series. The Company's Board of Directors could issue
a class or series of preferred stock or other senior equity securities with
rights more favorable with respect to dividends, voting and liquidation
that those held by the holders of common stock. The company has not
issued any preferred tock or other senior equity securities and the Company
has no present plans to issue such stock or securities.
TRANSFER AGENT
The transfer agent is Fidelity Transfer Company, Registrar & Transfer
Agent, 1800 South West Temple, Suite #301, Box 53, Salt Lake City, UT
84115 (801) 484-7222.
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION, BY-LAWS AND WISCONSIN STATUTORY LAW
GENERAL
The provisions of the Company's Amended and Restated Articles of
Incorporation, the Company's Bylaws and Wisconsin statutory law described
in this section may delay or make more difficult acquisitions or changes of
control of the Company not approved by the Company's Board of Directors.
Such provisions have been implemented to enable the Company, particularly
(but not exclusively) in the initial years of its existence as an
independent, publicly-traded company, to develop its business in a manner
which will foster its long-term growth without disruption caused by the
threat of a takeover not deemed by its Board of Directors to be in the best
interests of the Company and its shareholders. Such provisions could have
the effect of discouraging third parties from making proposals involving an
acquisition or change of control of the Company, although such proposals,
if made, might be considered desirable by a majority of the Company's
shareholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the current
management of the Company without the concurrence of the Board of
Directors.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
The Company's Amended and Restated Articles of Incorporation provide that
the number of directors shall be determined from time to time exclusively
by vote of a majority of the Company's Board of Directors then in office,
provided that in no case shall the authorized number of directors be less
than three (3) or more then seven (7). The Amended and Restated Articles
of Incorporation also provide that the Company's Board shall have the
exclusive right to fill vacancies in the Board of Directors, including
vacancies created by expansion of the Board, and that any director elected
to fill a vacancy shall serve until the next election of the class of which
such director shall have been chosen. The Amended and Restated Articles of
Incorporation further provide that directors may be removed by the
shareholders but only for cause and only by the affirmative vote of the
holders of at least a majority of the votes then entitled to be cast in an
election of directors. This provision, in conjunction with the provision
of the Amended and Restated Articles of Incorporation authorizing the Board
to fill vacant directorships, could prevent shareholders from removing
incumbent directors without cause and filling the resulting vacancies with
their own nominees.
CLASSIFIED BOARD OF DIRECTORS
The Amended and Restated Articles of Incorporation provide for the
Company's Board of Directors, effective upon the Distribution, to be
divided into three classes of directors serving staggered three-year terms.
Accordingly, approximately one-third of the Company's Board of Directors
will be elected each year. See "MANAGEMENT OF THE COMPANY - Directors".
The Company believes that a classified Board will help assure the
continuity and stability of its Board of' Directors, and its business
strategies and policies as determined by its Board, because a majority of
the directors at any given time will have prior experience as directors of
the Company. This provision should also help to insure that the Company's
Board of Directors, if confronted with an unsolicited proposal from a third
party that has acquired a block of the Company's voting stock, will have
sufficient time to review the proposal and appropriate alternatives and to
seek the best available result for all shareholders.
In addition, this provision could prevent a party who acquires control of a
majority of the outstanding voting stock from obtaining control of the
Company's Board of Directors until the second annual shareholders meeting
following the date the acquirer obtains the controlling stock interest and
could have the effect of discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the Company and
could thus increase the likelihood that incumbent directors will retain
their positions.
CERTAIN ANTI TAKE-OVER PROVISIONS
Sections 180.1140 to 180.1144 of the "Wisconsin Business Combination Law
(the "WBCL") regulate a broad range of "business combinations" between a
"resident domestic corporation" (which the Company is) and an "interested
shareholder." The Wisconsin Business Combination Statute defines a
"business combination" to include a merger or Share exchange, sale, lease,
exchange, mortgage, pledge, transfer, or other disposition of assets equal
to at least 5% of the market value of the stock or assets of the Company or
10% of its earning power, or issuance of stock or rights to purchase stock
with a market value equal to at least 5% of the outstanding stock, adoption
of a plan of liquidation, and certain other transactions involving an
"interested shareholder." An "interested shareholder" is defined as a
person who beneficially owns, directly or indirectly, 10% of the voting
power of the outstanding voting stock of the corporation or who is an
affiliate or associate of the corporation and beneficially owned 10% of the
voting power of the then outstanding voting stock within the last three
years. The Wisconsin Business Combination Statute prohibits a corporation
from engaging in a business combination (other than a business combination
of a type specifically excluded from the coverage of the statute) with an
interested shareholder for a period of three years following the date such
person becomes an interested shareholder, unless the board of directors
approved the business combination or the acquisition of the stock that
resulted in a person becoming an interested shareholder before such
acquisition. Accordingly, the Wisconsin Business Combination Statute's
prohibition on business combinations cannot be avoided during the three-
year period by subsequent action of the board of directors or shareholders.
Business combinations after the three-year period following the stock
acquisition date are permitted only if (I) the board of directors approved
the acquisition of the stock prior to the acquisition date, (ii) the
business combination is approved by a majority of the outstanding voting
stock not beneficially owned by the interested shareholder, or (iii) the
consideration to be received by shareholders meets certain requirements of
the statute with respect to form and amount.
In addition, the WBCL provides, in Sections 180.1130 to 180.1133, that
certain mergers, share exchanges or sales, leases, exchanges or other
dispositions of assets in a transaction involving a "significant
shareholder" and a "resident domestic corporation" (as defined below) are
subject to a supermajority vote of shareholders (the "Wisconsin Fair Price
Statute"), in addition to any approval otherwise required. A "significant
shareholder," with respect to an issuing public corporation, is defined as
a person who beneficially owns, directly or indirectly, 10% or more of the
voting stock of the corporation, or an affiliate of the corporation which
beneficially owned, directly or indirectly, 10% or more of the voting stock
of the corporation within the last two years. Such business combinations
must be approved by 80% of the voting power of the corporation's stock and
at least two-thirds of the voting power of the corporation's stock not
beneficially held by the significant shareholder who is party to the
relevant transaction or any of its affiliates or associates, in each case
voting together as a single group, unless the following fair price
standards have been met: (I) the aggregate value of the per Share
consideration is equal to the higher of (a) the highest price paid for any
common Shares of the corporation by the significant shareholder in the
transaction in which it became a significant shareholder or within two
years before the date of the business combination, (b) the market value of
the corporation's Shares on the date of commencement of any tender offer by
the significant shareholder, the date on which the person became a
significant shareholder or the date of the first public announcement of the
proposed business combination, whichever is higher, or (c) the highest
liquidation or dissolution distribution to which holders of the Shares
would be entitled, and (ii) either cash, or the form of consideration used
by the significant shareholder to acquire the largest number of Shares, is
offered.
Under Section 180.1150 (the "Wisconsin Control Share Statute") of the WBCL,
unless otherwise provided in the articles of incorporation (which is not
the case with respect to the Company's Amended and Restated Articles of
Incorporation), the voting power of Shares, including Shares issuable upon
conversion of convertible securities or exercise of options or warrants, of
an issuing public corporation held by any person or persons acting as a
group in excess of 20% of the voting power in the election of directors is
limited (in voting on any matter) to 10% of the full voting power of those
Shares. This restriction does not apply to Shares acquired directly from
the resident domestic corporation, in certain specified transactions, or in
a transaction with respect to which the corporation's shareholders have
approved restoration of the full voting power of otherwise restricted
Shares. In light of the 10% threshold contained in the Wisconsin Business
Combination Statute, the Wisconsin Control Share Statute threshold of 20%
may not be implicated unless the board of directors approves a transaction
that permits the shareholder to exceed the 10% ownership level.
Section 180.1134 (the "Wisconsin Defensive Action Restrictions") of the
WBCL provides that, in addition to the vote otherwise required by law or
the articles of incorporation of a resident domestic corporation, the
approval of the holders of a majority of the Shares entitled to vote is
required before such corporation can take certain action while a takeover
offer is being made or after a takeover offer has been publicly announced
and before it is concluded. Under the Wisconsin Defensive Action
Restrictions, shareholder approval is required for the corporation to (i)
acquire more than 5% of the outstanding voting Shares at a price above the
market price from any individual or organization that owns more than 3% of
the outstanding voting Shares and has held such Shares for less than two
years, unless a similar offer is made to acquire all voting Shares, or (ii)
sell or option assets of the corporation which amount to at least 10% of
the market value of the corporation, unless the corporation has at least
three independent directors (directors who are not officers or employees)
and a majority of the independent directors vote not to have this provision
apply to the corporation. The Company will have, following the
distribution, no independent directors, so the restrictions described in
clause (ii) will initially apply to the Company. The restrictions
described in clause (i) above may have the effect of deterring a
shareholder from acquiring the Company's Shares with the goal of seeking to
have the Company repurchase such Shares at a premium over the market price.
The Company believes that it will qualify as a resident domestic
corporation because it is headquartered in Wisconsin. Accordingly the
Company will have the above antitakeover protection discussed above.
CERTAIN WISCONSIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Articles of Incorporation and By-Laws
may have significant anti-takeover effects, including the inability of
shareholders to remove directors without cause, and the limitation on the
number of directors.
The explicit grant in section 180.0827 of the WBCL, the "Wisconsin
Stakeholder Provisions" of discretion to directors to consider non
shareholder constituencies could, in the context of an active "auction" of
the Company, has anti-takeover effects in situations where the interests of
stakeholders of the Company, including employees, suppliers, customers and
communities in which the Company does business, conflict with the short-
term maximization of shareholder value.
The Wisconsin Control Share Statute may deter any shareholder from
acquiring in excess of 20% of the outstanding stock of the Company and the
Wisconsin Fair Price Statute may discourage any attempt by a shareholder to
squeeze out shareholders without offering an appropriate premium purchase
price. In addition, the Wisconsin Defensive Action Restrictions may have
the effect of deterring a shareholder from acquiring the Company's Shares
with the goal of seeking to have the Company repurchase the Shares at a
premium.
The statutory provisions and the Company's Articles of Incorporation and
By-Law provisions referenced above are intended to encourage persons
seeking to acquire control of the Company to initiate such an acquisition
through arms-length negotiations with the Company's Board of Directors, and
to ensure that sufficient time for consideration of such a proposal, and
any alternatives, is available. Such measures are also designed to
discourage investors from attempting to accumulate a significant minority
position in the Company and then use the threat of a proxy contest as a
means to pressure the Company to repurchase Shares at a premium over the
market value. To the extent that such measures make it more difficult for,
or discourage, a proxy contest or the assumption of control by a holder of
a substantial block of the Company's stock, they could increase the
likelihood that incumbent directors will retain their positions, and may
also have the effect of discouraging a tender offer or other attempt to
obtain control of the Company, even though such attempt might be beneficial
to the Company and its shareholders.
