SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for use of the
[ ] Definitive proxy statement Commission only (as permitted
[ ] Definitive additional materials by Rule 14a-6(e)(2))
[ ] Soliciting material pursuant to
Sec. 240.14a-11(c) or Sec. 240.14a-12
UNITED STATES AIRCRAFT CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing party:
-----------------------------------------------------------------------
(4) Date filed:
-----------------------------------------------------------------------
<PAGE>
"PRELIMINARY COPY"
UNITED STATES AIRCRAFT CORPORATION
3121 E. Greenway Road, Suite 201
Phoenix, Arizona 85032
(602) 765-0500
Dear Stockholders: February 1, 1999
You are cordially invited to attend a special meeting of the stockholders of
United States Aircraft Corporation (the "Company") to be held at 3121 E.
Greenway Road, Suite 201, Phoenix, Arizona 85032 on February 17, 1999 at 10:00
a.m. Arizona time (the "Special Meeting").
At the Special Meeting, you will be asked to ratify and approve a certain
Exchange Agreement dated as of June 30, 1998 among all of the former
shareholders of Neo Vision, Inc., an Arizona corporation ("Neo Vision") and the
Company pursuant to which the Company has issued 2,000,000 shares of Class A
Common Stock to all of the former shareholders of Neo Vision in exchange for all
of the capital stock of Neo Vision (the "Exchange") and pursuant to which Neo
Vision has become a wholly owned subsidiary of the Company and additional shares
of a new class of Common Stock will be issued to the former shareholders of Neo
Vision. Consistent with the Exchange Agreement, you will be asked to approve a
proposal to amend and restate the Company's Certificate of Incorporation,
authorizing: (i) the reclassification of the Company's Class A Common Stock and
Class B Common Stock into a single new class of Common Stock ("New Common
Stock") pursuant to the following ratios: shares of Class A Common Stock will be
reclassified into shares of New Common Stock on the basis of 10 shares of Class
A Common Stock into one share of New Common Stock and shares of Class B Common
Stock will be reclassified into New Common Stock on the basis of 13 shares of
Class B Common Stock into one share of New Common Stock; (ii) the issuance of up
to 100,000,000 shares of New Common Stock; (iii) the issuance of up to
75,000,000 shares of preferred stock; (iv) the change of name of the Company
from United States Aircraft Corporation to Neo Vision Systems, Inc.; and (v)
make certain technical amendments set forth in the Company's First Restated
Certificate of Incorporation attached as Appendix II to the Proxy Statement.
Further, you will be asked to approve the Company's 1998 Stock Option Plan.
Neo Vision was incorporated in Arizona in June of 1997. Neo Vision is in the
"video wall" advertising business and sells advertisements projected on
specially designed screens ("video walls") located in shopping malls and airport
terminals. Currently, Neo Vision is operating video walls at both the
newly-opened D-Concourse at McCarran International Airport and at Meadows Mall,
both in Las Vegas, Nevada. The reclassification of the Company's Common Stock in
connection with the Exchange Agreement and the issuance of New Common Stock to
former shareholders of Neo Vision will result in the former shareholders of Neo
Vision owning approximately 80% of the outstanding shares of New Common Stock of
the Company. The former shareholders of Neo Vision collectively beneficially own
2,000,000 shares of Class A Common Stock (representing approximately 20% of the
outstanding shares of Class A Common Stock), no shares of Class B Common Stock,
and approximately 13% of the collective outstanding shares of Class A Common
Stock and Class B Common Stock. The former shareholders of Neo Vision and the
<PAGE>
Company's directors and officers collectively beneficially own 2,898,708
shares of Class A Common Stock (representing approximately 29% of the
outstanding shares of Class A Common Stock), 2,750,000 shares of Class B Common
Stock (representing approximately 55% of the outstanding shares of Class B
Common Stock), and 5,648,708 shares of the collective outstanding shares of
Class A Common Stock and Class B Common Stock (representing approximately 38% of
the collective outstanding Class A Common Stock and Class B Common Stock).
The enclosed Proxy Statement sets forth detailed information, including
financial data, relating to Neo Vision's operations and the Exchange Agreement
among former shareholders of Neo Vision and the Company.
The Company's Board of Directors has carefully reviewed and considered the
terms of the Exchange Agreement and transactions related thereto and believes
them to be fair to, and in the best interests of, the Company and its
stockholders. The Board believes that the Exchange offers the Company's
stockholders an opportunity to take advantage of the growth potential which
exists in the rapidly developing video wall advertising industry. If the
stockholders do not approve the amendment and restatement of the Company's
Certificate of Incorporation resulting in the reclassification of the Company's
Class A Common Stock and Class B Common Stock into New Common Stock, then each
of the former shareholders of Neo Vision will have the right to rescind the
Exchange Agreement. The Company believes that in view of the fact that more than
90% of the shares of New Common Stock which would be issued to the former
shareholders of Neo Vision depend on such approval, in the event of the failure
of the stockholders to approve the amendment and restatement of the Company's
Certificate of Incorporation, each of the shareholders likely would rescind the
Exchange Agreement. In such event, the acquisition of the shares of Neo Vision
acquired by the Company with respect to each such shareholder would be
rescinded. If enough shareholders rescind, the Company would become a minority
shareholder of Neo Vision or, most likely, would not own any portion of Neo
Vision. The Company would, however, be required to bear the costs and expenses
of its transactions with Neo Vision, including the cost of this Proxy Statement.
If the Company's stockholders do not ratify and approve the Exchange Agreement,
then the Company's board of directors reserves the right to reconsider any one
or more of the terms of the Exchange Agreement, apart from the financial terms
of the Exchange. However, the failure of the stockholders to ratify and approve
the Exchange Agreement will not result in the rescission of the Exchange
Agreement. If the stockholders do not approve the Company's 1998 Stock Option
Plan, then such Plan will continue to be valid. However, the shares issued
pursuant to options granted thereunder will not be available to receive
incentive stock option treatment under the Internal Revenue Code.
On November 9, 1998, Anthony Christopher, the former principal shareholder
of Neo Vision, resigned his position as the Chairman of the Board of the Company
as well as a director and officer of Neo Vision. Mr. Christopher resigned so
that he may pursue other interests. As part of his separation, Mr. Christopher,
the Company, and Neo Vision entered into a separation agreement. Under this
agreement, Mr. Christopher has agreed not to compete with the Company or with
Neo Vision for a period of either one or two years, such period depending on the
amount of operating video walls at the end of the first one year period. Mr.
Christopher has agreed to waive his right to receive 600,000 shares of New
Common Stock to which he was entitled under the Exchange Agreement and to vote
in favor of the amendment and restatement of the Company's Certificate of
2
<PAGE>
Incorporation. The management of the Company does not believe Mr. Christopher's
departure will have an adverse effect on its future prospects.
The Board of Directors has unanimously approved the Exchange Agreement, the
amendment and restatement of the Company's Certificate of Incorporation, and the
1998 Stock Option Plan as being fair to, and in the best interests of the
Company and its stockholders. The Board of Directors of the Company recommends
that its stockholders vote FOR ratification and approval of the Exchange
Agreement, approval of the amendment and restatement of the Company's
Certificate of Incorporation, and approval of the 1998 Stock Option Plan.
Approval of the amendment and restatement of the Company's Certificate of
Incorporation will require an affirmative vote of a majority of the outstanding
shares of both the Company's Class A Common Stock and Class B Common Stock, each
voting separately as a class. Ratification and approval of the Exchange
Agreement and approval of the Company's 1998 Stock Option Plan will require an
affirmative vote of a majority of the shares of the Class A Common Stock and
Class B Common Stock present in person or represented by proxy at the meeting
and entitled to vote thereon, voting together as a single class. It is important
that your shares be represented at the Special Meeting, whether or not you plan
to attend. Accordingly, we urge you to complete, date, and sign the enclosed
proxy and return it promptly in the enclosed postage-paid envelope even if you
plan to attend the Special Meeting. Your vote is important with regard to the
number of shares that you own. Your prompt return of the completed proxy saves
the Company the expense of costly proxy solicitation.
You may revoke your Proxy if you decide to attend the Special Meeting and
vote in person. Should you require assistance concerning your Proxy or if you
have any questions regarding the voting procedure or the Proxy Statement, please
feel free to contact either of the undersigned at (602) 765-0500.
Sincerely,
Albert C. Lundstrom
Chief Executive Officer
Harry V. Eastlick
Chief Financial Officer
3
<PAGE>
"PRELIMINARY COPY"
UNITED STATES AIRCRAFT CORPORATION
3121 East Greenway Road, Suite 201
Phoenix, Arizona 85032
(602) 765-0500
NOTICE OF SPECIAL MEETING OF THE STOCKHOLDERS
TO BE HELD FEBRUARY 17, 1999
Notice is hereby given that a special meeting of the stockholders (the
"Special Meeting") of United States Aircraft Corporation, a Delaware corporation
(the "Company") will be held at 3121 E. Greenway Road, Suite 201, Phoenix,
Arizona 85032 on February 17, 1999, at 10:00 a.m., Arizona time, for the
following purposes:
1. To ratify and approve the Exchange Agreement dated as of June 30, 1998
among the Company and the former shareholders of Neo Vision, Inc., an
Arizona corporation, pursuant to which 2,000,000 shares of the Company's
Class A Common Stock, par value $.50 per share (the "Class A Common Stock")
were issued to all of the former shareholders of Neo Vision, Inc. and
pursuant to which 4,577,560 shares of the Company's New Common Stock will
be issued to the former shareholders of Neo Vision, Inc., subject to
stockholder approval of item 2 below.
2. To amend and restate the Company's Certificate of Incorporation to: (i)
authorize the issuance of up to 100,000,000 shares of a single new class of
common stock, $.001 par value per share ("New Common Stock"); (ii)
reclassify the Company's Class A Common Stock and Class B Common Stock into
shares of New Common Stock on the basis of 10 shares of Class A Common
Stock into one share of New Common Stock and 13 shares of Class B Common
Stock into one share of New Common Stock; (iii) authorize the issuance of
up to 75,000,000 shares of preferred stock; (iv) change the name of the
Company to "Neo Vision Systems, Inc."; and (v) make certain technical
amendments set forth in the Company's First Restated Certificate of
Incorporation attached as Appendix II to the Proxy Statement
3. To approve the Company's 1998 Stock Option Plan.
4. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Only holders of record of the Company's Class A Common Stock or Class B
Common Stock at the close of business on January 25, 1999, the record date of
the Special Meeting, are entitled to notice of and to vote at the Special
Meeting and any adjournments thereof. The approval of the proposal to amend and
restate the Company's Certificate of Incorporation requires the affirmative vote
of a majority of the outstanding shares of both the Class A Common Stock and
Class B Common Stock, each voting separately as a class. Ratification and
approval of the Exchange Agreement and approval of the Company's 1998 Stock
Option Plan requires the affirmative vote of a majority of the shares of the
Class A Common Stock and Class B Common Stock present in person or represented
by proxy at the meeting and entitled to vote thereon, voting together as a
single class.
<PAGE>
You are cordially invited to attend the Special Meeting in person. Whether or
not you plan to attend the Special Meeting, you are urged to complete, date,
sign, and return the accompanying proxy card in the enclosed postage-paid
envelope as soon as possible. You may revoke your written proxy by delivering a
written instruction, or a duly executed proxy bearing a later date, to the
Secretary of the Company at any time prior to or at the Special Meeting or by
attending the Special Meeting and voting in person. However, returning a proxy
now will assure your vote is counted at the Special Meeting if you are unable to
attend.