Forms of the Company's Articles of Incorporation and By-Laws are attached
to this Registration Statement as Exhibits 2.1 and 2.4, respectively, and
are incorporated herein by reference. The foregoing description of certain
provisions of the Amended and Restated Articles of Incorporation and the
By-Laws does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Amended and Restated Articles of
Incorporation and the By-Laws, including definitions of certain terms in
each respective document.
DIVIDEND POLICY
To date the Company has paid no cash dividends on its Common Stock. The
Company intends to retain its future earnings, if any, to finance the
expansion of its business and for general corporate purposes. The Company
does not anticipate paying any cash dividends on its common stock in the
future. Any payment of future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of
dividends and other factors that the Company's Board of Directors deems
relevant.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION ON LIABILITY OF DIRECTORS
Under the WBCL, director immunity from liability to a corporation or its
shareholders for monetary liabilities applies automatically unless it is
specifically limited by a corporation's articles of incorporation (which is
not the case with the Company's Articles of Incorporation). Excepted from
that immunity are: (i) a willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
director has a material conflict of interest; (ii) a violation of criminal
law (unless the director had reasonable cause to believe that his or her
conduct was lawful or no reasonable cause to believe that his or her
conduct was unlawful); (iii) a transaction from which the director derived
an improper personal profit; and (iv) willful misconduct.
INDEMNIFICATION AND INSURANCE
Under Section 180.0851 (1) of the WBCL, the Company is required to
indemnify a director or officer to the extent such person is successful on
the merits or otherwise in the defense of a proceeding, for all reasonable
expenses incurred in the proceeding if such person was a party because he
or she was a director or officer of the Company. In all other cases, the
Company is required by Section 180.0851 (2) of the WBCL to indemnify a
director or officer against liability incurred in a proceeding to which
such person was a party because he or she was an officer or director of the
Company, unless it is determined that he or she breached or failed to
perform a duty owed to the Company and the breach or failure to perform
constitutes: (i) a willful failure to deal fairly with the Company or its
shareholders in connection with a matter in which the director or officer
has a material conflict of interest; (ii) a violation of criminal law,
unless the director or officer had reasonable cause to believe his or her
conduct was lawful or no reasonable cause to believe his or her conduct was
unlawful; (iii) a transaction from which the director or officer derived an
improper personal profit; or (iv) willful misconduct. Section 180.0858 (1)
of the WBCL provides that, subject to certain limitations, the mandatory
indemnification provisions do not preclude any additional right to
indemnification or allowance expenses that a director or officer may have
under the Company's articles of incorporation, bylaws, a written agreement
or a resolution of the Board of Directors or shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of the
State of Wisconsin to require or permit indemnification, allowance of
expenses and insurance to the extent required or permitted under Sections
180.0850 to 180.0858 of the WBCL for any liability incurred in connection
with a proceeding involving a federal or state statute, rule or regulation
regulating the offer, sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for
damages, settlements, fees, fines, penalties or other monetary liabilities
arising from a breach of, or failure to perform, any duty resulting solely
from his or her status as a director, unless the person asserting liability
proves that the breach or failure to perform constitutes any of the four
exceptions to mandatory indemnification under Section 180.0851 (2) referred
to above.
Under Section 180.0833 of the WBCL, the directors of the Company against
whom claims are asserted with respect to the declaration of an improper
dividend or other distribution to shareholders to which they assented are
entitled to contribution from other directors who assented to such
distribution and from shareholders who knowingly accepted the improper
distribution, as provided therein.
Article VIII of the Company's By-Laws contains provisions that generally
parallel the indemnification provisions of the WBCL and cover certain
procedural matters not dealt with in the WBCL.
Directors and officers of the Company are not covered by directors' and
officers' liability insurance under which they would be insured against
expenses and liabilities arising out of proceedings to which they could be
parties by reason of being or having been directors or officers.
AVAILABLE SEC FILING INFORMATION
The Company will file annual, quarterly and special reports, proxy
statements and other information with the SEC. These SEC filings will be
available to the public over the Internet at the SEC's web site -
http:\\www.sec.gov.. The public may also read and copy any document the
Company files at the SEC's public reference rooms in Washington, D.C., New
York, and Chicago. The public can call the SEC at 1-800-732-0330 for
further information about the public reference rooms.
Beginning with its year ending December 31, 2000, the Company will provide
an annual report to its shareholders, including audited financial
statements.
APPENDIX A - FINANCIAL STATEMENTS -VIDEOPROPULSION, INC.
VIDEOPROPULSION, INC.
(A Development Stage Company)
Financial Statements
As Of December 31, 1999 And 1998
Together With Report Of Independent Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of VideoPropulsion, Inc.:
We have audited the accompanying balance sheet of VideoPropulsion, Inc. (a
Wisconsin corporation in the development stage and a wholly owned subsidiary of
GENROCO, Inc.) (the "Company") as of December 31, 1999, and the related
statements of operations, stockholder's investment and cash flows for the two
years then ended. 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 VideoPropulsion, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
two years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is a development stage company with recurring
losses from operations. The factors discussed in Note 2 to the financial
statements raise a substantial doubt about the ability of the Company to
continue as a going concern. Management's plans in regards to those matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen
Milwaukee, Wisconsin
March 7, 2000
VideoPropulsion, Inc.
(A Development Stage Company)
Balance Sheets
As Of December 31, 1999 (Audited) and March 31, 2000 (Unaudited)
3/31/00 12/31/99
---------- --------
(Unaudited) (Audited)
Assets
------
Current Assets:
Cash $104,030 $9,947
Accounts Receivable 96,752 11,990
Inventories 47,425 61,706
Other Current Assets 8,900 -
-------- -------
Total Current Assets 257,107 83,643
-------- -------
Total Assets $257,107 $83,643
-------- -------
-------- -------
Liabilities And Stockholder's Investment
----------------------------------------
Current Liabilities:
Accounts Payable $79,981 $ -
Accrued Payroll And Payroll Taxes 63,131 12,807
Other Accrued Liabilities 57,441 7,953
-------- -------
Total Current Liabilities 200,553 20,760
Stockholder's Investment:
Common Stock (9,000 Shares Authorized, 1,000
Shares Outstanding, $0.01 Par Value) 10 10
Additional Paid-In Capital 698,522 498,522
Retained Deficit (325,368) (110,281)
Unearned Compensation (280,723) (325,368)
-------- -------
Total Stockholder's Investment 56,554 62,883
-------- -------
Total Liabilities And
Stockholder's Investment $257,107 $83,643
-------- -------
-------- -------
The accompanying notes to financial statements are an integral part of these
balance sheets.
VideoPropulsion, Inc.
(A Development Stage Company)
Statements Of Operations
For The Years Ended December 31, 1999 And 1998 (Audited) and,
For The Three Months Ended March 31, 1999 and 2000 (Unaudited)
<TABLE>
Quarter Ended March 31, Year Ended December 31,
------------------------- -------------------------
(Unaudited) (Unaudited) (Audited) (Audited)
2000 1999 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 124,075 $ 142,298 $ 598,482 $ 329,120
Cost Of Goods Sold 33,389 33,856 132,269 88,404
---------- ---------- ---------- ----------
Gross Profit 90,686 108,442 466,213 240,716
---------- ---------- ---------- ----------
Operating Expenses:
Research And Development 94,197 62,690 261,389 169,145
Selling and Customer Service 112,374 33,072 170,240 84,803
General And Administrative 82,772 11,246 82,764 38,258
---------- ---------- ---------- ----------
Total Operating Expenses 289,343 292,207 514,393 292,206
---------- ---------- ---------- ----------
Operating Loss (198,657) (565) (48,180) (51,490)
Interest Expense (Net) 3,698 - - -
Other Non Operating Expenses 3,974 - - -
Benefit From Income Taxes - - - -
---------- ---------- ---------- ----------
Net Loss $(206,329) $ (565) $ (48,180) $ (51,490)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss Per Share:
Basic And Diluted $ (206.32) $ (.66) $ (48.18) $ (51.49)
Weighted Average Number Of Shares Outstanding 1,000 1,000 1,000 1,000
Pro forma Loss Per Share (see Note 3) (UNAUDITED)
Basic And Diluted $ (4.70) $ (0.00) $ (0.01) $ (0.01)
Weighted Average Number Of Shares Outstanding 4,362,312 4,362,312 4,362,312 4,362,312
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
VideoPropulsion, Inc.
(A Development Stage Company)
Statements Of Cash Flows
For The Years Ended December 31, 1999 And 1998 (Audited) and,
For The Three Months Ended March 31, 2000 (Unaudited)
<TABLE>
For Three Months For Three Months For the Year Ended
Ended March 31, Ended March 31, December 31,
--------------- --------------- -------------------
2000 1999 1999 1998
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Audited) (Audited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (206,329) $ (565) $ (48,180) $ (51,490)
Adjustments To Reconcile Net Income To Net Cash Provided
By (Used In) Operating Activities-
Amortization Of Unearned Compensation 44,645 - 128,538 32,644
Unearned Compensation (44,645) - (192,750) (293,800)
Change In Assets And Liabilities-
Accounts Receivable (84,762) (87,882) (1,000) 14,985
Inventories 14,281 (3,578) (25,284) (22,814)
Other Current (8,900) -
Accounts Payable 79,981 -
Accrued Liabilities 99,812 (3,234) (7,474) 6,011
---------- -------- --------- ---------
Total Adjustments 100,412 (94,694) (97,970) (262,974)
---------- -------- --------- ---------
Net Cash Used In Operating Activities (105,917) (95,259) (146,150) (314,464)
Cash Flows From Investing Activities - - - -
Cash Flows From Financing Activities:
Capital Contribution From Parent 200,000 95,259 146,097 314,464
Issuance Of Common Stock - - 10,000 -
---------- -------- --------- ---------
Net Cash Provided By Financing Activities 200,000 95,259 156,097 314,464
---------- -------- --------- ---------
Net Increase In Cash 94,083 - 9,947 -
CASH, Beginning Of Period 9,947 - - -
---------- -------- --------- ---------
CASH, End Of Period $ 104,030 $ - $ 9,947 $ -
---------- -------- --------- ---------
---------- -------- --------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
VideoPropulsion, Inc.