By Order of the Board of Directors,
Jack Eberenz
Secretary
Phoenix, Arizona
February 1, 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE COMPLETE,
SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING. STOCKHOLDERS
ATTENDING THE MEETING MAY VOTE PERSONALLY, IN WHICH EVENT THE SIGNED PROXIES
WILL BE REVOKED.
2
<PAGE>
"PRELIMINARY COPY"
------------------------
PROXY STATEMENT
United States Aircraft Corporation
Special Meeting of Stockholders
-----------------------
This Proxy Statement is being furnished to the stockholders of United States
Aircraft Corporation, a Delaware corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company (the
"Company Board") for use at the Special Meeting of Stockholders of the Company
(including any adjournments or postponements thereof) (the "Special Meeting"),
to be held on February 17, 1999 at the time and place set forth in the
accompanying notice. Only stockholders of record as of the close of business on
January 25, 1999, the record date of the Special Meeting, are entitled to notice
of and to vote at the Special Meeting.
The purpose of the Special Meeting is to consider and vote upon: (i) a
proposal to ratify and approve the Exchange Agreement dated as of June 30, 1998
(the "Exchange Agreement") among the former shareholders of Neo Vision, Inc., an
Arizona corporation ("Neo Vision"), and the Company; (ii) a proposal to amend
and restate the Company's Certificate of Incorporation; and (iii) a proposal to
approve the Company's 1998 Stock Option Plan. The Exchange Agreement and other
transactions contemplated by the Exchange Agreement collectively are referred to
as the "Exchange." The Exchange Agreement (exclusive of exhibits and schedules),
the First Restated Certificate of Incorporation, and the Company's 1998 Stock
Option Plan are attached to this Proxy Statement as Appendix I, Appendix II, and
Appendix III, respectively.
Pursuant to the Exchange Agreement, each shareholder of Neo Vision exchanged
such shareholder's outstanding shares of Neo Vision, par value $.001 per share,
for shares of the Company's Class A Common Stock, par value $.50 per share (the
"Class A Common Stock") aggregating 2,000,000 shares of Class A Common Stock. As
a result, Neo Vision has become a wholly owned subsidiary of the Company and
additional shares of a new class of common stock will be issued to the former
shareholders of Neo Vision. The Exchange Agreement also provides that the Class
A Common Stock and Class B Common Stock of the Company will be reclassified into
a single new class of common stock of the Company (the "New Common Stock") on
the basis of 10 shares of the Class A Common Stock into one share of New Common
Stock and 13 shares of the Class B Common Stock into one share of New Common
Stock upon the requisite vote by stockholders of the Company. Cash will be
issued to stockholders in lieu of fractional shares. Upon such approval, the six
former shareholders of Neo Vision also will receive an additional 4,577,560
shares of New Common Stock of the Company. These shares will be apportioned
among these former shareholders in proportion to their ownership interest in Neo
Vision prior to the Neo Vision acquisition by the Company. However, Anthony
Christopher has waived his right to receive 600,000 of those shares. Further,
pursuant to the Exchange Agreement, Albert C. Lundstrom and Jack Eberenz, each
former shareholders of Neo Vision or their affiliates, have been appointed to
the Board of Directors of the Company until their successors are duly elected or
qualified. In order to effectuate the transactions contemplated by the Exchange
Agreement, the Company seeks your approval to amend and restate the Company's
<PAGE> Certificate of Incorporation to: (i) authorize the issuance of up to
100,000,000 shares of New Common Stock; (ii) reclassify the currently
outstanding shares of Class A Common Stock and Class B Common Stock into shares
of New Common Stock; (iii) authorize the issuance of up to 75,000,000 shares of
preferred stock; (iv) change the name of the Company to "Neo Vision Systems,
Inc."; and (v) make certain technical amendments set forth in the Company's
First Restated Certificate of Incorporation attached as Appendix II to this
Proxy Statement. Additionally, the Company seeks your approval of the Company's
1998 Stock Option Plan.
Based on the maximum number of shares that may be issued to former
shareholders of Neo Vision under the Exchange Agreement (and taking into account
that Anthony Christopher has agreed to waive receipt of 600,000 shares of New
Common Stock) and the number of shares of the Company's Class A Common Stock and
Class B Common Stock outstanding on September 30, 1998, approximately 70% of the
shares of the Company's New Common Stock will be held by former shareholders of
Neo Vision subsequent to the Exchange Agreement, exclusive of options to acquire
New Common Stock held by former shareholders of Neo Vision or their affiliates
who currently are officers and directors of the Company. The Company has granted
options to acquire 525,000 shares of New Common Stock to the former shareholders
of Neo Vision. The former shareholders of Neo Vision would own approximately 73%
of the shares of New Common Stock if all of those options were exercised. See
"THE EXCHANGE" for a description of the Exchange Agreement and the issuance of
New Common Stock to the former shareholders of Neo Vision.
The outstanding shares of the Company's Class A Common Stock, are traded on
the NASDAQ OTC Bulletin Board under the symbol "UAIRA." The Company intends to
reserve a new symbol, "NEOV", for trading of shares of New Common Stock on the
NASDAQ OTC Bulletin Board.
This Proxy Statement and the accompanying proxy card are first being mailed
to the stockholders of the Company on or about February 1, 1999.
For certain factors which should be considered in evaluating the Exchange
Agreement and the transactions contemplated thereby, including the Exchange, see
"RISK FACTORS" beginning on page 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORY AUTHORITY NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is
February 1, 1999
<PAGE>
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the offer
contained in this Proxy Statement, and if given or made, such information or
representation must not be relied upon. This Proxy Statement does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the securities to which it relates, nor does it constitute an offer to or
solicitation of any person in any jurisdiction in which it would be unlawful to
make such an offer or solicitation. The delivery of this Proxy Statement at any
time does not imply that the information herein is correct as of any time
subsequent to the date hereof.
TABLE OF CONTENTS
Page
----
FORWARD-LOOKING STATEMENTS 1
AVAILABLE INFORMATION 1
SUMMARY 2
RISK FACTORS 8
SUMMARY HISTORICAL FINANCIAL DATA 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL AND RESULTS OF OPERATIONS 23
THE SPECIAL MEETING 32
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS 36
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS 39
BUSINESS OF NEO VISION, INC. 40
BUSINESS OF UNITED STATES AIRCRAFT CORPORATION 45
MANAGEMENT. 51
EXECUTIVE COMPENSATION 53
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND OFFICERS 55
PRICE RANGE OF COMMON STOCK 57
THE EXCHANGE 58
PROPOSAL TO RATIFY AND APPROVE THE EXCHANGE AGREEMENT. 64
PROPOSAL TO AMEND AND RESTATE THE COMPANY'S
CERTIFICATE OF INCORPORATION 66
PROPOSAL TO APPROVE THE 1998 STOCK OPTION PLAN. 70
EXPERTS 76
LEGAL OPINIONS 76
OTHER MATTERS 77
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
Exchange Agreement Appendix I
First Restated Certificate of Incorporation Appendix II
1998 Employee Stock Option Plan Appendix III
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements and information contained or incorporated by reference in
this Proxy Statement are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"believe," "expect," "anticipate," "estimate," "project" or "continue" or the
negative thereof or other comparable terminology. By their nature,
forward-looking statements are subject to certain risks, uncertainties, and
assumptions. Should one or more of these risks or uncertainties materialize or
should underlying assumptions prove incorrect, actual results may vary
materially from those expressed or implied by such forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, they can give
no assurance that the expectations will be achieved.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1924, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Office at Suite 1400, 500 West Madison Street, Chicago, Illinois
606661 and Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
the prescribed fees. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding the Company and
other registrants that have been filed electronically with the Commission. The
address of the such site is http://www.sec.gov.
1
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of all
material information regarding the Company, Neo Vision, or the matters to be
considered at the Special Meeting. This summary is qualified in all respects by
the more detailed information appearing elsewhere in this Proxy Statement, the
Appendices hereto and the documents referred to herein. Unless otherwise defined
herein, capitalized terms used in this summary are defined elsewhere in this
Proxy Statement.
THE COMPANY AND NEO VISION
Prior to the acquisition of Neo Vision, the Company was engaged in the adult
real estate education industry, the travel service industry, and the ownership
of real estate. See, "BUSINESS OF UNITED STATES AIRCRAFT CORPORATION." Neo
Vision provides advertising, programming, and information to remote audiences
using computer, video, and signal transmission technology, accomplished by
showing mixed-media programming and advertising onto video screen walls in
regional shopping malls or airports through satellite transmission from Neo
Vision's production facility in Phoenix, Arizona. See, "BUSINESS OF NEO VISION,
INC."
SPECIAL MEETING
A special meeting of stockholders of the Company (the "Special Meeting")
will be held on February 17, 1999, at 10:00 a.m., Arizona time, at 3121 East
Greenway Road, Suite 201, Phoenix, Arizona. The purpose of the Special Meeting
is to consider and vote upon: (i) a proposal to ratify and approve the Exchange
Agreement dated as of June 30, 1998 (the "Exchange Agreement"); (ii) a proposal
to amend and restate the Company's Certificate of Incorporation; and (iii) a
proposal to approve the Company's 1998 Stock Option Plan. See "THE SPECIAL
MEETING," "THE EXCHANGE," "PROPOSAL TO RATIFY AND APPROVE THE EXCHANGE
AGREEMENT," "PROPOSAL TO AMEND AND RESTATE THE COMPANY'S CERTIFICATE OF
INCORPORATION," AND "PROPOSAL TO APPROVE THE COMPANY'S 1998 STOCK OPTION PLAN."
RECORD DATES; VOTES REQUIRED
Only holders of record of the Company's Class A Common Stock and Class B
Common Stock at the close of business on January 25, 1999 (the "Record Date")
are entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were 9,927,504 shares of the Company's Class A Common Stock
outstanding, and 4,962,801 shares of the Company's Class B Common Stock
outstanding, each of which will be entitled to one vote on each matter to be
acted upon or which may properly come before the Special Meeting. The presence
of stockholders at the Special Meeting, in person or by proxy, entitled to cast
a majority of all votes entitled to be cast at such meeting will constitute a
quorum. The affirmative vote of a majority of the outstanding shares of both the
Company's Class A Common Stock and Class B Common Stock, each voting separately
as a class, is required to approve the amendment and restatement of the
Company's Certificate of Incorporation. The affirmative vote of a majority of
the shares of the Company's Class A Common Stock and Class B Common Stock
present in person or represented by proxy at the meeting, voting together as a
single class, is required to ratify and approve the Exchange Agreement and
approve the Company's 1998 Stock Option Plan.
2
<PAGE>
As of the Record Date, the directors and executive officers of the Company
collectively beneficially own a total of 1,512,708 shares of Class A Common
Stock (representing approximately 15% of the outstanding shares of Class A
Common Stock), 2,750,000 shares of Class B Common Stock (representing 55% of the
outstanding shares of Class B Common Stock), and 4,262,708 shares of the
collective outstanding shares of Class A Common Stock and Class B Common Stock
(representing approximately 29% of the collective outstanding shares of Class A
Common Stock and Class B Common Stock). As of the Record Date, the former
shareholders of Neo Vision collectively beneficially own 2,000,000 shares of
Class A Common Stock (representing approximately 20% of the outstanding shares
of Class A Common Stock), no shares of Class B Common Stock, and 2,000,000
shares of the collective outstanding Class A Common Stock and Class B Common
Stock (representing approximately 13% of the collective outstanding shares of
Class A Common Stock and Class B Common Stock). As of the Record Date, the
former shareholders of Neo Vision and the Company's directors and officers
collectively beneficially own 2,898,708 shares of Class A Common Stock
(representing approximately 29% of the outstanding shares of Class A Common
Stock), 2,750,000 shares of the outstanding shares of Class B Common Stock
(representing approximately 55% of the outstanding shares of Class B Common
Stock), and 5,648,708 shares of the collective outstanding shares of Class A
Common Stock and Class B Common Stock (representing approximately 38% of the
collective outstanding shares of Class A Common Stock and Class B Common Stock).