(A Development Stage Company)
Statements Of Stockholder's Investment
For The Years Ended December 31, 1999 And 1998 (Audited) and,
For the Three Months Ended March 31, 2000 (Unaudited)
<TABLE>
Deficit
Accumulated
Common Stock Additional Parent's Total During
------------------- Paid-in Divisional Retained Unearned Stockholder's Development
Shares Amount Capital Equity Deficit Compensation Investment Stage
------ ------ ------- ------ ------- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 - $ - $ - $17,360 $ - $ - $17,360 $(336,951)
Net Loss - - - (51,490) - - (51,490) (51,490)
Capital Contribution From Parent - - - 314,464 - - 314,464 -
Unearned Compensation - - - - - (293,800) (293,800) -
Amortization Of
Unearned Compensation - - - - - 32,644 32,644 -
----- --- -------- --------- --------- --------- --------- ---------
Balance, December 31, 1998 - - - 280,334 - (261,156) 19,178 (388,441)
Net Income To October 4, 1999 - - - 62,101 - - 62,101 62,101
Net Loss From October 4 To
December 31, 1999 - - - - (110,281) - (110,281) (110,281)
--------- ---------
Net Loss For 1999 - - - - - - (48,180) (48,180)
--------- ---------
Capital Contribution From Parent
Prior To October 4, 1999 - - - 146,097 - - 146,097 -
October 4 Transfer Due To
Incorporation Of Company - - 488,532 (488,532) - - - -
Sale Of Stock To Parent 1,000 10 9,990 - - - 10,000 -
Unearned Compensation - - - - - (192,750) (192,750) -
Amortization Of
Unearned Compensation - - - - - 128,538 128,538 -
----- --- -------- --------- --------- --------- --------- ---------
Balance, December 31, 1999 1000 $10 $498,522 $ - $(110,281) $(325,368) $ 62,883 $(436,621)
Net Loss From January 1, 2000
to March 31, 2000 - - - - (206,329) - (206,329) (206,329)
Capital Contribution From Parent - - 200,000 - - - 200,000 -
----- --- -------- --------- --------- --------- --------- ---------
Balance, March 31, 2000 (Unaudited) 1,000 $10 $698,522 $ - $(316,610) $(325,368) $56,554 $(641,950)
----- --- -------- --------- --------- --------- --------- ---------
----- --- -------- --------- --------- --------- --------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
VideoPropulsion, Inc.
(A Development Stage Company)
Notes To Financial Statements
December 31, 1999 And 1998
(1) Description of the Company-
--------------------------
In October 1999, VideoPropulsion, Inc. (the "Company" or "VPI"), a
development stage company, became a Wisconsin corporation and a wholly owned
subsidiary of GENROCO, Inc. (the "Parent"). Prior to October 1999, VPI was
operated as the digital video division of the Parent. The Company designs
and sells a range of Digital Video Broadcast (DVB) products which are being
utilized in a wide variety of applications that allow consumers to use their
TV sets for interactive services including e-mail, home shopping, web
browsing, video-on demand, IP telephony, and other functions. DVB is the
digital standard that has been successfully deployed throughout Europe, Asia,
the Pacific and Latin America and is rapidly becoming accepted in North
America.
In August of 1999, the Board of Directors of GENROCO, Inc. approved spinning
off its digital video business as a separately traded public company. One
share of VPI stock will be issued for each share of GENROCO, Inc. stock
outstanding on the spin-off date. It is GENROCO's current intent to spin-off
VPI in 2000.
(2) Development Stage-
-----------------
The Company is considered a development stage company. A market for the
Company's products may not develop. The Company's growth will be limited if
DVB technology and solutions do not become widely accepted. The Company's
development efforts are focused on the DVB market, which has only begun to
develop and is rapidly evolving.
During 1999 and 1998, the Parent contributed $146,097 and $314,464 of
additional equity in addition to purchasing 1,000 shares of VPI stock for
$10,000 on October 4, 1999. In January 2000, the Parent loaned VPI $200,000
through an arms-length loan. The loan is payable at the end of 2000 and
bears interest at 9.5%.
GENROCO intends to provide interim financing in amounts adequate to allow the
Company to meet its financial obligations for a period of one year. However,
there is no guarantee that GENROCO will have the financial ability to meet
that obligation. In the case that GENROCO is unable to provide support for
one year, the Company will need to raise additional capital either through
private placement or an offering of VPI stock. Further, the Company will
need to raise capital to fund operations beyond 2000. There can be no
assurances that there will be a market for VPI stock or that capital can be
raised through a private placement.
(3) Summary of Significant Accounting Policies-
------------------------------------------
(a) Basis For Presentation-
----------------------
Certain items have been incorporated into the preparation of these December
31, 1999 and 1998 financial statements to reflect the Company as a stand-
alone entity. The financial information included herein may not
necessarily reflect the financial position and results of operations for
the Company if the Company would have been a separate, stand-alone entity
during the periods presented.
(b) Revenue Recognition-
-------------------
Revenue from product sales is recognized when the products are shipped.
Service revenue from engineering and design work is recognized as the
services are provided.
The Company had four customers that individually accounted for 24.2%,
24.0%, 15.5% and 12.0% of net sales in 1999. The Company had four
customers that individually accounted for 46.1%, 17.9%, 15.0% and 11.0% of
net sales in 1998.
Exports accounted for approximately 39.5% and 17.9% of the Company's net
sales for 1999 and 1998, respectively.
(c) Inventories-
-----------
Inventories are stated at the lower of average cost, determined using the
first-in, first-out method, or market. Inventories consist of:
Raw materials and work-in-process $38,350
Finished goods 23,356
-------
$61,706
-------
-------
(d) Research And Development Costs-
------------------------------
Research and development costs are expensed as incurred and are presented
as a separate component of the income statement.
(e) Operating Expenses-
------------------
The Company subcontracts a majority of its production activities, including
the manufacture and assembly of certain products, from the Parent.
Certain operating expenses were allocated based on the percentage of hours
spent on the digital video division at the Parent compared to total hours
of employees each year multiplied by the Parent's total operating expenses.
Management estimates if the Company had been on a stand-alone basis over
the past two years, operating expenses would have been substantially
identical to the allocated expenses included in the financial statements.
(f) Use Of Estimates-
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(g) Net Income Per Common Share-
---------------------------
The Company accounts for earnings per share according to provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
for purposes of calculating earnings per share.
Basic earnings per share is computed assuming that the number of VPI shares
outstanding was 1,000 for 1999 and 1998. The company does not have common
stock equivalents and therefore diluted earnings per share equals basic
earnings per share.
Pro forma earnings per share (unaudited) is computed assuming that the
number of VPI shares outstanding as a result of the anticipated spin-off
was 4,362,312 for 1999 and 1998. This amount was calculated assuming one
share of VPI stock will be issued for each share of GENROCO, Inc. stock
outstanding at March 7, 2000. The Parent does not have common stock
equivalents and therefore the pro forma diluted earnings per share equals
pro forma basic earnings per share.
(4) Income Taxes-
------------
The Company accounts for income taxes according to provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." The
Company is included on the consolidated federal income tax returns of the
Parent. Income tax benefits and liabilities are based on the Company's
activity on a standalone basis.
The Company and the Parent entered into an agreement effective January 1,
2000 under which the Parent will be responsible for substantially all United
States federal, state and local income taxes for periods prior to the date of
spin-off. The Company will be responsible for all taxes applicable to
periods after the spin-off and amounts exceeding certain thresholds resulting
from tax audit adjustments for periods prior to spin-off. Management
believes there are no tax liabilities over these thresholds.
Net operating losses generated prior to the date of distribution will remain
with the Parent. The Company has therefore recorded a full valuation
allowance against the tax benefits.
Components of the deferred income taxes are as follows:
December 31,
1999
--------------
Current Deferred Tax Assets:
Inventory Reserves $ 2,418
Accrued Employee Costs 1,151
---------
Total Current Deferred Tax Assets 3,569
Current Valuation Allowance (3,569)
---------
Net Current Deferred Taxes $ -
Noncurrent Deferred Tax Assets:
Operating Loss Carryforwards $ 117,440
---------
Total Net Noncurrent Deferred Tax Assets 117,440
Noncurrent Valuation Allowance (117,440)
---------
Net Noncurrent Deferred Taxes $ -
---------
---------
A summary of the Company's effective tax rates is as follows:
December 31,
--------------------
1999 1998
-------- --------
Federal Tax At Statutory Rate $(16,381) $(17,507)
State Tax At Statutory Rate, Net Of Federal Benefit (2,505) (2,677)
Valuation Allowance 18,886 20184
-------- --------
Total Provision $ - $ -
-------- --------
-------- --------
(5) Lease Commitments-
-----------------
The Company leases its operating facility located in Slinger, Wisconsin,
under an agreement expiring December 31, 2001 with the Parent. The Company
has options from the Parent to renew the lease agreement. Total rent expense
was approximately $22,764 and $17,995 in 1999 and 1998, respectively.
As of December 31, 1999, the approximate future minimum lease payments under
operating leases are as follows:
Year Amount
---- ------
2000 $30,000
2001 $30,000
(6) Employee Benefit Plans-
----------------------
The Parent company has an Employee Stock Ownership Plan and Trust (the
"Plan"), covering substantially all domestic employees. Employees of VPI are
participants in the Plan. The Parent company's contribution to the Plan is
discretionary and is determined annually by the Board of Directors of the
Parent. VPI is charged a portion of this contribution relating to the VPI
employees participating. Expense recorded by VPI under the Plan was
approximately $9,504 and $1,372 in 1999 and 1998, respectively. The Plan
owned 12.9% shares of GENROCO, Inc. stock as of December 31, 1999.
In order to recruit and retain personnel, the Company offers its employees
stock in the Parent. Stock is granted to a participating employee in
exchange for a three-year note from the employee. To the extent the employee
remains employed at the Company, the note is forgiven over the three-year
period. This amount is recorded as unearned compensation in equity and is
amortized on a straight-line basis as compensation expense over the life of
the notes. The resulting amount due to the Parent for its stock is
considered to be additional capital from the parent since the amounts will
not be settled in cash. As of December 31, 1999, approximately $325,000 of
deferred compensation remained as a reduction of equity. Expense recorded by
VPI under the Plan was $128,538 and $32,644 for 1999 and 1998.
An Employee Benefits and Compensation Agreement governs the rights and
obligations of GENROCO, Inc. and VPI with respect to various matters and
obligations concerning employee benefits for the former GENROCO, Inc.
employees who became employees of VPI as of January 1, 2000. The Benefits
Agreement covers VPI's assumption of certain compensation and benefits
obligations relative to VPI's employees. Pursuant to the Benefits Agreement,
VPI will assume responsibility for certain benefits previously offered by
GENROCO, Inc. to its employees prior to the spin-off who became employed by
VPI and will receive funds from GENROCO, Inc. for disbursement to such
employees for compensation and certain employee benefits earned prior to the
spin-off. No benefit obligation is outstanding as of December 31, 1999.
(7) Stockholder's Investment-
------------------------
Effective October 4, 1999, common stock authorized was 9,000 shares. Prior
to October 4, 1999, the Company was operated as a division of the Parent and
no stock was authorized. As of December 31, 1999, 1,000 shares were issued
and outstanding. The outstanding stock is owned entirely by GENROCO.
(8) Related Party Funding-
---------------------
The Company's financing requirements have historically been funded almost
entirely by GENROCO. As such at the end of the year amounts classified as
due to Parent were forgiven and reflected as capital contributions from the
parent. For the years ending December 31,1 999 and 1998, the amount due to
Parent, which was converted to capital contributions, was $146,097 and
$314,464, respectively. Due to this financing arrangement, the Company
currently does not reflect any trade payables. Effective January 1, 2000,
the Company's operating expenses will not be funded in this manner and future
periods will require the Company to fund trade payables through operating
income and other financing resources. Additional funding arrangements have
been made between the Company and the Parent, which are outlined in Note 2.