All of such shares are expected to be voted in favor of each of the proposals.
See "THE SPECIAL MEETING - Vote Required."
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Company's Board of Directors has unanimously approved the Exchange
Agreement, the proposed amendment and restatement of the Company's Certificate
of Incorporation, and the 1998 Stock Option Plan, and believes that the Exchange
is fair to and in the best interests of the Company and its stockholders. See
"THE EXCHANGE Background of and Reasons for the Exchange."
BACKGROUND OF AND REASONS FOR THE EXCHANGE AGREEMENT
The Company's Board believes the Exchange is fair to and in the best
interests of the Company's stockholders for, without limitation, the following
reasons: (i) the Company's current operations have limited growth potential,
operating in relatively small growth rate industries; (ii) Neo Vision's video
wall advertising service has significant growth potential, operating in an
expanding industry where start-up companies can potentially achieve market
penetration; (iii) the video wall advertising line of business offers the
Company an opportunity for long-term growth; (iv) the Company's resources and
Neo Vision's video wall advertising service offer the Company the potential for
increased revenues from operations, greater access to financial resources, and
the opportunity for improved liquidity for the Company's stockholders.
The Company also considered certain potentially negative factors, including:
(a) the possibility of an initial increase in losses; (b) the loss of control by
the Company's stockholders; and (c) Neo Vision's limited operating history,
which exposes the Company to risks associated with start-up companies.
See "THE EXCHANGE - Background of and Reasons for the Exchange."
3
<PAGE>
THE EXCHANGE AGREEMENT
The Exchange Agreement provides for the exchange of all of the capital stock
of Neo Vision for 2,000,000 shares of the Company's Class A Common Stock
(equivalent to 200,000 shares of New Common Stock) and additional shares of New
Common Stock. Pursuant to the Exchange Agreement, if the Company's stockholders
approve the reclassification, the former shareholders of Neo Vision will be
issued an additional 3,977,560 shares of New Common Stock (as adjusted to
reflect Anthony Christopher's waiver of rights to receive 600,000 shares), as
all of the conditions under the Exchange Agreement for the issuance of such
shares have been satisfied, other than such stockholder approval. Further,
Albert C. Lundstrom and Jack Eberenz, each former shareholders of Neo Vision or
their affiliates, have been appointed to the Company's Board of Directors in
accordance with the Exchange Agreement. The Exchange Agreement, however, is
subject to rescission in the event the Company's stockholders do not approve the
amendment and restatement of the Company's Certificate of Incorporation
providing for the reclassification of the Company's Class A Common Stock and
Class B Common Stock into New Common Stock.
EXCHANGE RATIO
Pursuant to the Exchange Agreement, 2,000,000 shares of the Company's Class
A Common Stock (equivalent to 200,000 shares of New Common Stock) were issued in
exchange for 6,250,000 shares of Neo Vision Common Stock, all of the outstanding
shares of Neo Vision. Additionally, the Exchange Agreement provides that an
additional 4,577,560 shares of New Common Stock will be issued to former Neo
Vision shareholders upon stockholder approval of the amendment and restatement
of the Company's Certificate of Incorporation providing for the reclassification
of the Company's Class A Common Stock and Class B Common Stock into New Common
Stock. These shares will be apportioned among these former shareholders in
proportion to their ownership interest in Neo Vision prior to the acquisition of
Neo Vision by the Company, except that Anthony Christopher, the former principal
shareholder of Neo Vision, has agreed to waive receipt of 600,000 of such
shares. If the proposal to amend and restate the Company's Certificate of
Incorporation is adopted, the Class A Common Stock will be reclassified into New
Common Stock on the basis of 10 shares of Class A Common Stock into one share of
New Common Stock and the Class B Common Stock will be reclassified on the basis
of 13 shares of Class B Common Stock into one share of New Common Stock, with
cash issued in lieu of the issuance of any fractional shares. See "THE EXCHANGE
- - Exchange Ratio."
RISK FACTORS
In deciding whether to ratify and approve the Exchange Agreement, approve
the amendment and restatement of the Company's Certificate of Incorporation, and
approve the Company's 1998 Stock Option Plan, the Company's stockholders should
consider the information set forth under "RISK FACTORS."
EFFECTIVE TIME OF THE EXCHANGE
The Exchange Agreement was approved by the Company's Board of Directors,
executed, and became effective on June 30, 1998. Following stockholder approval
of the amendment and restatement of the Company's Certificate of Incorporation
and the filing of the amended and restated Certificate of Incorporation in
4
<PAGE>
Delaware reflecting the reclassification of the Class A and Class B Common Stock
into New Common Stock (the "Effective Time"), the Company will mail to record
holders instructions for exchanging share certificates. In the event that the
Company's stockholders do not approve the amendment and restatement of the
Company's Certificate of Incorporation providing for reclassification of the
Class A and Class B Common Stock into New Common Stock, then each shareholder of
Neo Vision has the right to rescind the Exchange Agreement. In the event that
the Exchange Agreement is rescinded, the Company shall be obligated to bear its
own costs associated with the Exchange Agreement and this Proxy Statement. See
`THE EXCHANGE - Failure of Stockholders to Approve the Proposals."
DISSENTERS' RIGHTS
The Company's stockholders are not entitled to stockholders' appraisal
rights under Delaware law. As a result, they may not demand the fair value of
their stock and will be bound by the terms of the Exchange Agreement if ratified
and approved by stockholders. See "THE EXCHANGE - Dissenters' Rights."
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The exchange of Neo Vision shares for shares of the Company's Class A Common
Stock and New Common Stock pursuant to the Exchange Agreement will have no
federal tax effect on the Company's stockholders who are not parties to the
exchange.
The proposed reclassification of the Company's Class A Common Stock and
Class B Common Stock into New Common Stock will be treated as a nontaxable
exchange for federal income tax purposes, except with respect to the receipt of
cash in lieu of fractional shares. A stockholder's tax basis and holding period
for the shares received upon the reclassification will be the same as such
stockholder's tax basis and holding period in the shares surrendered.
ACCOUNTING TREATMENT
The June 30, 1998 acquisition of Neo Vision will be accounted under the
purchase method of accounting as a reverse merger, with Neo Vision, Inc. being
the acquirer for financial reporting purposes.
MANAGEMENT, OPERATIONS, AND HEADQUARTERS AFTER THE EXCHANGE
The Board of Directors of the Company currently consists of six members,
including Albert C. Lundstrom and Jack Eberenz, each former shareholders of Neo
Vision or their affiliates. Upon stockholders approval of the Exchange
Agreement, two additional members may be nominated by the former shareholders of
Neo Vision for election to the Board of Directors. Neither of these Directors
has been identified. Further, Albert C. Lundstrom serves as President and Chief
Executive Officer of the Company, Harry V. Eastlick serves as Chief Operating
and Financial Officer, and Jack Eberenz serves as Executive Vice President and
Secretary. In accordance with the Exchange Agreement, Anthony Christopher, the
former principal shareholder of Neo Vision, was elected as a director and
executive officer of the Company. Mr. Christopher subsequently resigned as both
an employee and as a director and entered into a separation agreement with the
5
<PAGE>
Company and Neo Vision. As a result, Mr. Christopher will no longer be available
to assist the Company, except at his discretion.
The name of the Company will become Neo Vision Systems, Inc. upon
approval and filing of the amendment and restatement of the Certificate of
Incorporation, and Neo Vision shall remain a wholly owned subsidiary of the
Company. The headquarters of the Company will continue to be located in Phoenix,
Arizona. See "THE EXCHANGE Management and Operations After the Exchange."
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
Certain directors and executive officers of the Company have interests in
the Exchange in addition to their interests as stockholders of the Company.
These include, among other things, the appointments of Messrs. Lundstrom and
Eberenz as Directors and Executive Officers of the Company. Mr. Lundstrom and
his affiliates will receive 1,466,711 shares of the Company's New Common Stock
upon stockholder approval of the reclassification of the Company's Class A
Common Stock and Class B Common Stock into New Common Stock. Mr. Eberenz and his
affiliates will receive 244,611 shares of the Company's New Common Stock upon
stockholder approval of the reclassification of the Company's Class A Common
Stock and Class B Common Stock into New Common Stock. Finally, Mr. Anthony
Christopher, the former principal shareholder of Neo Vision, will receive
2,676,450 shares of New Common Stock upon the approval of the reclassification.
Mr. Christopher has waived his right to receive 600,000 of these shares. See
"THE EXCHANGE - Interests of Certain Persons in the Exchange."
RESALES OF THE COMPANY'S NEW COMMON STOCK
Shares of the Company's New Common Stock will be freely transferable by
holders whose shares of Class A Common Stock or Class B Common Stock were not
"restricted securities" under Rule 144 of the Securities Act of 1933, as amended
(the "Securities Act") prior to the reclassification. Shares of Class A Common
Stock and Class B Common Stock which constitute restricted securities prior to
the reclassification will constitute restricted securities of New Common Stock
after the reclassification. See "THE EXCHANGE - Resales of the Company's Common
Stock."
6
<PAGE>
RISK FACTORS
Information contained or incorporated by reference in this Proxy Statement
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements can be identified by the use of
forward-looking terminology such as "may," "will," "believe," "expect,"
"anticipate," "estimate," "project" or "continue" or the negative thereof or
other comparable terminology. The following matters and certain other factors
noted throughout this Proxy Statement and exhibits hereto and thereto constitute
cautionary statements identifying important factors with respect to any such
forward-looking statements, including certain risks and uncertainties, that
could cause the actual results to differ materially from those predicted in any
such forward-looking statements.
In considering whether to ratify and approve the Exchange Agreement, to
approve the proposal to amend and restate the Company's Certificate of
Incorporation, and to approve the Company's 1998 Stock Option Plan, the
Company's stockholders should carefully consider, in addition to the other
information in this Proxy Statement, the following matters:
RISKS ASSOCIATED WITH THE EXCHANGE
LACK OF FAIRNESS OPINION
The Company has not obtained an opinion or any independent financial advice
that the consideration received by the Company's stockholders in connection with
the Exchange Agreement and the reclassification of the Company's Class A Common
Stock and Class B Common Stock into New Common Stock is fair to the Company's
stockholders from a financial point of view. In particular, the Company did not
obtain any independent evaluation of the terms of the Exchange Agreement,
including the exchange ratio of shares of Neo Vision Common Stock for shares of
the Company's Class A Common Stock and New Common Stock contained therein. The
Company also did not obtain any independent evaluation in determining whether
the 10/13 exchange ratio between the Class A Common Stock and Class B Common
Stock was fair from a financial point of view. Therefore, each stockholder must
make his or her own determination as to the fairness of the Exchange Agreement
and the reclassification of the Company's Class A Common Stock and Class B
Common Stock without any expert advice. Stockholders should consider consulting
their own financial advisors prior to voting on the ratification and approval of
the Exchange Agreement and the amendment and restatement of the Company's
Certificate of Incorporation. There can be no assurance that the terms of the
Exchange Agreement or the reclassification of the Class A Common Stock and Class
B Common Stock into New Common Stock are fair to stockholders from a financial
point of view.