(9) Administrative Services Agreement-
---------------------------------
As of January 1, 2000, the Company and the Parent entered into an Interim
Administrative Services Agreement. This agreement governs the administrative
and manufacturing services that the Parent will continue to provide to the
company on an interim basis. In general, the Parent will provide certain
financial, human resource and information system services (including use of
the hardware and furniture and fixtures associated with these services).
Under the terms of the agreement, the Company will compensate the parent at
negotiated fees which, the Company believes, would be comparable to rates the
Company could have achieved through arms-length negotiations. Management
does not believe this agreement will result in expenses materially different
from the amount allocated in these carved-out financial statements.
(10) Commitments and Contingencies-
-----------------------------
As of January 1, 2000, the Company and the Parent entered into a General
Assignment and Assumption Agreement. Pursuant to the General Assignment and
Assumption Agreement regarding Litigation, Claims and other Liabilities, in
general VPI assumed and agreed to indemnify GENROCO, Inc. and acquire
substantially all the liabilities, litigation and claims arising out of the
digital video business including all environmental liabilities. GENROCO,
Inc. retained and indemnified VPI against substantially all liabilities,
litigation and claims arising out of its storage area networking business and
other items not transferred to VPI. The indemnification obligations does not
entitle the indemnified party to recover to the extent that such liabilities
are covered by proceeds received from a third party insurer. In
circumstances in which the potential inability of GENROCO, Inc. and VPI is
joint, the parties will share responsibility for such liability on a mutually
agreed basis consistent with the principles established in the Agreement. As
of December 31, 1999, there were no outstanding commitments or contingencies
governed by this agreement.
11) Transitional Trademark Use and License Agreement-
------------------------------------------------
As of January 1, 2000, the Company and the Parent entered into a Transitional
Trademark Use and License Agreement. Pursuant to the Transitional Trademark
Use and License Agreement, GENROCO, Inc. granted to VPI certain rights to
continue to use, for a limited period of time and under certain defined
circumstances, certain GENROCO, Inc. trademarks already inscribed upon VPI's
existing inventory of labels, promotional materials, product materials and
other materials relating to VPI's existing inventory of products. Also,
GENROCO, Inc. has granted VPI a royalty free, nontransferable, nonexclusive
license to use certain GENROCO, Inc. trademarks and certain products for a
period of nine months after the spin-off.
12) Insurance Matters-
-----------------
As of January 1, 2000, the Company and the Parent entered into an Insurance
Matters Agreement. The Insurance Matters Agreement governs the rights and
obligations of GENROCO, Inc. and VPI with respect to various pre-existing
contracts insuring GENROCO, Inc. and covering risks associated with, or
arising out of, the digital video business. The types of policies covered by
the insurance Agreement include, without limitation, automobile liability,
comprehensive and general liability. This agreement also established certain
procedures for dealing with pending litigation, new litigation and the
resolution of disputes between the parties concerning the Insurance
Agreement.
APPENDIX B - ARTICLES OF INCORPORATION, VIDEOPROPULSION, INC.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VIDEOPROPULSION, INC.
The following Amended and Restated Articles of Incorporation duly adopted
pursuant to the authority and provisions of the Wisconsin Business Corporation
Law, Chapter 180 of the Wisconsin Statutes (the "WBCL") supersede and take the
place of the existing Articles of Incorporation and any Amendments thereto:
ARTICLE I
Name
----
The name of the corporation is VideoPropulsion, Inc.
ARTICLE II
Purposes
--------
The purposes for which the corporation is organized are to engage in any
lawful activity within the purposes for which a corporation may be organized
under the WBCL.
ARTICLE III
Capital Stock
-------------
The aggregate number of shares which the corporation shall have authority
to issue is Twenty-Five Million (25,000,000) shares of stock, consisting of
Twenty-Four Million Nine Hundred Thousand (24,900,000) shares designated as
"Common Stock," of the par value of one cent ($0.01) per share, and One Hundred
Thousand (100,000) shares designated as "Preferred Stock," of the par value of
one cent ($0.01) per share.
The Preferred Stock may be divided into and issued in series, and authority
is vested in the Board of Directors to divide, from time to time, any and all of
such Preferred shares into series and to fix and determine the relative rights
and preferences of the shares of any series so established, including (a) the
rate of dividend payable thereon and whether such dividends shall be cumulative,
noncumulative or partially cumulative; (b) the extent to which such dividends
are payable on a parity with or in preference to the dividends payable on the
shares of any other class or series of stock; (c) the amount which shall be paid
to the holders thereof in the event of voluntary or involuntary liquidation; (d)
the terms and conditions on which the holders thereof may convert the same into
any other class or series of stock, if the shares of any series are issued with
the privilege of conversion; (e) the price at and the terms and conditions on
which the shares may be redeemed and the terms or amount of any sinking fund
provided for the purchase or redemption thereof; (f) the voting rights, if any,
of the holders thereof; and (g) such other provisions as may be permitted to be
fixed by the Board of Directors of the corporation pursuant to the laws of the
State of Wisconsin, as in effect at the time of the creation of any such series.
ARTICLE IV
Board of Directors
------------------
The Board of Directors shall consist of such number of persons as shall be
fixed by the Bylaws.
The term of office and method of election of the directors shall be as
specified in the Bylaws.
ARTICLE V
Preemptive Rights
-----------------
No holder of any stock of the corporation shall have any preemptive right
to purchase, subscribe for, or otherwise acquire any shares of stock of the
corporation of any class now or hereafter authorized, or any securities
exchangeable for or convertible into such shares.
ARTICLE VI
Registered Office and Agent
---------------------------
The address of the initial registered office of the corporation is 411 East
Wisconsin Avenue, Suite 2550, Milwaukee, WI, 53202, Milwaukee County, Wisconsin
and the name of its initial registered agent at such address is Lawdock, Inc.
*****
The undersigned officer of VideoPropulsion, Inc. hereby certifies that the
foregoing amendment and restatement of the Articles of Incorporation of said
corporation was duly adopted by the directors and shareholders of the
corporation on June 15, 2000 in accordance with Sections 180.1003 and 180.1004
of the WBCL.
Executed on behalf of the corporation this 16th day of June, 2000.
/s/ Keith Brue
-------------------------------------
Keith Brue, Secretary
This document was drafted by:
Walter J. Skipper
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, WI 53202
APPENDIX C - AMENDED BY-LAWS OF VIDEOPROPULSION, INC.
AMENDED AND RESTATED
BYLAWS
OF
VIDEOPROPULSION, INC.
ADOPTED
OCTOBER 4, 1999
TABLE OF CONTENTS
-----------------
ARTICLE I. OFFICES; RECORDS
1.01. Principal and Business Offices 1
1.02. Registered Office and Registered Agent 1
1.03. Corporate Records 1
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting 2
2.02. Special Meetings 2
2.03. Place of Meeting 2
2.04. Notices to Shareholders 2
(A) REQUIRED NOTICE 2
(B) ADJOURNED MEETING 3
(C) WAIVER OF NOTICE 3
(D) CONTENTS OF NOTICE 3
(E) FUNDAMENTAL TRANSACTIONS 3
2.05. Fixing of Record Date 3
2.06. Shareholder List 4
2.07. Quorum and Voting Requirements 4
2.08. Conduct of Meetings 5
2.09. Proxies 5
2.10. Voting of Shares 5
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers and Number 5
3.02. Election, Removal, Tenure and Qualifications 6
3.03. Regular Meetings 6
3.04. Special Meetings 7
3.05. Meetings By Telephone or Other Communication Technology 7
3.06. Notice of Meetings 7
3.07. Quorum 7
3.08. Manner of Acting 8
3.09. Conduct of Meetings 8
3.10. Vacancies 8
3.11. Compensation 8
3.12. Presumption of Assent 8
3.13. Committees 8
ARTICLE IV. OFFICERS
4.01. Appointment 9
4.02. Resignation and Removal 9
4.03. Vacancies 10
4.04. Chairperson of the Board 10
4.05. President 10
4.06. Vice Presidents 10
4.07. Secretary 10
4.08. Treasurer 11
4.09. Assistants and Acting Officers 11
4.10. Salaries 11
ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.01. Certificates for Shares 11
5.02. Signature by Former Officers 12
5.03. Transfer of Shares 12
5.04. Restrictions on Transfer 12
5.05. Lost, Destroyed or Stolen Certificates 12
5.06. Consideration for Shares 12
5.07. Stock Regulations 13
ARTICLE VI. WAIVER OF NOTICE
6.01. Shareholder Written Waiver 13
6.02. Shareholder Waiver by Attendance 13
6.03. Director Written Waiver 13
6.04. Director Waiver by Attendance 13
ARTICLE VII. ACTION WITHOUT MEETINGS
7.01. Shareholder Action Without Meeting 14
7.02. Director Action Without Meeting 14
ARTICLE VIII. INDEMNIFICATION
8.01. Indemnification for Successful Defense 14
8.02. Other Indemnification 14
8.03. Written Request 15
8.04. Nonduplication 15
8.05. Determination of Right to Indemnification 15
8.06. Advance of Expenses 16
8.07. Nonexclusivity 17
8.08. Court-Ordered Indemnification 18
8.09. Indemnification and Allowance of Expenses of Employees and Agents 18
8.10. Insurance 18
8.11. Securities Law Claims 19
8.12. Liberal Construction 19
8.13. Definitions Applicable to this Article 19
ARTICLE IX. SEAL
ARTICLE X. AMENDMENTS
10.01. By Shareholders 20
---------------
10.02. By Directors 21
------------
10.03. Implied Amendments 21
------------------
ARTICLE XI. STOCK TRANSFER RESTRICTION
ARTICLE I. OFFICES; RECORDS
1.01. Principal and Business Offices. The corporation may have such
------------------------------
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02. Registered Office and Registered Agent. The registered office
--------------------------------------
of the corporation required by the Wisconsin Business Corporation Law to be
maintained in the State of Wisconsin may be, but need not be, identical with the
principal office in the State of Wisconsin. The address of the registered
office may be changed from time to time by any officer or by the registered
agent. The office of the registered agent of the corporation shall be identical
to such registered office.
1.03. Corporate Records. The following documents and records shall
-----------------
be kept at the corporation's principal office or at such other reasonable
location as may be specified by the corporation:
(a) Minutes of shareholders' and Board of Directors' meetings
and any written notices thereof.
(b) Records of actions taken by the shareholders or directors
without a meeting.
(c) Records of actions taken by committees of the Board of
Directors.
(d) Accounting records.
(e) Records of its shareholders.
(f) Current Bylaws.
(g) Written waivers of notice by shareholders or directors (if
any).
(h) Written consents by shareholders or directors for actions
without a meeting (if any).
(i) Voting trust agreements (if any).
(j) Stock transfer agreements to which the corporation is a
party or of which it has notice (if any).
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting. The annual meeting of the shareholders shall
--------------
be held on the First Monday in July, or at such other time and date as may be
fixed by or under the authority of the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting is a legal holiday
in the State of Wisconsin, such meeting shall be held on the next succeeding
business day. If the election of directors is not held on the day designated
herein, or fixed as herein provided, for any annual meeting of the shareholders,
or at any adjournment thereof, the Board of Directors shall cause the election
to be held at a meeting of the shareholders as soon thereafter as may be
convenient.
2.02. Special Meetings. Special meetings of the shareholders, for
----------------
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Chairperson of the Board, if there is one, the President or the Board of
Directors. If and as required by the Wisconsin Business Corporation Law, a
special meeting shall be called upon written demand describing one or more
purposes for which it is to be held by holders of shares with at least 10% of
the votes entitled to be cast on any issue proposed to be considered at the
meeting. The purpose or purposes of any special meeting shall be described in
the notice required by Section 2.04 of these Bylaws.
2.03. Place of Meeting. The Board of Directors may designate any
----------------
place, either within or without the State of Wisconsin, as the place of meeting
for any annual meeting or any special meeting. If no designation is made, the
place of meeting shall be the principal office of the corporation but any
meeting may be adjourned to reconvene at any place designated by vote of a
majority of the shares represented thereat.
2.04. Notices to Shareholders. (a) Required Notice. Written
----------------------- ---------------
notice stating the place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than five (5) days nor more than sixty (60) days before the
date of the meeting (unless a different time is provided by law or the Articles
of Incorporation), by or at the direction of the Chairperson of the Board, if
there is one, the President or the Secretary, to each shareholder entitled to
vote at such meeting or, for the fundamental transactions described in
subsections (e)(1) to (4) below (for which the Wisconsin Business Corporation
Law requires that notice be given to shareholders not entitled to vote), to all
shareholders. If mailed, such notice is effective when deposited in the United
States mail, and shall be addressed to the shareholder's address shown in the
current record of shareholders of the corporation, with postage thereon prepaid.
At least twenty (20) days' notice shall be provided if the purpose, or one of
the purposes, of the meeting is to consider a plan of merger or share exchange
for which shareholder approval is required by law, or the sale, lease, exchange
or other disposition of all or substantially all of the corporation's property,
with or without good will, otherwise than in the usual and regular course of
business.
(b) Adjourned Meeting. Except as provided in the next sentence,
-----------------
if any shareholder meeting is adjourned to a different date, time, or place,
notice need not be given of the new date, time, and place, if the new date,
time, and place is announced at the meeting before adjournment. If a new record
date for the adjourned meeting is or must be fixed, then notice must be given
pursuant to the requirements of paragraph (a) of this Section 2.04, to those
persons who are shareholders as of the new record date.
(c) Waiver of Notice. A shareholder may waive notice in
----------------
accordance with Article VI of these Bylaws.
(d) Contents of Notice. The notice of each special shareholder
------------------
meeting shall include a description of the purpose or purposes for which the
meeting is called, and only business within the purpose described in the meeting
notice may be conducted at a special shareholders' meeting. Except as otherwise
provided in subsection (e) of this Section 2.04, in the Articles of
Incorporation, or in the Wisconsin Business Corporation Law, the notice of an
annual shareholders' meeting need not include a description of the purpose or
purposes for which the meeting is called.
(e) Fundamental Transactions. If a purpose of any shareholder
------------------------
meeting is to consider either: (1) a proposed amendment to the Articles of
Incorporation (including any restated articles); (2) a plan of merger or share
exchange for which shareholder approval is required by law; (3) the sale, lease,
exchange or other disposition of all or substantially all of the corporation's
property, with or without good will, otherwise than in the usual and regular
course of business; (4) the dissolution of the corporation; or (5) the removal
of a director, the notice must so state and in cases (1), (2) and (3) above must
be accompanied by, respectively, a copy or summary of the: (1) proposed
articles of amendment or a copy of the restated articles that identifies any
amendment or other change; (2) proposed plan of merger or share exchange; or (3)
proposed transaction for disposition of all or substantially all of the
corporation's property. If the proposed corporate action creates dissenters'
rights, the notice must state that shareholders and beneficial shareholders are
or may be entitled to assert dissenters' rights, and must be accompanied by a
copy of Sections 180.1301 to 180.1331 of the Wisconsin Business Corporation Law.
2.05. Fixing of Record Date. The Board of Directors may fix in
---------------------
advance a date as the record date for one or more voting groups for any
determination of shareholders entitled to notice of a shareholders' meeting, to
demand a special meeting, to vote, or to take any other action, such date in any
case to be not more than seventy (70) days prior to the meeting or action
requiring such determination of shareholders, and may fix the record date for
determining shareholders entitled to a share dividend or distribution. If no
record date is fixed for the determination of shareholders entitled to demand a
shareholder meeting, to notice of or to vote at a meeting of shareholders, or to
consent to action without a meeting, (a) the close of business on the day before
the corporation receives the first written demand for a shareholder meeting, (b)
the close of business on the day before the first notice of the meeting is
mailed or otherwise delivered to shareholders, or (c) the close of business on
the day before the first written consent to shareholder action without a meeting
is received by the corporation, as the case may be, shall be the record date for
the determination of shareholders. If no record date is fixed for the
determination of shareholders entitled to receive a share dividend or
distribution (other than a distribution involving a purchase, redemption or
other acquisition of the corporation's shares), the close of business on the day
on which the resolution of the Board of Directors is adopted declaring the
dividend or distribution shall be the record date. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any adjournment
thereof unless the Board of Directors fixes a new record date and except as
otherwise required by law. A new record date must be set if a meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.
2.06. Shareholder List. The officer or agent having charge of the
----------------
stock transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete record of the shareholders entitled to notice of
such meeting, arranged by class or series of shares and showing the address of
and the number of shares held by each shareholder. The shareholder list shall
be available at the meeting and may be inspected by any shareholder or his or
her agent or attorney at any time during the meeting or any adjournment. Any
shareholder or his or her agent or attorney may inspect the shareholder list
beginning two (2) business days after the notice of the meeting is given and
continuing to the date of the meeting, at the corporation's principal office or
at a place identified in the meeting notice in the city where the meeting will
be held and, subject to Section 180.1602(2)(b) 3 to 5 of the Wisconsin Business
Corporation Law, may copy the list, during regular business hours and at his or
her expense, during the period that it is available for inspection hereunder.
The original stock transfer books and nominee certificates on file with the
corporation (if any) shall be prima facie evidence as to who are the share-
holders entitled to inspect the shareholder list or to vote at any meeting of
shareholders. Failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
2.07. Quorum and Voting Requirements. Except as otherwise provided
------------------------------
in the Articles of Incorporation or in the Wisconsin Business Corporation Law, a
majority of the votes entitled to be cast by shares entitled to vote as a
separate voting group on a matter, represented in person or by proxy, shall
constitute a quorum of that voting group for action on that matter at a meeting
of shareholders. If a quorum exists, action on a matter, other than the
election of directors, by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action
unless a greater number of affirmative votes is required by the Wisconsin
Business Corporation Law or the Articles of Incorporation. If the Articles of
Incorporation or the Wisconsin Business Corporation Law provide for voting by
two (2) or more voting groups on a matter, action on that matter is taken only
when voted upon by each of those voting groups counted separately. Action may
be taken by one (1) voting group on a matter even though no action is taken by
another voting group entitled to vote on the matter. Once a share is
represented for any purpose at a meeting, other than for the purpose of
objecting to holding the meeting or transacting business at the meeting, it is
considered present for purposes of determining whether a quorum exists for the
remainder of the meeting and for any adjournment of that meeting unless a new
record date is or must be set for that meeting.
2.08. Conduct of Meetings. The Chairperson of the Board, or if
-------------------
there is none, or in his or her absence, the President, and in the President's
absence, a Vice President in the order provided under Section 4.06 of these
Bylaws, and in their absence, any person chosen by the shareholders present
shall call the meeting of the shareholders to order and shall act as chairperson
of the meeting, and the Secretary shall act as secretary of all meetings of the
shareholders, but, in the absence of the Secretary, the presiding officer may
appoint any other person to act as secretary of the meeting.
2.09. Proxies. At all meetings of shareholders, a shareholder
-------
entitled to vote may vote in person or by proxy appointed in writing by the
shareholder or by his or her duly authorized attorney-in-fact. All proxy
appointment forms shall be filed with the Secretary or other officer or agent of
the corporation authorized to tabulate votes before or at the time of the
meeting. Unless the appointment form conspicuously states that it is
irrevocable and the appointment is coupled with an interest, a proxy appointment
may be revoked at any time. The presence of a shareholder who has filed a proxy
appointment shall not of itself constitute a revocation. No proxy appointment
shall be valid after eleven months from the date of its execution, unless
otherwise expressly provided in the appointment form. The Board of Directors
shall have the power and authority to make rules that are not inconsistent with
the Wisconsin Business Corporation Law as to the validity and sufficiency of
proxy appointments.
2.10. Voting of Shares. Each outstanding share shall be entitled to
----------------
one (1) vote on each matter submitted to a vote at a meeting of shareholders,
except to the extent that the voting rights of the shares are enlarged, limited
or denied by the Articles of Incorporation or the Wisconsin Business Corporation
Law. Shares owned directly or indirectly by another corporation are not
entitled to vote if this corporation owns, directly or indirectly, sufficient
shares to elect a majority of the directors of such other corporation. However,
the prior sentence shall not limit the power of the corporation to vote any
shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after notice of redemption is mailed
to the holders and a sum sufficient to redeem the shares has been deposited with
a bank, trust company, or other financial institution under an irrevocable
obligation to pay the holders the redemption price on surrender of the shares.
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers and Number. All corporate powers shall be
-------------------------
exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, its Board of Directors.
The number of directors of the corporation shall be three (3). The number of
directors may be increased or decreased from time to time by amendment to this
Section adopted by the shareholders or the Board of Directors, but no decrease
shall have the effect of shortening the term of an incumbent director.