CONFLICTS OF INTEREST
The approval by the Board of Directors of the Exchange Agreement, the
reclassification of the Company's Class A Common Stock and Class B Common Stock,
and the adoption of the 1998 Stock Option Plan are subject to substantial
conflicts of interest. Messrs. Albert Lundstrom and Jack Eberenz, both former
shareholders of Neo Vision or their affiliates, will receive 1,405,311
additional shares of New Common Stock upon the approval of the reclassification
of the Company's Class A Common Stock and Class B Common Stock. Further, such
former shareholders of Neo Vision, as well as Harry Eastlick, the former
President and Chief Executive Officer of the Company, and now its Chief
7
<PAGE>
Financial Officer, were granted options to acquire a total of 825,000 shares of
New Common Stock at an exercise price of $1.00 per share. Mr. Anthony
Christopher, the former principal shareholder of Neo Vision, will receive
2,676,450 shares of New Common Stock upon the approval of the reclassification.
Mr. Christopher has waived his right to receive 600,000 of these shares.
Moreover, Messrs. Lundstrom, Eastlick, and Eberenz have entered into employment
agreements through December 31, 2003, providing for annual salaries of $150,000,
$120,000 and $60,000, respectively. In addition, the three non-officer directors
of the Company, Messrs. Cline, Manning, and Thomas, each received options to
acquire 5,000 shares of New Common Stock at $1.00 per share. Thus, in
determining whether to approve the Exchange Agreement, all of such current
directors and officers were subject to substantial conflicts of interest. There
can be no assurance that such conflicts of interest did not have a material
adverse effect on the terms of the Exchange Agreement or the Exchange
thereunder.
DEPENDENCE UPON MANAGEMENT
Prior to the Exchange Agreement, the Company's Board of Directors consisted
of Harry Eastlick, Donald Cline, Whipple Manning, and John Thomas. In accordance
with the Exchange Agreement, the Company's Board of Directors elected Anthony
Christopher, Albert Lundstrom, and Jack Eberenz as directors and executive
officers of the Company. In addition, the Company entered into employment
agreements with Messrs. Christopher, Lundstrom, Eberenz, and Eastlick. Mr.
Christopher, the former principal shareholder of Neo Vision, subsequently
resigned as both an employee and as a director. He has entered into a separation
agreement with the Company and Neo Vision. However, Mr. Christopher will no
longer be available to assist the Company, except at his discretion. In
addition, there will likely be a period of adjustment for both the officers and
employees of the Company as new management of the Company is instituted.
Further, the education, training, and experience of each officer engaged in the
management and operation of each line of business for the Company is critical to
the success of the Company. Thus, the loss of any of the current officers at the
Company could result in a significant decrease in the Company's prospects for
success. In addition, there is no assurance that this new management group will
be able to achieve profitability for the Company.
RESIGNATION OF ANTHONY CHRISTOPHER
In accordance with the Exchange Agreement, Anthony Christopher, the former
principal shareholder of Neo Vision, was elected a director and executive
officer of the Company. Mr. Christopher subsequently resigned his position as
both a director and as an employee on November 9, 1998. Mr. Christopher, the
Company, and Neo Vision entered into a separation agreement on December 17,
1998. The separation agreement provides that the Company will pay Mr.
Christopher $41,250 in accrued compensation. Payments will be $2000 per month
commencing February 1, 1999, and increase to $5000 per month commencing May 1,
1999, continuing at that rate until the entire $41,250 has been paid. If the
Company fails to pay this accrued compensation within the specified timeframe,
the agreement provides that Mr. Christopher is entitled to treble damages.
However, if the stockholders do not approve the reclassification, then Mr.
Christopher is not entitled to any payment of accrued compensation from the
Company. Under the agreement, Mr. Christopher waived his rights to receive
600,000 of New Common Stock to which he was entitled under the Exchange
Agreement. Of these shares, 400,000 are to be issued to Neo Vision debenture
holders on a pro rata basis and 200,000 are to be issued to a financial
consultant to Neo Vision for past services rendered to Neo Vision. Further, Mr.
Christopher may not compete with Neo Vision in the video wall business until
8
<PAGE>
December 17, 1999. If Neo Vision has twelve video walls in operation by December
17, 1999, then Mr. Christopher cannot compete for another one year period. The
separation agreement provides that Mr. Christopher will consult with the Company
and Neo Vision on an informal basis at his discretion. In addition, the
agreement provides that Mr. Christopher will vote in favor of the amendment and
restatement of the Company's certificate of incorporation. Finally, each party
to the separation agreement released each other party from all past or present
claims and obligations.
CONTINUING LOSSES; NEED FOR ADDITIONAL FUNDING
The Company's business activities prior to the acquisition of Neo Vision
have suffered continuing losses and Neo Vision has incurred losses since
inception. See "RISK FACTORS - "Risks Associated with Neo Vision" and "Risks
Associated with of the Company." As a result, the Company had outstanding
indebtedness of approximately $519,000 at September 30, 1998, and Neo Vision had
outstanding indebtedness of approximately $1,268,000 at such date. Although the
Company will not assume the Neo Vision indebtedness, that indebtedness will not
be repaid as a result of the acquisition of Neo Vision and will remain the
obligation of Neo Vision after the approval of the reclassification. The Company
expects that $800,000 of Neo Vision indebtedness will be converted into New
Common Stock upon the approval of the reclassification hereunder and the
subsequent registration of such shares under the Securities Act of 1933, as
amended. Currently, neither the Company nor Neo Vision has the ability to repay
such debt. Further, the Company may experience increased losses as a result of
the anticipated expansion of Neo Vision's business. The Company will require
substantial additional funding to cover these losses and expand its business.
This funding may include debt and equity financing, all of which may be highly
dilutive to the stockholders of the Company. No assurance can be given as to the
ability of the Company to obtain needed financing or the terms of such
financing. The inability of the Company to obtain necessary financing could
result in the inability of the Company to expand its business or even continue
its operations. See "CONSOLIDATED FINANCIAL STATEMENTS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
CONTROL BY EXISTING STOCKHOLDERS
As of the date hereof, the former shareholders of Neo Vision own 2,000,000
shares of Class A Common Stock (equivalent to 200,000 shares of New Common
Stock) representing approximately 20% of the outstanding shares of the Class A
Common Stock. Subsequent to the reclassification of the Company's Class A Common
Stock and Class B Common Stock and the issuance of the 3,977,560 additional
shares of New Common Stock pursuant to the Exchange Agreement (as adjusted to
reflect Anthony Christopher's waiver of rights to receive 600,000 shares), the
former shareholders of Neo Vision will own approximately 70% of the Company's
outstanding New Common Stock. As a result, former shareholders of Neo Vision
will be able to effectively control matters requiring approval by stockholders
of the Company, including the election of the Company's Board of Directors.
RISKS ASSOCIATED WITH ISSUANCE OF PREFERRED STOCK
Approval of the amendment and restatement of the Company's Certificate of
Incorporation will enable the Company to issue up to 75,000,000 shares of
preferred stock. While providing flexibility in connection with possible
9
<PAGE>
financings, acquisitions, and other corporate purposes, the issuance of
Preferred Stock, among other things, could adversely affect the relative voting
power of the holders of common stock, could have a dilutive effect on earnings
per share, and under certain circumstances, be used as a means of discouraging,
delaying, or preventing a change in control of the Company. There are no
outstanding shares of Preferred Stock at the present time, or any commitments,
options or other rights presently outstanding for the issuance of Preferred
Stock. The Company has no present plan to issue shares of its Preferred Stock,
although the Company's need for additional financing increases the likelihood
the Company may find it necessary or desirable to issue Preferred Stock.
RIGHTS TO ACQUIRE SHARES
A total of 967,500 shares of New Common Stock have been reserved for
issuance upon exercise of options previously granted under the Company's 1998
Stock Option Plan (the "1998 Plan"), at an exercise price of $1.00 per share, a
total of 160,150 shares of New Common Stock have been reserved for issuance upon
exercise of warrants previously granted by Neo Vision at a weighted average
exercise price of $3.00 per share, and, based on the outstanding principal and
accrued interest of Neo Vision debentures (the " Neo Vision Debentures") at
December 31, 1998, 1,156,818 shares have been reserved for issuance pursuant to
such Debentures and for the payment to a Neo Vision financial consultant for
past services rendered to Neo Visions. In addition, Anthony Christopher agreed
to waive receipt of 600,000 shares of New Common Stock, 400,000 of which are to
be made available to the Neo Vision Debenture holders and convertible into New
Common Stock. During the terms of such options, warrants, and Neo Vision
Debentures, the holders thereof will have an opportunity to profit from an
increase in the market price of Common Stock with resulting dilution in the
interests of holders of Common Stock. The existence of such stock options and
warrants may adversely affect the terms on which the Company can obtain
additional financing, and the holders of such options and warrants can be
expected to exercise such options at a time when the Company, in all likelihood,
would be able to obtain additional capital by offering shares of its Common
Stock on terms more favorable to the Company than those provided by the exercise
of such options and warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock of the Company in the public
market following the Exchange and reclassification of the Company's Class A
Common Stock and Class B Common Stock into New Common Stock could adversely
affect prevailing market prices. Of the 7,220,608 shares of New Common Stock to
be outstanding after the Exchange and reclassification of the Company's Class A
Common Stock and Class B Common Stock, assuming the maximum issuance of shares
under the Exchange Agreement and the conversion of all Neo Vision Debentures,
approximately 2,176,000 shares will be eligible for resale in the public market
without restriction. It is a condition of the conversion of the Neo Vision
Debentures that the Company file a registration statement. Upon completion of
the Exchange and reclassification of the Company's Class A Common Stock and
Class B Common Stock, approximately 5,045,000 shares will be eligible for resale
in the public market after a one year period subject to compliance with Rule 144
under the Securities Act. Further, the Company will have outstanding options and
warrants convertible into up to 1,127,650 shares of New Common Stock. These
outstanding options and warrants will be immediately exercisable.
10
<PAGE>
CHANGE IN CONTROL PROVISIONS
The Company's proposed First Restated Certificate of Incorporation (the
"Restated Certificate") and the Delaware General Corporation Law (the "General
Corporation Law") contain provisions that may have the effect of making more
difficult or delaying attempts by others to obtain control of the Company, even
when these attempts may be in the best interests of stockholders. The Restated
Certificate also authorizes the Board of Directors, without stockholder
approval, to issue one or more series of preferred stock which could have voting
and conversion rights that adversely affect the relative voting power of the
holders of Common Stock. The General Corporation Law also imposes conditions on
certain business combination transactions with "interested stockholders" (as
defined therein).
ABSENCE OF LIQUID PUBLIC MARKET
The Company's Class B Common Stock is not publicly traded. The Company's
Class A Common Stock is traded on the NASDQ OTC Bulletin Board on an extremely
limited basis. As a result of the Company having two classes of Common Stock and
the extremely limited trading market for the Company's Class A Common stock,
trading in the Class A Common Stock has been subject to substantial
fluctuations. Moreover, in view of such a limited market it may be extremely
difficult for any owner of the Class A Common Stock to sell shares without
having an adverse effect on the market price of the Common Stock. The
reclassification of both Class A Common Stock and Class B Common Stock into a
single new class of Common Stock may decrease the liquidity of any stockholder's
investment, especially since the reclassification will reduce the number of
freely tradable shares of Class A Common Stock to one-tenth of their former
number. Further, the Company's New Common Stock will not be traded on the NASDAQ
SmallCap market, and it is unlikely that such stock would be so traded in the
foreseeable future. The Company's New Common Stock also may constitute a "penny
stock" under the rules and regulations of the Securities and Exchange
Commission, and such designation may have an adverse effect on the market in the
Company's New Common Stock.