3.02. Election, Removal, Tenure and Qualifications. Unless action
--------------------------------------------
is taken without a meeting under Section 7.01 of these Bylaws, directors shall
be elected by a plurality of the votes cast by the shares entitled to vote in
the election at a shareholders meeting at which a quorum is present; i.e., the
individuals with the largest number of votes in favor of their election are
elected as directors up to the maximum number of directors to be chosen in the
election. Votes against a candidate are not given legal effect and are not
counted as votes cast in an election of directors. In the event two (2) or more
persons tie for the last vacancy to be filled, a run-off vote shall be taken
from among the candidates receiving the tie vote. Directors shall hold office
from the close of the annual meeting for a term of three (3) years, or until
their successors have been elected and qualified. Directors shall be classified
with respect to the time for which they shall hold office by dividing them into
three (3) classes, each class to consist of as nearly as possible an equal
number of directors. The directors of the first class shall hold office for an
initial term of one (1) year, the directors of the second class for an initial
term of two (2) years, and the directors of the third class for an initial term
of three (3) years. At the close of each annual meeting of this corporation,
the successors to the class of directors whose terms expire that year shall
commence to hold office for a term of three (3) years, or until their successors
have been elected and qualified. In the event of an increase in the number of
directors, the remaining directors shall assign the newly created
directorship(s) to the appropriate class or classes so that the three (3)
classes shall continue to consist of, as nearly as possible, an equal number of
directors. If cumulative voting for directors is not authorized by the Articles
of Incorporation, any director or directors may be removed from office by the
shareholders if the number of votes cast to remove the director exceeds the
number cast not to remove him or her, taken at a meeting of shareholders called
for that purpose (unless action is taken without a meeting under Section 7.01 of
these Bylaws), provided that the meeting notice states that the purpose, or one
of the purposes, of the meeting is removal of the director. The removal may be
made only with cause. If a director is elected by a voting group of share-
holders, only the shareholders of that voting group may participate in the vote
to remove that director. A director may resign at any time by delivering a
written resignation to the Board of Directors, to the Chairperson of the Board
(if there is one), or to the corporation through the Secretary or otherwise.
Directors need not be residents of the State of Wisconsin or shareholders of the
corporation.
3.03. Regular Meetings. A regular meeting of the Board of Directors
----------------
shall be held, without other notice than this Bylaw, immediately after the
annual meeting of shareholders, and each adjourned session thereof. The place
of such regular meeting shall be the same as the place of the meeting of
shareholders which precedes it, or such other suitable place as may be announced
at such meeting of shareholders. The Board of Directors and any committee may
provide, by resolution, the time and place, either within or without the State
of Wisconsin, for the holding of additional regular meetings without other
notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by or at the request of the Chairperson of the Board, if there is
one, the President or any two (2) directors. Special meetings of any committee
may be called by or at the request of the foregoing persons or the chairperson
of the committee. The persons calling any special meeting of the Board of
Directors or committee may fix any place, either within or without the State of
Wisconsin, as the place for holding any special meeting called by them, and if
no other place is fixed the place of meeting shall be the principal office of
the corporation in the State of Wisconsin.
3.05. Meetings By Telephone or Other Communication Technology.
-------------------------------------------------------
(a) Any or all directors may participate in a regular or special meeting or in a
committee meeting of the Board of Directors by, or conduct the meeting through
the use of, telephone or any other means of communication by which either: (i)
all participating directors may simultaneously hear each other during the
meeting or (ii) all communication during the meeting is immediately transmitted
to each participating director, and each participating director is able to
immediately send messages to all other participating directors.
(b) If a meeting will be conducted through the use of any means
described in paragraph (a), all participating directors shall be informed that a
meeting is taking place at which official business may be transacted. A
director participating in a meeting by any means described in paragraph (a) is
deemed to be present in person at the meeting.
3.06. Notice of Meetings. Except as otherwise provided in the
------------------
Articles of Incorporation or the Wisconsin Business Corporation Law, notice of
the date, time and place of any special meeting of the Board of Directors and of
any special meeting of a committee of the Board shall be given orally or in
writing to each director or committee member at least 48 hours prior to the
meeting, except that notice by mail shall be given at least 72 hours prior to
the meeting. The notice need not describe the purpose of the meeting. Notice
may be communicated in person, by telephone, telegraph or facsimile, or by mail
or private carrier. Oral notice is effective when communicated. Written notice
is effective as follows: If delivered in person, when received; if given by
mail, when deposited, postage prepaid, in the United States mail addressed to
the director at his or her business or home address (or such other address as
the director may have designated in writing filed with the Secretary); if given
by facsimile, at the time transmitted to a facsimile number at any address
designated above; and if given by telegraph, when delivered to the telegraph
company.
3.07. Quorum. Except as otherwise provided by the Wisconsin
------
Business Corporation Law, a majority of the number of directors as provided in
Section 3.01 shall constitute a quorum of the Board of Directors. Except as
otherwise provided by the Wisconsin Business Corporation Law, a majority of the
number of directors appointed to serve on a committee shall constitute a quorum
of the committee.
3.08. Manner of Acting. Except as otherwise provided by the
----------------
Wisconsin Business Corporation Law or the Articles of Incorporation, the
affirmative vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors or any committee
thereof.
3.09. Conduct of Meetings. The Chairperson of the Board, or if
-------------------
there is none, or in his or her absence, the President, and in the President's
absence, a Vice President in the order provided under Section 4.06 of these
Bylaws, and in their absence, any director chosen by the directors present,
shall call meetings of the Board of Directors to order and shall chair the
meeting. The Secretary of the corporation shall act as secretary of all
meetings of the Board of Directors, but in the absence of the Secretary, the
presiding officer may appoint any assistant secretary or any director or other
person present to act as secretary of the meeting.
3.10. Vacancies. Any vacancy occurring in the Board of Directors
---------
including a vacancy created by an increase in the number of directors, may be
filled by the shareholders or the Board of Directors. If the directors
remaining in office constitute fewer than a quorum of the Board, the directors
may fill a vacancy by the affirmative vote of a majority of all directors
remaining in office. If the vacant office was held by a director elected by a
voting group of shareholders, only the holders of shares of that voting group
may vote to fill the vacancy if it is filled by the shareholders, and only the
remaining directors elected by that voting group may vote to fill the vacancy if
it is filled by the directors. A vacancy that will occur at a specific later
date (because of a resignation effective at a later date or otherwise) may be
filled before the vacancy occurs, but the new director may not take office until
the vacancy occurs.
3.11. Compensation. The Board of Directors, irrespective of any
------------
personal interest of any of its members, may fix the compensation of directors.
3.12. Presumption of Assent. A director who is present and is
---------------------
announced as present at a meeting of the Board of Directors or a committee
thereof at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless (i) the director objects at the
beginning of the meeting or promptly upon his or her arrival to holding the
meeting or transacting business at the meeting, or (ii) the director's dissent
or abstention from the action taken is entered in the minutes of the meeting, or
(iii) the director delivers his or her written dissent or abstention to the
presiding officer of the meeting before the adjournment thereof or to the
corporation immediately after the adjournment of the meeting, or (iv) the
director dissents or abstains from the action taken, minutes of the meeting are
prepared and fail to show the director's dissent or abstention from the action
taken, and the director delivers to the corporation a written notice of that
omission from the minutes promptly after receiving a copy of the minutes. Such
right to dissent or abstain shall not apply to a director who voted in favor of
such action.
3.13. Committees. Unless the Articles of Incorporation otherwise
----------
provide, the Board of Directors, by resolution adopted by the affirmative vote
of a majority of all the directors then in office, may create one (1) or more
committees, each committee to consist of two (2) or more directors as members,
which to the extent provided in the resolution as initially adopted, and as
thereafter supplemented or amended by further resolution adopted by a like vote,
may exercise the authority of the Board of Directors, except that no committee
may: (a) authorize distributions; (b) approve or propose to shareholders action
that the Wisconsin Business Corporation Law requires be approved by share-
holders; (c) fill vacancies on the Board of Directors or any of its committees,
except that the Board of Directors may provide by resolution that any vacancies
on a committee shall be filled by the affirmative vote of a majority of the
remaining committee members; (d) amend the Articles of Incorporation; (e) adopt,
amend or repeal Bylaws; (f) approve a plan of merger not requiring shareholder
approval; (g) authorize or approve reacquisition of shares, except according to
a formula or method prescribed by the Board of Directors or (h) authorize or
approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except within limits prescribed by the Board of Directors.
All members of the Board of Directors who are not members of a given committee
shall be alternate members of such committee and may take the place of any
absent member or members at any meeting of such committee, upon request by the
Chairperson of the Board, if there is one, the President or upon request by the
chairperson of such meeting. Each such committee shall fix its own rules
(consistent with the Wisconsin Business Corporation Law, the Articles of Incor-
poration and these Bylaws) governing the conduct of its activities and shall
make such reports to the Board of Directors of its activities as the Board of
Directors may request. Unless otherwise provided by the Board of Directors in
creating a committee, a committee may employ counsel, accountants and other
consultants to assist it in the exercise of authority. The creation of a
committee, delegation of authority to a committee or action by a committee does
not relieve the Board of Directors or any of its members of any responsibility
imposed on the Board of Directors or its members by law.
ARTICLE IV. OFFICERS
4.01. Appointment. The principal officers shall include a
-----------
President, one or more Vice Presidents (the number and designations to be
determined by the Board of Directors), a Secretary and such other officers, if
any, as may be deemed necessary by the Board of Directors, each of whom shall be
appointed by the Board of Directors. Any two or more offices may be held by the
same person.
4.02. Resignation and Removal. An officer shall hold office until
-----------------------
he or she resigns, dies, is removed hereunder, or a different person is
appointed to the office. An officer may resign at any time by delivering an
appropriate written notice to the corporation. The resignation is effective
when the notice is delivered, unless the notice specifies a later effective date
and the corporation accepts the later effective date. Any officer may be
removed by the Board of Directors with or without cause and notwithstanding the
contract rights, if any, of the person removed. Except as provided in the
preceding sentence, the resignation or removal is subject to any remedies
provided by any contract between the officer and the corporation or otherwise
provided by law. Appointment shall not of itself create contract rights.
4.03. Vacancies. A vacancy in any office because of death,
---------
resignation, removal or otherwise, shall be filled by the Board of Directors.
If a resignation is effective at a later date, the Board of Directors may fill
the vacancy before the effective date if the Board of Directors provides that
the successor may not take office until the effective date.
4.04. Chairperson of the Board. The Board of Directors may at its
------------------------
discretion appoint a Chairperson of the Board. The Chairperson of the Board, if
there is one, shall preside at all meetings of the shareholders and Board of
Directors, and shall carry out such other duties as directed by the Board of
Directors.
4.05. President. The President shall be the principal executive
---------
officer and, subject to the control and direction of the Board of Directors,
shall in general supervise and control all of the business and affairs of the
corporation. He or she shall, in the absence of the Chairperson of the Board
(if one is appointed), preside at all meetings of the shareholders and of the
Board of Directors. The President shall have authority, subject to such rules
as may be prescribed by the Board of Directors, to appoint such agents and
employees of the corporation as he or she shall deem necessary, to prescribe
their powers, duties and compensation, and to delegate authority to them. Such
agents and employees shall hold office at the discretion of the President. The
President shall have authority to sign, execute and acknowledge, on behalf of
the corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other documents or instruments necessary or proper to be
executed in the course of the corporation's regular business, or which shall be
authorized by resolution of the Board of Directors; and, except as otherwise
provided by law or directed by the Board of Directors, the President may
authorize any Vice President or other officer or agent of the corporation to
sign, execute and acknowledge such documents or instruments in his or her place
and stead. In general he or she shall perform all duties incident to the office
of President and such other duties as may be prescribed by the Board of Direc-
tors from time to time.
4.06. Vice Presidents. In the absence of the President, or in the
---------------
event of the President's death, inability or refusal to act, or in the event for
any reason it shall be impracticable for the President to act personally, a Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their appointment) shall perform the
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Any Vice President may
sign, with the Secretary or Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties and have such authority as from
time to time may be delegated or assigned to him or her by the President or the
Board of Directors. The execution of any instrument of the corporation by any
Vice President shall be conclusive evidence, as to third parties, of the Vice
President's authority to act in the stead of the President.
4.07. Secretary. The Secretary shall: (a) keep (or cause to be
---------
kept) regular minutes of all meetings of the shareholders, the Board of
Directors and any committees of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation, if any, and see that
the seal of the corporation, if any, is affixed to all documents which are
authorized to be executed on behalf of the corporation under its seal; (d) keep
or arrange for the keeping of a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign with the President, or a Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties and exercise such authority as from time to
time may be delegated or assigned to him or her by the President or by the Board
of Directors.
4.08. Treasurer. If the Board of Directors appoints a Treasurer,
---------
the Treasurer shall: (a) have charge and custody of and be responsible for all
funds and securities of the corporation; (b) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositories as shall be selected by the corporation; and (c)
in general perform all of the duties incident to the office of Treasurer and
have such other duties and exercise such other authority as from time to time
may be delegated or assigned to him or her by the President or by the Board of
Directors.
4.09. Assistants and Acting Officers. The Board of Directors and
------------------------------
the President shall have the power to appoint any person to act as assistant to
any officer, or as agent for the corporation in the officer's stead, or to
perform the duties of such officer whenever for any reason it is impracticable
for such officer to act personally, and such assistant or acting officer or
other agent so appointed by the Board of Directors or President shall have the
power to perform all the duties of the office to which that person is so
appointed to be assistant, or as to which he or she is so appointed to act,
except as such power may be otherwise defined or restricted by the Board of
Directors or the President.
4.10. Salaries. The salaries of the principal officers shall be
--------
fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such salary
by reason of the fact that such officer is also a director of the corporation.
ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.01. Certificates for Shares. All shares of this corporation
-----------------------
shall be represented by certificates. Certificates representing shares of the
corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. At a minimum, a share certificate shall state on its
face the name of the corporation and that it is organized under the laws of the
State of Wisconsin, the name of the person to whom issued, and the number and
class of shares and the designation of the series, if any, that the certificate
represents. If the corporation is authorized to issue different classes of
shares or different series within a class, the front or back of the certificate
must contain either (a) a summary of the designations, relative rights,
preferences and limitations applicable to each class, and the variations in the
rights, preferences and limitations determined for each series and the authority
of the Board of Directors to determine variations for future series, or (b) a
conspicuous statement that the corporation will furnish the shareholder the
information described in clause (a) on request, in writing and without charge.
Such certificates shall be signed, either manually or in facsimile, by the
President or a Vice President and by the Secretary or an Assistant Secretary.
All certificates for shares shall be consecutively numbered or otherwise identi-
fied. The name and address of the person to whom the shares represented thereby
are issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except as provided in Section 5.05.
5.02. Signature by Former Officers. If an officer or assistant
----------------------------
officer, who has signed or whose facsimile signature has been placed upon any
certificate for shares, has ceased to be such officer or assistant officer
before such certificate is issued, the certificate may be issued by the
corporation with the same effect as if that person were still an officer or
assistant officer at the date of its issue.
5.03. Transfer of Shares. Prior to due presentment of a
------------------
certificate for shares for registration of transfer, and unless the corporation
has established a procedure by which a beneficial owner of shares held by a
nominee is to be recognized by the corporation as the shareholder, the corpora-
tion may treat the registered owner of such shares as the person exclusively
entitled to vote, to receive notifications and otherwise to have and exercise
all the rights and power of an owner. The corporation may require reasonable
assurance that all transfer endorsements are genuine and effective and in
compliance with all regulations prescribed by or under the authority of the
Board of Directors.
5.04. Restrictions on Transfer. The face or reverse side of each
------------------------
certificate representing shares shall bear a conspicuous notation of any
restriction upon the transfer of such shares imposed by the corporation or
imposed by any agreement of which the corporation has written notice.
5.05. Lost, Destroyed or Stolen Certificates. Where the owner
--------------------------------------
claims that his or her certificate for shares has been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner (a) so requests before the corporation has notice that such shares have
been acquired by a bona fide purchaser, and (b) if required by the corporation,
files with the corporation a sufficient indemnity bond, and (c) satisfies such
other reasonable requirements as may be prescribed by or under the authority of
the Board of Directors.
5.06. Consideration for Shares. The shares of the corporation may
------------------------
be issued for such consideration as shall be fixed from time to time and
determined to be adequate by the Board of Directors, provided that any shares
having a par value shall not be issued for a consideration less than the par
value thereof. The consideration may consist of any tangible or intangible
property or benefit to the corporation, including cash, promissory notes,
services performed, contracts for services to be performed, or other securities
of the corporation. When the corporation receives the consideration for which
the Board of Directors authorized the issuance of shares, such shares shall be
deemed to be fully paid and nonassessable by the corporation.
5.07. Stock Regulations. The Board of Directors shall have the
-----------------
power and authority to make all such rules and regulations not inconsistent with
the statutes of the State of Wisconsin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the cor-
poration, including the appointment or designation of one or more stock transfer
agents and one or more registrars.
ARTICLE VI. WAIVER OF NOTICE
6.01. Shareholder Written Waiver. A shareholder may waive any
--------------------------
notice required by the Wisconsin Business Corporation Law, the Articles of
Incorporation or these Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the shareholder entitled
to the notice, shall contain the same information that would have been required
in the notice under the Wisconsin Business Corporation Law except that the time
and place of meeting need not be stated, and shall be delivered to the
corporation for inclusion in the corporate records.
6.02. Shareholder Waiver by Attendance. A shareholder's attendance
--------------------------------
at a meeting, in person or by proxy, waives objection to both of the following:
(a) Lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting or
promptly upon arrival objects to holding the meeting or
transacting business at the meeting.
(b) Consideration of a particular matter at the
meeting that is not within the purpose described in the
meeting notice, unless the shareholder objects to
considering the matter when it is presented.
6.03. Director Written Waiver. A director may waive any notice
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required by the Wisconsin Business Corporation Law, the Articles of
Incorporation or the Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing, signed by the director entitled to the
notice and retained by the corporation.
6.04. Director Waiver by Attendance. A director's attendance at or
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participation in a meeting of the Board of Directors or any committee thereof
waives any required notice to him or her of the meeting unless the director at
the beginning of the meeting or promptly upon his or her arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
ARTICLE VII. ACTION WITHOUT MEETINGS
7.01. Shareholder Action Without Meeting. Action required or
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permitted by the Wisconsin Business Corporation Law to be taken at a
shareholders' meeting may be taken without a meeting (a) by all shareholders
entitled to vote on the action, or (b) if the Articles of Incorporation so
provide (and except with respect to an election of directors for which
shareholders may vote cumulatively) by shareholders who would be entitled to
vote at a meeting shares with voting power sufficient to cast not less than the
minimum number (or, in the case of voting by voting groups, the minimum numbers)
of votes that would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote were present and voted. The action must be
evidenced by one or more written consents describing the action taken, signed by
the shareholders consenting thereto and delivered to the corporation for
inclusion in its corporate records. A consent hereunder has the effect of a
meeting vote and may be described as such in any document. The Wisconsin
Business Corporation Law requires that notice of the action be given to certain
shareholders and specifies the effective date thereof and the record date in
respect thereto.
7.02. Director Action Without Meeting. Unless the Articles of
-------------------------------
Incorporation provide otherwise, action required or permitted by the Wisconsin
Business Corporation Law to be taken at a Board of Directors meeting or
committee meeting may be taken without a meeting if the action is taken by all
members of the Board or committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director and
retained by the corporation. Action taken hereunder is effective when the last
director signs the consent, unless the consent specifies a different effective
date. A consent signed hereunder has the effect of a unanimous vote taken at a
meeting at which all directors or committee members were present, and may be
described as such in any document.
ARTICLE VIII. INDEMNIFICATION
8.01. Indemnification for Successful Defense. Within twenty (20)
--------------------------------------
days after receipt of a written request pursuant to Section 8.03, the
corporation shall indemnify a director or officer, to the extent he or she has
been successful on the merits or otherwise in the defense of a proceeding, for
all reasonable expenses incurred in the proceeding if the director or officer
was a party because he or she is a director or officer of the corporation.
8.02. Other Indemnification.
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(a) In cases not included under Section 8.01, the corporation
shall indemnify a director or officer against all liabilities and
expenses incurred by the director or officer in a proceeding to which
the director or officer was a party because he or she is a director or
officer of the corporation, unless liability was incurred because the
director or officer breached or failed to perform a duty he or she
owes to the corporation and the breach or failure to perform
constitutes any of the following:
(1) A willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the
director or officer has a material conflict of interest.
(2) A violation of criminal law, unless the director or
officer had reasonable cause to believe that his or her conduct
was lawful or no reasonable cause to believe that his or her
conduct was unlawful.
(3) A transaction from which the director or officer
derived an improper personal profit.
(4) Willful misconduct.
(b) Determination of whether indemnification is required under
this Section shall be made pursuant to Section 8.05.
(c) The termination of a proceeding by judgment, order,
settlement or conviction, or upon a plea of no contest or an
equivalent plea, does not, by itself, create a presumption that
indemnification of the director or officer is not required under this
Section.
8.03. Written Request. A director or officer who seeks
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indemnification under Sections 8.01 or 8.02 shall make a written request to the
corporation.
8.04. Nonduplication. The corporation shall not indemnify a
--------------
director or officer under Sections 8.01 or 8.02 to the extent the director or
officer has previously received indemnification or allowance of expenses from
any person, including the corporation, in connection with the same proceeding.
However, the director or officer has no duty to look to any other person for
indemnification.
8.05. Determination of Right to Indemnification.
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(a) Unless otherwise provided by the Articles of Incorporation or
by written agreement between the director or officer and the
corporation, the director or officer seeking indemnification under
Section 8.02 shall select one of the following means for determining
his or her right to indemnification:
(1) By a majority vote of a quorum of the Board of
Directors consisting of directors not at the time parties to the
same or related proceedings. If a quorum of disinterested
directors cannot be obtained, by majority vote of a committee
duly appointed by the Board of Directors and consisting solely of
two (2) or more directors who are not at the time parties to the
same or related proceedings. Directors who are parties to the
same or related proceedings may participate in the designation of
members of the committee.
(2) By independent legal counsel selected by a quorum of
the Board of Directors or its committee in the manner prescribed
in sub. (1) or, if unable to obtain such a quorum or committee,
by a majority vote of the full Board of Directors, including
directors who are parties to the same or related proceedings.