LACK OF DIVIDENDS
The Company intends to employ all available funds for the development of its
business and, accordingly, does not intend to declare or pay cash dividends in
the foreseeable future.
11
<PAGE>
RISKS ASSOCIATED WITH NEO VISION
NEW BUSINESS CONCEPT; LIMITED OPERATING HISTORY; CONTINUING LOSSES;
GOING-CONCERN CONSIDERATIONS
The Company intends to make the Neo Vision video wall advertising line of
business its primary focus in the immediate future. Neo Vision was incorporated
in June 1997 and completed its development stage in June 1998. Neo Vision has a
limited operating history with respect to the distribution and marketing of its
video wall advertising business. Thus, Neo Vision will be subject to all of the
risks inherent with a start-up business. In particular, Neo Vision has had
negative cash flow and operating losses since inception. Neo Vision reported a
net loss of approximately $(675,865) for the year ended September 30, 1998. Neo
Vision will require capital provided by securities offerings, and in all
likelihood, significant additional capital to fully implement its business plan
and expand its operations. There can be no assurance that Neo Vision will be
able to achieve, or maintain, profitable operations or positive cash flow at any
time in the future. In addition, the report by Neo Vision's independent
certified public accountants on Neo Vision's financial statements for the fiscal
year ended September 30, 1998 states that Neo Vision's significant operating
losses raise substantial doubt about Neo Vision's ability to continue as a going
concern. See "CONSOLIDATED FINANCIAL STATEMENTS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
NEED FOR ADDITIONAL CAPITAL; RISK OF SUBSTANTIAL DILUTION
The Company anticipates that Neo Vision will require substantial additional
funding to adequately meet management's growth objectives and fully implement
its business plan. Further, in the event that Neo Vision is unable to obtain
sufficient financing, there is no assurance that Neo Vision will be able to
successfully penetrate the video wall advertising marketplace, and achieve
widespread acceptance. The Company may seek additional debt or equity financing
through banks, other financial institutions, companies, or individuals.
Management has engaged financial consultants to assist in obtaining $3,000,000
to $5,000,000 in additional capital and Neo Vision has received a letter of
intent for a $250,000 sale and leaseback of the installed equipment at one of
its locations. However, no assurance can be given that the Company will be able
to obtain any such additional equity or debt financing on satisfactory terms or
at all. No assurance can be given that any such financing, if obtained, will be
adequate to meet Neo Vision's needs for the foreseeable future. If the Company
is not able to successfully obtain sufficient capital, through securities
offerings and from additional sources, Neo Vision's ability to continue as a
viable line of business for the Company will be substantially impaired.
EXISTING DEBT OBLIGATIONS
As of September 30, 1998, Neo Vision had approximately $800,000 in
outstanding convertible debt obligations with interest at rates of 10% and 12%
per annum with total interest accrued at December 31, 1998 of $61,230. The Neo
Vision Debentures and accrued interest are convertible into approximately
999,990 shares of New Common Stock at December 31, 1998, which number includes
the 400,000 shares of New Common Stock which have been waived by Anthony
Christopher for issuance to such Neo Vision Debenture holders. It is a condition
of the conversion of the Neo Vision Debentures that the Company file a
Registration Statement for the shares of New Common Stock into which the Neo
Vision Debentures are convertible. There is no assurance that Neo Vision will
have
12
<PAGE>
sufficient funds to satisfy or extend the debt obligations. No assurance can be
given that the Company or Neo Vision can achieve, or maintain, profitability. If
it cannot, Neo Vision will be unable to pay its debt obligations.
UNCERTAINTY OF WIDESPREAD MARKET ACCEPTANCE OF PRODUCTS; LIMITED MARKETING
EXPERIENCE
Neo Vision has just started marketing its video wall advertising service.
Neo Vision has entered into two agreements, both in Las Vegas, Nevada, to
provide its video wall advertising service. Neo Vision is negotiating other
agreements to offer its service to various malls and airports throughout the
country. However, there can be no assurance that additional agreements will be
executed in the near future or that existing agreements will be profitable. As
is typical with new services, demand and market acceptance for Neo Vision's
services are subject to a high level of uncertainty. The profitability will be
highly dependent on its ability to persuade its potential customers to implement
the use of its video wall technology rather than more traditional methods of
advertising. Achieving widespread market acceptance for the video wall
advertising service will require substantial marketing efforts and the
expenditure of sufficient funds to create brand recognition, customer demand,
and to cause potential customers to consider the potential benefits of Neo
Vision's service as against more traditional advertising methods to which they
have long been accustomed. Moreover, Neo Vision's ability to achieve widespread
market acceptance will depend in part on Neo Vision's ability to locate, hire,
and retain sufficient qualified marketing personnel and to fund marketing
efforts. There can be no assurance that the video wall advertising service will
achieve widespread market acceptance or that Neo Vision's marketing efforts will
result in profitable operations.
CERTAIN FACTORS AFFECTING OPERATING RESULTS
Neo Vision's operating results will be affected by a wide variety of factors
that could adversely affect its total revenue and profitability. These factors,
many of which are beyond the control of the Company and Neo Vision, include
creating and continuing interest in video wall advertising; Neo Vision's success
in obtaining and maintaining customer satisfaction with video wall advertising;
the level and timing of the demand for Neo Vision's services and Neo Vision's
ability to expand its personnel, equipment, and administrative support
functions; changes in the mix of services it provides; technological changes;
and competition and competitive pressures on prices. Neo Vision's revenue and
results of operations also may be subject to fluctuations based upon general
economic conditions. If there were to be a general economic downturn or a
recession, there would be a material adverse effect on Neo Vision's business,
operating results, and financial condition.
LACK OF DIVERSIFICATION; RISKS OF INVESTING IN LIMITED PRODUCTS
The success of Neo Vision's business, and thus of the Company, will depend
almost entirely on the market acceptance of the video wall method of
advertising. The plan of operation, therefore, subjects Neo Vision to the
economic fluctuations within the advertising industry and increases the risk
associated with its operations. This primary dependence on one type of service
(a situation the Company expects will continue for the foreseeable future)
renders Neo Vision more vulnerable than companies with a more diversified
offering of services. Significant delays in development could greatly affect Neo
Vision's competitiveness. There can be no assurance that Neo Vision's video wall
method of advertising will not become obsolete earlier than anticipated. There
also can be no assurance that the Company will be able to devote sufficient
13
<PAGE>
resources to the research and development effort required to enable Neo Vision
to meet future technological changes. An investment in any aspect of the
technological industry is speculative and historically has involved a high
degree of risk.
RISK OF LONG TERM ACCEPTANCE OF VIDEO WALL ADVERTISING
Because Neo Vision's video wall advertising method is new, it is difficult
to estimate the acceptance by potential advertising service users and in turn,
rates of rejection or dissatisfaction with the video wall method of advertising.
The failure of Neo Vision to achieve long-term acceptance of the video wall
method of advertising would have a material adverse effect upon Neo Vision, and
thus the Company's business.
MANAGEMENT OF GROWTH
The Company plans to expand Neo Vision's business significantly over the
next 12 months. The expansion of Neo Vision's business will require it to
enhance its operational, financial, and information systems; to motivate and
manage its existing personnel and to attract and retain additional managerial,
technical, and marketing personnel; to enhance its technical equipment; and to
expand the development and marketing of video wall method of advertising. The
failure of Neo Vision to expand its systems, personnel, equipment, and
administrative resources on an effective basis could have a material adverse
effect on Neo Vision's business, and thus the Company's business, operating
results, and financial condition.
NEED FOR ADDITIONAL DEVELOPMENT OF CERTAIN PRODUCTS
The Company anticipates that Neo Vision's future research and development
activities combined with experience gained from future users of its video wall
advertising service could result in the need for further refinement and
development. The Company also expects Neo Vision to modify its services for
particular locations. There can be no assurance that unforeseen circumstances
will not require expensive additional development of Neo Vision's video wall
advertising service. In addition, the Company may in the future need to make
improvements of its video wall advertising service in order for it to remain
competitive. The costs for any such improvements may be substantial.
COMPETITION
Neo Vision's business is primarily proprietary in nature. Neo Vision does
not have patent protection for any of its proprietary technology and does not
believe that such protection is available. Thus, potential competitors could
implement advertising services similar to Neo Vision's video walls. Therefore,
no assurance can be given that Neo Vision's method of video wall advertising
will be able to successfully compete with these potential competitors. Further,
Neo Vision will be competing against advertising companies who utilize more
traditional methods of advertising and have established relationships with
potential Neo Vision clients. In addition, Anthony Christopher, the former
principal shareholder of Neo Vision, may compete against the Company after one
year, or two years if Neo Vision has twelve video walls operating at December
17, 1999.
14
<PAGE>
YEAR 2000 COMPLIANCE
Neo Vision has assessed its Year 2000 issues and its readiness for this
potential problem. Neo Vision has examined its information technology systems
and believes that, given that its operations do not depend on information
technology as such, the Year 2000 should have no effect on its information
technology systems.
Further, Neo Vision has assessed its non-information technology systems and
believes that Neo Vision is Year 2000 compliant because it is operated using
personal, as opposed to mainframe, computer technology. These personal computers
were purchased in the last three years and run on a standard operating system.
In addition, all software run by Neo Vision is standard, off-the-shelf software
purchased in the last three years. Thus, due to the dates of purchase of its
systems, Neo Vision believes that all of its systems are Year 2000 compliant.
Beginning in January 1999, Neo Vision plans to obtain assurances from the
manufacturers of its personal computers that such computers are indeed Year 2000
compliant. This will complete Neo Vision's internal examination of Year 2000
issues.
In establishing a Year 2000 remediation program, Neo Vision intends to soon
enter its next phase by implementing an examination procedure for its
third-party suppliers and vendors. As a component of this program, beginning in
January 1999 Neo Vision intends to send written requests for assurances that
these third parties are addressing their own Year 2000 issues. Most
significantly, Neo Vision intends to address the Year 2000 readiness state of
the providers of its satellite delivery system by requesting a written Year 2000
compliance program which these providers are implementing.
The cost of Neo Vision's Year 2000 compliance program has not had, and is
not expected to have, a material impact on its results of operations, financial
condition, or liquidity. Neo Vision has not been required to prematurely replace
equipment due to Year 2000 issues, nor has it needed to hire Year 2000 solution
providers. Further, Neo Vision does not anticipate the necessity of such
expenses in the future. Finally, Neo Vision anticipates that the cost of
ensuring compliance of third parties will be minimal.
Neo Vision anticipates, in its reasonably likely worst case Year 2000
scenario, that the failure of its clients and suppliers to adequately address
their own Year 2000 issues could impact such parties' ability to provide the
materials used in constructing new video walls or to make payments for Neo
Vision's services. In addition, the failure of the providers of the satellite
delivery system to address Year 2000 issues could negatively impact Neo Vision's
ability to transmit signals onto its video walls, which could interrupt the
images displayed on these walls. This could adversely affect Neo Vision's
business, financial condition, cash flows, and results of operations.