(3) By a panel of three (3) arbitrators consisting of one
arbitrator selected by those directors entitled under sub. (2) to
select independent legal counsel, one arbitrator selected by the
director or officer seeking indemnification and one arbitrator
selected by the two (2) arbitrators previously selected.
(4) By an affirmative vote of shares represented at a
meeting of shareholders at which a quorum of the voting group
entitled to vote thereon is present. Shares owned by, or voted
under the control of, persons who are at the time parties to the
same or related proceedings, whether as plaintiffs or defendants
or in any other capacity, may not be voted in making the
determination.
(5) By a court under Section 8.08.
(6) By any other method provided for in any additional
right to indemnification permitted under Section 8.07.
(b) In any determination under (a), the burden of proof is on
the corporation to prove by clear and convincing evidence that
indemnification under Section 8.02 should not be allowed.
(c) A written determination as to a director's or officer's
indemnification under Section 8.02 shall be submitted to both the
corporation and the director or officer within 60 days of the
selection made under (a).
(d) If it is determined that indemnification is required under
Section 8.02, the corporation shall pay all liabilities and expenses
not prohibited by Section 8.04 within ten (10) days after receipt of
the written determination under (c). The corporation shall also pay
all expenses incurred by the director or officer in the determination
process under (a).
8.06. Advance of Expenses. Within ten (10) days after receipt of
-------------------
a written request by a director or officer who is a party to a proceeding, the
corporation shall pay or reimburse his or her reasonable expenses as incurred if
the director or officer provides the corporation with all of the following:
(1) A written affirmation of his or her good faith belief
that he or she has not breached or failed to perform his or her
duties to the corporation.
(2) A written undertaking, executed personally or on his or
her behalf, to repay the allowance to the extent that it is
ultimately determined under Section 8.05 that indemnification
under Section 8.02 is not required and that indemnification is
not ordered by a court under Section 8.08(b)(2). The undertaking
under this subsection shall be an unlimited general obligation of
the director or officer and may be accepted without reference to
his or her ability to repay the allowance. The undertaking may
be secured or unsecured.
8.07. Nonexclusivity.
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(a) Except as provided in (b), Sections 8.01, 8.02 and 8.06 do
not preclude any additional right to indemnification or allowance of
expenses that a director or officer may have under any of the
following:
(1) The Articles of Incorporation.
(2) A written agreement between the director or officer and
the corporation.
(3) A resolution of the Board of Directors.
(4) A resolution, after notice, adopted by a majority vote
of all of the corporation's voting shares then issued and
outstanding.
(b) Regardless of the existence of an additional right under
(a), the corporation shall not indemnify a director or officer, or
permit a director or officer to retain any allowance of expenses
unless it is determined by or on behalf of the corporation that the
director or officer did not breach or fail to perform a duty he or she
owes to the corporation which constitutes conduct under Section
8.02(a)(1), (2), (3) or (4). A director or officer who is a party to
the same or related proceeding for which indemnification or an
allowance of expenses is sought may not participate in a determination
under this subsection.
(c) Sections 8.01 to 8.13 do not affect the corporation's power
to pay or reimburse expenses incurred by a director or officer in any
of the following circumstances.
(1) As a witness in a proceeding to which he or she is not
a party.
(2) As a plaintiff or petitioner in a proceeding because he
or she is or was an employee, agent, director or officer of the
corporation.
8.08. Court-Ordered Indemnification.
-----------------------------
(a) Except as provided otherwise by written agreement between
the director or officer and the corporation, a director or officer who
is a party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent
jurisdiction. Application shall be made for an initial determination
by the court under Section 8.05(a)(5) or for review by the court of an
adverse determination under Section 8.05(a) (1), (2), (3), (4) or (6).
After receipt of an application, the court shall give any notice it
considers necessary.
(b) The court shall order indemnification if it determines any
of the following:
(1) That the director or officer is entitled to
indemnification under Sections 8.01 or 8.02.
(2) That the director or officer is fairly and reasonably
entitled to indemnification in view of all the relevant
circumstances, regardless of whether indemnification is required
under Section 8.02.
(c) If the court determines under (b) that the director or
officer is entitled to indemnification, the corporation shall pay the
director's or officer's expenses incurred to obtain the court-ordered
indemnification.
8.09. Indemnification and Allowance of Expenses of Employees and
----------------------------------------------------------
Agents. The corporation shall indemnify an employee of the corporation who is
------
not a director or officer of the corporation, to the extent that he or she has
been successful on the merits or otherwise in defense of a proceeding, for all
reasonable expenses incurred in the proceeding if the employee was a party
because he or she was an employee of the corporation. In addition, the
corporation may indemnify and allow reasonable expenses of an employee or agent
who is not a director or officer of the corporation to the extent provided by
the Articles of Incorporation or these Bylaws, by general or specific action of
the Board of Directors or by contract.
8.10. Insurance. The corporation may purchase and maintain
---------
insurance on behalf of an individual who is an employee, agent, director or
officer of the corporation against liability asserted against or incurred by the
individual in his or her capacity as an employee, agent, director or officer,
regardless of whether the corporation is required or authorized to indemnify or
allow expenses to the individual against the same liability under Sections 8.01,
8.02, 8.06, 8.07 and 8.09.
8.11. Securities Law Claims.
---------------------
(a) Pursuant to the public policy of the State of Wisconsin, the
corporation shall provide indemnification and allowance of expenses
and may insure for any liability incurred in connection with a
proceeding involving securities regulation described under (b) to the
extent required or permitted under Sections 8.01 to 8.10.
(b) Sections 8.01 to 8.10 apply, to the extent applicable to any
other proceeding, to any proceeding involving a federal or state
statute, rule or regulation regulating the offer, sale or purchase of
securities, securities brokers or dealers, or investment companies or
investment advisers.
8.12. Liberal Construction. In order for the corporation to
--------------------
obtain and retain qualified directors, officers and employees, the foregoing
provisions shall be liberally administered in order to afford maximum
indemnification of directors, officers and, where Section 8.09 of these Bylaws
applies, employee. The indemnification above provided for shall be granted in
all applicable cases unless to do so would clearly contravene law, controlling
precedent or public policy.
8.13. Definitions Applicable to this Article. For purposes of
--------------------------------------
this Article:
(a) "Affiliate" shall include, without limitation, any
corporation, partnership, joint venture, employee benefit plan, trust
or other enterprise that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the corporation.
(b) "Corporation" means this corporation and any domestic or
foreign predecessor of this corporation where the predecessor
corporation's existence ceased upon the consummation of a merger or
other transaction.
(c) "Director or officer" means any of the following:
(1) An individual who is or was a director or officer of
this corporation.
(2) An individual who, while a director or officer of this
corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, member of any governing or
decision-making committee, employee or agent of another corpora-
tion or foreign corporation, partnership, joint venture, trust or
other enterprise.
(3) An individual who, while a director or officer of this
corporation, is or was serving an employee benefit plan because
his or her duties to the corporation also impose duties on, or
otherwise involve services by, the person to the plan or to
participants in or beneficiaries of the plan.
(4) Unless the context requires otherwise, the estate or
personal representative of a director or officer.
For purposes of this Article, it shall be conclusively presumed that
any director or officer serving as a director, officer, partner,
trustee, member of any governing or decision-making committee,
employee or agent of an affiliate shall be so serving at the request
of the corporation.
(d) "Expenses" include fees, costs, charges, disbursements,
attorney fees and other expenses incurred in connection with a
proceeding.
(e) "Liability" includes the obligation to pay a judgment,
settlement, penalty, assessment, forfeiture or fine, including an
excise tax assessed with respect to an employee benefit plan, and
reasonable expenses.
(f) "Party" includes an individual who was or is, or who is
threatened to be made, a named defendant or respondent in a
proceeding.
(g) "Proceeding" means any threatened, pending or completed
civil, criminal, administrative or investigative action, suit,
arbitration or other proceeding, whether formal or informal, which
involves foreign, federal, state or local law and which is brought by
or in the right of the corporation or by any other person.
ARTICLE IX. SEAL
The Board of Directors may provide a corporate seal which may be
circular in form and have inscribed thereon the name of the corporation and the
state of incorporation and the words "Corporate Seal."
ARTICLE X. AMENDMENTS
10.01. By Shareholders. These Bylaws may be amended or repealed
---------------
and new Bylaws may be adopted by the shareholders by the vote provided in
Section 2.07 of these Bylaws or as specifically provided below. If authorized
by the Articles of Incorporation, the shareholders may adopt or amend a Bylaw
that fixes a greater or lower quorum requirement or a greater voting requirement
for shareholders or voting groups of shareholders than otherwise is provided in
the Wisconsin Business Corporation Law. The adoption or amendment of a Bylaw
that adds, changes or deletes a greater or lower quorum requirement or a greater
voting requirement for shareholders must meet the same quorum requirement and be
adopted by the same vote and voting groups required to take action under the
quorum and voting requirement then in effect.
10.02. By Directors. Except as the Articles of Incorporation may
------------
otherwise provide, these Bylaws may also be amended or repealed and new Bylaws
may be adopted by the Board of Directors by the vote provided in Section 3.08,
but (a) no Bylaw adopted by the shareholders shall be amended, repealed or
readopted by the Board of Directors if the Bylaw so adopted so provides and (b)
a Bylaw adopted or amended by the shareholders that fixes a greater or lower
quorum requirement or a greater voting requirement for the Board of Directors
than otherwise is provided in the Wisconsin Business Corporation Law may not be
amended or repealed by the Board of Directors unless the Bylaw expressly
provides that it may be amended or repealed by a specified vote of the Board of
Directors. Action by the Board of Directors to adopt or amend a Bylaw that
changes the quorum or voting requirement for the Board of Directors must meet
the same quorum requirement and be adopted by the same vote required to take
action under the quorum and voting requirement then in effect, unless a
different voting requirement is specified as provided by the preceding sentence.
A Bylaw that fixes a greater or lower quorum requirement or a greater voting
requirement for shareholders or voting groups of shareholders than otherwise is
provided in the Wisconsin Business Corporation Law may not be adopted, amended
or repealed by the Board of Directors.
10.03. Implied Amendments. Any action taken or authorized by the
------------------
shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by a vote that would be
sufficient to amend the Bylaws so that the Bylaws would be consistent with such
action, shall be given the same effect as though the Bylaws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
ARTICLE XI. STOCK TRANSFER RESTRICTION
In the event the corporation makes a valid election, pursuant to
Section1362 of the Internal Revenue Code of 1986, or any successor provision
thereto, to be treated as an S Corporation, no shareholder of the corporation
shall, without the written consent of shareholders holding more than fifty
percent (50%) of the outstanding stock of the corporation, transfer any shares
of stock to any person who, by reason of being a shareholder of the corporation,
will cause a termination of the corporation's election to be treated as an S
Corporation.