Neo Vision's greatest Year 2000 concern is the transmission of signals onto
its video walls. Neo Vision is in the process of completing its contingency
plans for such an event. In the event of an interruption of the satellite
delivery system, Neo Vision anticipates being able to reroute the signals for
delivery over conventional landlines at little additional cost. Neo Vision
believes that the cost to engage stand-by providers for signal delivery
outweighs the potential benefit of such contracts at this time. If Neo Vision is
not satisfied with the steps taken by the satellite provider to prepare for the
Year 2000, Neo Vision will contract for additional providers at that time. Neo
Vision anticipates receiving this information and making this determination by
July 1999. This analysis, and any action taken as a result of this analysis,
will complete Neo Vision's contingency plans. Even if action is necessary, Neo
Vision anticipates that its contingency plans will be completed by August 1999.
15
<PAGE>
RISKS ASSOCIATED WITH THE COMPANY
LACK OF PROFITABLE OPERATIONS
The Company's real estate school, travel agency, and real estate lines of
business experienced a net loss of $(189,484) and a net loss of $(49,922) for
the fiscal years ended September 30, 1998 and 1997, respectively. No assurance
can be given that the Company will be able to attain or maintain a profitable
level of operations for these lines of business in the future, or that it will
not continue to incur operating losses. Management expects the addition of Neo
Vision ultimately will improve its operating results; however, since Neo Vision
has just completed its development stage, no assurance can be given that it will
contribute to the profitability of the Company or that the Company's non-Neo
Vision lines of business will not cause additional losses.
GOING-CONCERN CONSIDERATIONS
At September 30, 1998, the Company was in default on certain convertible
debentures, and had a working capital deficiency of $414,921. Management is
taking actions to alleviate these conditions, including seeking additional
financing, which the Company's management believes will provide the opportunity
for the Company to continue as a going concern. However, no assurance can be
given that the Company will be successful in obtaining necessary financing or
that the Company will continue as an operating entity without additional
financing. In addition, the report by the Company's independent certified public
accountants on the Company's financial statements for the fiscal year ended
September 30, 1998 states that the Company's significant operating losses raise
substantial doubt about the Company's ability to continue as a going concern.
See "CONSOLIDATED FINANCIAL STATEMENTS" AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
CURRENT DEFAULTS ON EXISTING OBLIGATIONS
The Company currently is in default on the payment of various convertible
debentures in the outstanding principal amount of $56,450 that matured in
December 1996 plus related accrued interest payable at September 30, 1998 of
approximately $33,600. The Company has had no contact from the debenture
holders, who if they elected not to convert the debentures into common shares
pursuant to the debentures, could bring legal action against the Company. The
debentures and accrued interest would be converted into approximately 120,067
Class A Shares (12,007 New Common Shares) if the debenture holders elected to
convert. The Company currently does not have the ability to pay any of the
defaulted debentures and no assurance can be given that the Company will have
sufficient capital to pay such debts.
DEPENDENCY ON ECONOMIC CONDITIONS ON THE ADULT EDUCATION AND TRAVEL SERVICE
BUSINESS
The Company's real estate school and travel agency line of business is
largely dependent on economic growth in its market area. At present, adult
education serves the real estate industry, which is experiencing significant
growth. Real estate education generally declines when real estate activity
declines. Travel services also generally follow general economic trends. If the
16
<PAGE>
current economic activity slows, the depressed economy could slow and possibly
frustrate the Company's operations.
COMPETITION
The markets in which the Company sells its real estate school and travel
agency services are highly competitive. In the travel services industry, the
Company faces competition from larger and better capitalized companies, such as
American Express and Thomas Cook, which are better able to withstand operating
losses and the effects of a cyclical market. In the real estate school industry,
the Company competes with numerous local real estate schools offering similar
instructional courses.
YEAR 2000 COMPLIANCE
The Company has assessed its Year 2000 issues and its readiness for this
potential problem. The Company has examined its information technology systems
and believes that, given that the Company's operations do not depend on
information technology as such, the Year 2000 should have no effect on its
information technology systems.
Further, the Company has assessed its non-information technology systems and
believes that it is Year 2000 compliant because the Company is operated using
personal, as opposed to mainframe, computer technology. These personal computers
were purchased in the last three years and run on a standard operating system.
In addition, all software run by the Company is standard, off-the-shelf software
purchased in the last three years. Thus, due to the dates of purchase of its
systems, the Company believes that all of its systems are Year 2000 compliant.
Beginning in January 1999, the Company plans to obtain assurances from the
manufacturers of its personal computers that such computers are indeed Year 2000
compliant. This will complete the Company's internal examination of Year 2000
issues.
In establishing a Year 2000 remediation program, the Company intends to soon
enter its next phase by implementing an examination procedure for its
third-party suppliers and vendors. As a component of this program, beginning in
January 1999 the Company intends to send written requests for assurances that
these third parties are addressing their own Year 2000 issues. Most
significantly, the Company intends to address the Year 2000 readiness state of
its reservations system provider, which is operated using mainframe technology,
by requesting a written Year 2000 compliance program which this provider is
implementing.
The cost of the Company's Year 2000 compliance program has not had, and is
not expected to have, a material impact on the Company's results of operations,
financial condition, or liquidity. The Company has not been required to
prematurely replace equipment due to Year 2000 issues, nor has the Company
needed to hire Year 2000 solution providers. Further, the Company does not
anticipate the necessity of such expenses in the future. Finally, the Company
anticipates that the cost of ensuring compliance of third parties will be
minimal.
The Company anticipates, in its reasonably likely worst case Year 2000
scenario, that the failure of its clients and suppliers to adequately address
their own Year 2000 issues could impact such parties' ability to provide the
information used in booking travel arrangements or to make payments for travel
agency services to the Company. In addition, the failure of the providers of the
17
<PAGE>
travel agency reservations system could negatively impact the Company's ability
to make reservations for its customers. This could adversely affect the
Company's business, financial condition, cash flows, and results of operations.
The Company's greatest Year 2000 concern is the travel agency reservations
system. The Company has considered contingency plans for such an event, but has
ultimately concluded that no such plans are feasible due to the centralized
nature of the airline reservations system. However, due to the importance of
this system to the entire industry, the Company anticipates that the providers
of this system will provide assurances of their own Year 2000 compliance. If
this system fails as a result of a Year 2000 problem, the Company could lose
revenue generated from booking reservations. If such failure was prolonged, the
Company's financial condition could be negatively impacted.
LIQUIDITY
The Company had a working capital deficiency of $414,921 at September 30,
1998. Obtaining positive working capital and the completion of the Company's
expansion is dependent on the successful expansion of Neo Vision's video wall
advertising business, renegotiations of certain current liabilities, and
obtaining other long-term financing.
18
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The summary historical operating data, balance sheet data and cash flow data
for the Company for each of the years ended September 30, 1994, 1995, 1996, 1997
and 1998 are derived from the audited financial statements of the Company as
reported in its Annual Reports on Form 10-K.
The summary consolidated financial data should be read in conjunction with
and is qualified in its entirety by, the respective audited financial statements
and notes thereto of the Company, included on pages F-1 through F-24, the
audited financial statement and note thereto as of September 30, 1998 and for
the year then ended of Neo Vision, Inc. on pages F-25 through F-35.
19
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
STATEMENT OF
OPERATIONS DATA:
Revenues $110,480 $193,640 $ 386,173 $1,222,243 $1,875,354
Gross profit -- -- -- 76,875 117,864
Income (loss)
before interest
expense, dep. and
amortization 7,011 48,509 33,604 (66,770) (129,582)
Depreciation and
Amortization 9,629 7,729 15,281 26,412 39,766
Interest Expense 37,950 9,819 12,979 14,933 20,136
(Loss) from Write
Off of Plans and
Spec -- -- (649,999) -- --
Income (loss) from
Discontinued
Operations(1) (4,373) (2,356) 11,671 58,193(2) --
Net Income (loss) (44,941) 28,605 (632,984) (49,922) (189,484)
Net Income (loss)
per share (.01) .00 (.06) (.00) (.01)
BALANCE SHEET DATA:
Total Assets 802,690 803,169 278,669 1,066,159 504,833
Long-term debt 404,307 127,933 31,967 620,979 5,360
Total Liabilities 622,161 220,008 240,992 941,404 519,097
Shareholders'
Investment 180,529 583,161 36,677 124,755 (14,264)
CASH FLOW DATA:
Cash provided
(used) in operating
activities (11,187) 3,690 (8,534) 34,025 (6,142)
Cash used in
investing
activities (606) (24,895) (9,080) (117,264) 13,076
Cash provided by
financing activities 2,599 25,663 22,092 93,529 (19,291)
- ----------
(1) The four years ended September 30, 1996 have been restated to reflect
Hansen & Associates, Inc. dba Property Masters as a discontinued operation.
(2) Includes the $53,796 gain on the sale of Hansen and Associates, Inc. dba
Property Masters.
20
<PAGE>
SUMMARY PER SHARE DATA
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
PER SHARE DATA:
UNITED STATES AIRCRAFT
CORP & SUBSIDIARIES
Net Income (loss)
Historical (.01) .00 (.06) .00 (.00)
Pro Forma(1) (.01) .01 (.11) (.01) (.01)
Book Value
Historical -- -- -- -- (.01)
Pro Forma(2) -- -- -- -- .02
NEO VISION, INC.
Net Income (loss)
Historical Equivalent -- -- -- -- (.00)
Pro Forma(3) -- -- -- -- (.00)
Book Value
Historical Equivalent -- -- -- -- (.00)
Pro Forma(3) -- -- -- -- (.00)
- ----------
(1) Pro forma net income (loss) per share for each of the five years ended
September 30, is based on the weighted average shares outstanding as
adjusted for the Exchange of the Class A and Class B shares into shares of
New Common Stock of 5,575,258; 5,575,258; 5,650,063; 5,743,918; 5,802,147
respectively. Pro forma weighted average shares outstanding for the year
ended September 30, 1997 and 1998 is 5,812,471 and 5,941,230.
(2) Book value per share is based on the shares outstanding at September 30,
1997 and September 30, 1998 and Pro forma Book value is based on the shares
outstanding adjusted for the Exchange of the Class A and Class B shares for
the New Common Stock.
(3) Equivalent pro forma net income (loss) per share for each of the five years
ended September 30 is based on the net income (loss) per share and the book
value per share of the registrant multiplied by the exchange ratio of .2436
(1,163,670 to 4,777,560).
(4) Dividends per share are not presented as neither entity has previously
declared any dividends.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON 1998 TO 1997
The total revenue of $1,875,354 for the year ended September 30, 1998 is
made up of $494,258 or 26% from the real estate education segment and $1,281,689
or 68% from the travel agency segment with the remaining $99,407 or 6%
consisting of consulting and miscellaneous income. Total revenue increased by
$630,122 in 1998 compared to a $836,070 increase in 1997.
The loss before interest, depreciation and amortization expense increased
by $62,812. The increased loss consists of the following:
Increase in Real Estate Education 1998 operating
income over 1997 $ 39,313
Increases in Travel Agency 1998 operating loss over 1997 $ (3,395)
Increase in consulting and other income $ 90,418
Increase in general corporate overhead $(189,148)
The increase in real estate education 1998 operating income over 1997
consists of the following:
INCREASE
1998 1997 (DECREASE)
---- ---- ----------
Revenue $494,258 $436,710 $57,548
-------- -------- -------
Costs and expenses
Personnel expense 251,414 245,085 6,329
Facility cost 61,553 54,659 6,894
Other operating cost 91,772 86,760 5,012
-------- -------- -------
Total 404,739 386,504 18,235
-------- -------- -------
Operating income $ 89,519 $ 50,206 $39,313
======== ======== =======
The operating income from the adult education division improved by $39,313.
The improvement was due to an $57,548 increase in revenues offset by a $18,235
increase in operating costs. The revenue increase is the result of additional
enrollments including those at the new East campus, and due to a $6,320 increase
22
<PAGE>
in advertising revenue related to the publication of the Renewal News. The
operating cost increase consists of an $6,329 increase in personnel expense,
$6,894 increase in facility costs and $5,012 increase in other operating costs.
The travel services operation was started on July 1, 1997 with the purchase
of an existing travel agency and the operating results are included for the year
ended September 30, 1998 with comparable amounts for the three months from the
date of acquisition to September 30, 1997 as follows:
INCREASE
1998 1997 (DECREASE)
---- ---- ----------
Sales $ 1,281,689 $ 776,544 $ 505,145
Cost of sales 1,163,825 699,669 464,156
----------- --------- ---------
Gross profit 117,864 76,875 40,989
----------- --------- ---------
Operating costs
Personnel expense 99,811 48,553 51,258
Facility cost 8,297 2,534 5,763
Other operating costs 29,184 41,821 (12,637)
----------- --------- ---------
Total 137,292 92,908 44,384
----------- --------- ---------
Operating income (loss) $ (19,428) $ (16,033) $ 3,395
=========== ========= =========
Sales for the travel agency operation increased by $505,145 for the year
ended September 30, 1998 over the agencies sales for the three months ended
September 30, 1997 with a gross profit increase of $40,989. The gross profit
percentage declined from 9.9% to 9.2% primarily due to an increase in the
portion of sales attributable to airline ticket sales where the gross profit
percentage is generally at 8%. Operating costs for the year ended September 30,
1998 were $137,292 compared to $92,908 for the three months ended September 30,
1997, which reflects the restructuring of travel agency operations to reduce the
fixed operating costs to approximate $30,000 per quarter.
The Company has earned a consulting fee of $412,999 relating to its
research project on the recreational vehicle park industry net of its
contribution to RVP-L.L.C. The Company for over two years has investigated the
recreational vehicle park industry and instituted a program to establish a chain
of RV parks. In connection therewith the Company has earned a consulting fee
from an unrelated individual, who desires to participate in the RV Park program,
for its research and development, from which it will contribute $1,700,000 to
RVP-L.L.C. The net consulting fee at September 30, 1998 consists of the
following:
+ Fee, net of contribution to RVP-L.L.C. $300,000
+ Equity in RVP-L.L.C. 112,999
--------
$412,999
========
23
<PAGE>
The consulting fee revenue was earned upon completion of the research and
the agreement with the unrelated individual. However, for financial reporting
purposes the consulting fee revenue will not be recognized until it is received.
The costs related to earning the consulting fee consisted primarily of executive
compensation and travel, all of which has been expensed over the period of the
project.
Other revenue includes $90,000 of management fees from Neo Vision, Inc.,
the unconsolidated subsidiary acquired on June 30, 1998 and other miscellaneous
income of $9,407 which exceeded other miscellaneous income for 1997 by $418.
General corporate overhead increased by $189,148 primarily due to
management compensation increases resulting primarily from the June 30, 1998
acquisition of Neo Vision, Inc. of $140,265 and professional fee increases of
$19,368.
Depreciation and amortization increased by $13,354 primarily due to
increased amortization related to the amortization of the goodwill related to
the travel agency acquisitions.
On September 30, 1997 the company sold its wholly-owned subsidiary Hansen
and Associates, Inc. d/b/a Property Masters after determining to discontinue its
real estate brokerage and property management line of business. The financial
statements have been restated to reflect the operations of the subsidiary as a
discontinued operation reflecting a 1997 operating loss of $4,079 with no
comparable amount for 1998.
COMPARISON 1997 TO 1996
The total revenue of $1,222,243 for the year ended September 30, 1997 is
made up of $436,710 or 36% from the real estate education segment and $776,544
or 63% from the travel agency segment with the remaining 1% being other
miscellaneous income. Total revenue increased by $836,070 in 1997 compared to a
$192,533 increase in 1996.
The loss before interest, depreciation and amortization expense increased
by $100,374. The increased loss consists of the following:
Reduction in Real Estate Education 1997
Operating Income Over 1996 $22,820
Operating Loss From
Travel Agency Operation During
the Three Months from Acquisition
on July 1, 1997 $16,033
Increase in General Corporate Overhead $28,125
Decrease in Other Revenue $33,396
24
<PAGE>
The reduction in real estate education 1997 operating income over 1996
consists of the following:
INCREASE
1997 1996 (DECREASE)
---- ---- ----------
REVENUE $436,710 $343,788 $ 92,922
-------- -------- ---------
Costs & expenses
Personnel expense 245,085 186,406 58,679
Facility cost 54,659 20,026 34,633
Other operating costs 86,760 64,320 22,430
-------- -------- ---------
Total 386,504 270,762 115,742
-------- -------- ---------
Operating income $ 50,206 $ 73,026 $ (22,820)
======== ======== =========
The operating income from the adult education division declined by $22,820.
The decline was due to an $115,742 increase in operating costs offset by a
$92,922 increase in revenues. The revenue increase is the result of additional
enrollment including those at the new East campus, and due to a $18,035 increase
in advertising revenue related to the publication of the Renewal News. The
operating cost increase consists of a $58,679 increase in personnel expense,
$34,633 increase in facility cost, and $22,430 increase in other operating
costs, all of which increased primarily due to the opening of the East campus in
August 1996.
The travel services operation was started on July 1, 1997 with the purchase
of an existing travel agency and the operating results are included from the
acquisition date through September 30, 1997 with no comparable amounts for
fiscal 1996 as follows:
AMOUNT
------
Sales $776,544
Cost of Sales 699,669
--------
Gross Profit 76,875
Personnel Expense $ 48,553
Facility Cost 2,534
Other Operating Costs 41,821
--------
Total Operating Costs $ 92,908
--------
Income (loss) before interest
depreciation and amortization $(16,033)
========
General corporate overhead increased by $28,125 primarily due to management
compensation increases of $16,108 and an increase of legal and accounting fees
of $6,884.
Other revenue declined by $33,396 primarily due to revenue in fiscal 1996
of $30,000 related to a reduction of certain accrued obligations with no
comparable amount in 1997.
Depreciation and amortization increased by $11,131 primarily due to
equipment and business acquisitions. Interest increased by $1,953.
25
<PAGE>
On September 30, 1997, the Company sold its wholly-owned subsidiary Hansen
and Associates, Inc. dba Property Masters after determining to discontinue its
real estate brokerage and property management line of business. The financial
statements have been restated to reflect the operations of the subsidiary as a
discontinued operations reflecting a 1997 operating profit of $4,397 compared to
$11,671 in 1996. The sale of Hansen and Associates, Inc. dba Property Masters
resulted in a gain of $53,796 in 1997 with no comparable amount in 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit decreased $386,966 from September 30, 1997 to
$414,921 at September 30, 1998. Current assets decreased by $20,722 from 1997 to
$98,816 at September 30, 1998. The decrease consists of a $12,357 decrease in
cash, a $6,591 increase in accounts receivable, a $1,000 decrease in notes
receivable related to the sale of Hansen & Associates, Inc., d/b/a Property
Masters, and a $13,956 decrease in prepaid expenses.
Current liabilities decreased $407,688 from 1997 to $513,737. The decrease
consists of a $11,775 decrease in the current portion of long-term debt, a
$30,000 increase in notes payable related to a one year line of credit with a
bank, a decrease of the trust deeds payable to the transfer of the California
land to RVP-LLC, a $7,103 increase related to the accrued interest on the
debentures, a $4,575 increase in accounts payable and a $145,799 increase in
accrued expenses which consisted of the $153,805 increase in estimated
compensation due executive officers offset by decreases in other accruals.
Unearned tuition increased by $17,610 due to the increased enrollments.
Advances to an officer made pursuant to the officer's compensation program
decreased by $27,769 to zero at September 30, 1998. The long term note
receivable of $39,544 at September 30, 1998 related to the sale of Hansen and
Associates, Inc. decreased by $12,500. At September 30, 1998, property and
equipment decreased by $9,541 as a result of equipment acquisitions of $3,520
offset by depreciation of $13,061. In 1998, goodwill increased by $16,031 with a
$20,000 addition due to the Western College, Inc. acquisition offset by
amortization for 1998. Course materials decreased by $1,964 due to the
amortization recorded for 1998. Other assets decreased by $18,455.
The Company has formed RVP-LLC, an Arizona limited liability company for
the purpose of owning recreational vehicle parks that will be leased to and
operated by the Company.
The Company for over two years has investigated the recreational vehicle
park industry and instituted a program to establish a chain of RV Parks. In
connection therewith, the Company has earned a consulting fee for its research
and development of the RV Park program from which it will contribute $1,700,000
to RVP-LLC leaving $300,000 of consulting revenue which, for financial reporting
purposes, will be recognized when it is received.
On June 30, 1998 the Company approved the transfer to RVP-LLC of the 35.66
acres of land in Glenn County, California subject to trust deeds payable in the
amount of $601,000. The land was acquired for the purpose of developing the
initial recreational vehicle park of the planned chain of RV parks. The holder
of the second trust deed filed a notice of default due to non-payment of
26
<PAGE>
interest. The LLC determined not to reinstate the defaulted trust deed and in
August 1998 RVP-LLC lost the California land in a foreclosure sale.
At September 30, 1998, the members equity of RVP-LLC is $1,707,500 and
consists primarily of the $1,700,000 capital contribution to be received from
the consulting fee. The Company will not recognize any equity in RVP-LLC until
the capital contribution of $1,700,000 is received. The Company's interest in
RVP-LLC, if the capital contributions were recognized, would be $135,988.
The July 1997 and August 1997 purchase price of the travel agencies
exceeded the identifiable tangible assets of the agencies by $110,288 and
relates primarily to the value of the income production of the approximately 175
Home Based Travel Agents who place their travel sales through FirsTravel. The
original cost has been reduced by amortization of $5,514 in 1997 and $26,397 in
1998.
Long-term debt decreased by $14,619 due to payments of $26,394 less the
$11,775 decrease in the current portion in 1998. The convertible debentures of
$56,450 of United States Aircraft Corporation plus the related accrued interest
are classified as current liabilities as they were due on December 31, 1996.
Currently, the debentures remain unpaid and the Company believes that they will
eventually be retired through conversion to the Company's New Common Stock,
although no assurance that such a conversion will be elected by the debenture
holders. If the debenture holders do not elect to convert into the Company's New
Common Stock, they could demand payment and seek enforcement through legal
action; however, the Company has had no contact from the debenture holders.
The Company's management has continued its program to expand the services
operations through further expansion of its existing operations plus the
acquisition of other service organizations. The working capital deficiency has
continued to limit the expansion of the Company. The acquisition of Neo Vision,
the collection of the net consulting fee, and the anticipated conversion of the
convertible debentures is expected to resolve the current working capital
deficiency. However, the Company intends to rapidly expand its newly acquired
Neo Vision operation by the expected installation of 21 and 36 video walls in
the years ended September 30, 1999 and 2000, respectively at a projected cost of
$250,000 for each wall. The planned expansion will require additional capital of
approximately $3,000,000 to $5,000,000 by early 1999. Neo Vision has engaged
financial advisors to assist in the funding of its capital needs for the planned
expansion, including private placements. Management believes that the funding
will be a combination of long-term lease and convertible debt financing and that
it will be funded in time to complete the expected installation of video walls
in the year ended September 30, 1999. However, the Company does not intend to
make material commitments for further capital expenditures until financing
becomes available. Additionally, the Company is aggressively investigating
acquisitions of adult education, travel services, or other operations that are
compatible with the existing operations and that can be acquired for the
Company's common stock or with debt that is retired from the cash flow from the
acquired operation. No assurance can be given that the acquisitions or
installation of the video walls will be completed or the private placement to
obtain the required capital infusion will be successful.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Reference is made to the financial statements, the report thereon, the notes
thereto, and the supplemental data commencing at page F-1 of this Proxy
Statement.
27
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to the holders of the Company's
Class A Common Stock and Class B Common Stock as of the Record Date and is
accompanied by a form of proxy, which is being solicited by the Company's Board
for use at the Special Meeting to be held on February 17, 1999 at 10:00 a.m.
Arizona time, at 3121 East Greenway Road, Suite 201, Phoenix, Arizona and any
postponements or adjournments thereof. Only stockholders of record as of the
close of business on January 25, 1999, the Record Date, are entitled to notice
of and to vote at the Special Meeting or any postponements or adjournment
thereof.
EACH HOLDER OF THE COMPANY'S CLASS A COMMON STOCK AND CLASS B COMMON STOCK
IS REQUESTED TO COMPLETE, DATE, AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE COMPANY'S STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES WITH THEIR
PROXIES.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders of the Company will consider and vote
on: (i) a proposal to ratify and approve the Exchange Agreement; (ii) a proposal
to amend and restate the Company's Certificate of Incorporation to effectuate
the transactions contemplated by the Exchange Agreement including: (a)
authorizing the issuance of up to 100,000,000 shares of New Common Stock, (b)
reclassifying of the Company's Class A Common Stock and Class B Common Stock
into New Common Stock, (c) authorizing the issuance of up to 75,000,000 shares
of preferred stock, (d) changing the name of the Company to Neo Vision Systems,
Inc., and (e) making certain technical amendments set forth in the Company's
First Restated Certificate of Incorporation, including changing the purpose
provisions of the Certificate of Incorporation to reflect the Company's current
business activities, updating the address of the Company's statutory agent, and
revising the Certificate of Incorporation to more correctly reflect Delaware
law, (iii) a proposal to approve the Company's 1998 Stock Option Plan, and (iv)
such other business as may properly come before the Special Meeting or any
adjournments or postponement thereof.
QUORUM AND VOTING REQUIREMENT
The presence of stockholders at the Special Meeting, in person or by proxy,
entitled to cast a majority of all votes entitled to be cast at the meeting will
constitute a quorum for the transaction of business. Any proxy marked "abstain"
as to any matter will be counted as present for purposes of determining the
existence of a quorum, but will not be counted as a vote for such matter, thus
having the same effect as a "no" vote on such matter.
The affirmative vote of a majority of the outstanding shares of both the
Company's Class A Common Stock and Class B Common Stock, each class voting
separately, entitled to be voted at the Special Meeting is required to approve
the proposal to amend and restate the Company's Certificate of Incorporation,
and the affirmative vote of a majority of the shares of the Company's Class A
28
<PAGE>
Common Stock and Class B Common Stock present in person or by proxy at the
meeting, voting together as a class, and entitled to vote, is required to ratify
and approve the Exchange Agreement and approve the Company's 1998 Stock Option
Plan.
As of the Record Date, there are 9,927,504 shares of the Company's Class A
Common Stock entitled to vote at the Special Meeting and 4,962,801 shares of the
Company's Class B Common Stock entitled to vote at the Special Meeting, with
each share being entitled to one vote. As of the Record Date, the directors and
executive officers of the Company collectively beneficially own a total of
1,512,708 shares of Class A Common Stock (representing approximately 15% of the
outstanding shares of Class A Common Stock), 2,750,000 shares of Class B Common
Stock (representing approximately 55% of the outstanding shares of Class B
Common Stock), and 4,262,708 shares of the collective outstanding Class A Common
Stock and Class B Common Stock (representing approximately 29% of the collective
outstanding shares of Class A Common Stock and Class B Common Stock). As of the
Record Date, the former shareholders of Neo Vision collectively beneficially own
2,000,000 shares of Class A Common Stock (representing approximately 20% of the
outstanding shares of Class A Common Stock), no shares of Class B Common Stock,
and 2,000,000 shares of the collective outstanding Class A Common Stock and
Class B Common Stock (representing approximately 13% of the collective
outstanding shares of Class A Common Stock and Class B Common Stock). As of the
Record Date, the former shareholders of Neo Vision and the Company's directors
and officers collectively beneficially own 2,898,708 shares of Class A Common
Stock (representing approximately 29% of the outstanding shares of Class A
Common Stock), 2,750,000 shares of the outstanding Class B Common Stock
(representing approximately 55% of the outstanding shares of Class B Common
Stock), and 5,648,708 shares of the collective outstanding shares of Class A
Common Stock and Class B Common Stock (representing approximately 38% of the
collective outstanding shares of Class A Common Stock and Class B Common Stock).
All of these shares are expected to be voted in favor of the proposal to ratify
and approve the Exchange Agreement, the proposal to amend and restate the
Company's Certificate of Incorporation, and the proposal to approve the
Company's 1998 Stock Option Plan.
RECORD DATES; VOTES REQUIRED
Only holders of record of the Company's Class A Common Stock and Class B
Common Stock at the close of business on January 25, 1999 (the "Record Date")
are entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were 9,927,504 shares of the Company's Class A Common Stock
outstanding, and 4,962,801 shares of the Company's Class B Common Stock
outstanding, each of which will be entitled to one vote on each matter to be
acted upon or which may properly come before the Special Meeting. The presence
of stockholders at the Special Meeting, in person or by proxy, entitled to cast
a majority of all votes entitled to be cast at such meeting will constitute a
quorum. The affirmative vote of a majority of the outstanding shares of both the
Company's Class A Common Stock and Class B Common Stock, each voting separately
as a class, is required to approve the amendment and restatement of the
Company's Certificate of Incorporation. The affirmative vote of a majority of
the shares of the Company's Class A Common Stock and Class B Common Stock
present in person or by proxy at the meeting and entitled to vote on the subject
matter, voting together as a single class, is required to ratify and approve the
Exchange Agreement, and approve the Company's 1998 Stock Option Plan.
29
<PAGE>
RECOMMENDATION
The Company's Board has unanimously approved the Exchange Agreement, the
amendment and restatement of the Company's Certificate of Incorporation, and the
Company's 1998 Stock Option Plan. The Company' Board believes that the
transactions are fair to and in the best interests of the Company and its
stockholders. The Company's Board unanimously recommends that the Company's
stockholders vote FOR: Ratification and approval of the Exchange Agreement, FOR:
Approval of the amendment to and restating of the Company's Certificate of
Incorporation, and FOR: Approval of Company's 1998 Stock Option Plan. In making
its recommendation, the Company's Board has considered, among other things, the
Neo Vision growth potential and prospects for increased revenue and
profitability, as well as the addition of management depth. See "The Exchange
Background of and Reasons for the Exchange."
VOTING AND REVOCATION OF PROXIES
Any holder of the Company's Class A Common Stock or Class B Common Stock who
has executed and delivered a proxy may revoke it at any time before it is voted
by attending the Special Meeting and voting in person or by giving written
notice of revocation or submitting a signed proxy bearing a later date to the
Company, Attention: Secretary, provided such notice or proxy is actually
received by the Company prior to the vote of the stockholders. The shares of the
Company's Class A Common Stock and Class B Common Stock represented by properly
executed proxies received at or before the Special Meeting and not subsequently
revoked will be voted as directed by the stockholders submitting such proxies.
Unless contrary instructions are given, proxies received by the Company will be
voted FOR: Ratification and approval of the Exchange Agreement; FOR: Approval of
the amendment and restatement of the Company's Certificate of Incorporation; and
FOR: Approval of the Company's 1998 Stock Option Plan and will be voted in the
discretion of the proxy holders on any other matters properly presented for
consideration at the Special Meeting or any adjournment thereof.
The presence at the Special Meeting in person or by proxy of holders of
record of a majority of the shares of the Company's Class A Common Stock and
Class B Common Stock, will constitute a quorum for the transaction of business
at the Special Meeting, and a majority of the outstanding shares of the Class A
Common Stock and a majority of the outstanding shares of the Class B Common
Stock, in each case present in person or represented by proxy, shall constitute
a quorum for the separate class votes required in connection with the proposal
to amend and restate the Company's Certificate of Incorporation. Any proxy
marked "abstain" will be counted as present for purposes of determining the
existence of a quorum, but will not be counted for voting purposes on such
matter. The Company's Bylaws permit the holders of a majority of the shares
presented at the Special Meeting, whether or not constituting a quorum, to
adjourn the Special Meeting or any adjournment thereof.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from its stockholders.
In addition to the use of the mails, proxies may be solicited personally or by
telephone or facsimile by directors, officers, and other employees of the
Company, who will not be specially compensated for such solicitation activities.
A third party may also be engaged to perform soliciting activities. In such
event, the Company expects to compensate such firm for its activities.
Arrangements also will be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of shares held of record by such persons, and such person will
be reimbursed for their reasonable expenses incurred in that effort by the
Company.
30
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998
BASIS OF PRESENTATION
The following unaudited pro forma consolidated balance sheets of United
States Aircraft Corporation as of September 30, 1998 sets forth the
consolidation of United States Aircraft Corporation with Neo Vision, Inc. under
the purchase method of accounting as a reverse merger, with Neo Vision, Inc.
being the acquirer for financial reporting purposes. The pro forma adjustments
report the exchange of the Class A and Class B shares for the New Common Stock,
the issuance of 4,577,560 additional New Common shares pursuant to the Exchange
Agreement and approximately 1,126,000 of New Common shares for the conversion of
the Neo Vision, Inc. convertible debentures, and accrued interest to September
30, 1998, and for the payment of financial consulting fees.
The pro forma consolidated balance sheet should be read in conjunction with
and is qualified in its entirety by the respective audited financial statements
of United States Aircraft Corporation and the audited financial statements of
Neo Vision, Inc. as of September 30, 1998, which begin on page F-1.
31
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
United States
Aircraft Corp. Neo Vision Pro Forma United States
ASSETS And Subsidiaries Incorporation Combined Adjustments Aircraft Corp.
---------------- ------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash $ 8,070 $ 83,577 $ 91,647 $ 91,647
Accounts Receivable 75,902 22,699 98,601 98,601
Notes Receivable 7,000 7,000 7,000
Prepaid expenses 7,844 1,349 9,193 9,193
----------- ---------- ----------- ----------
Total current assets 98,816 107,625 206,441 206,441
Investment, Neo Vision, Inc. 103,338 103,338 (103,338)(3)(4)(5)
Note receivable, net of current
portion 39,544 39,544 39,544
Property & equipment, net 47,613 584,094 631,707 631,707
Investment in RVP-LLC
Agency acquisition, net of
amortization 84,555 84,555 84,555
Goodwill, net 103,339 103,339 103,339
Course materials 13,754 13,754 13,754
Other 13,874 18,768 32,642 32,642
----------- ---------- ----------- ----------
Total assets 504,833 710,487 1,215,320 1,111,982
----------- ---------- ----------- ----------
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Note Payable, bank $ 30,000 15,000 45,000 45,000
Current portion of
long-term debt 26,000 26,000 26,000
Convertible debentures &
related accrued interest 90,041 746,164 836,205 (746,164) 90,041
Accounts payable 90,734 273,721 364,455 364,455
Accrued expenses 214,062 119,259 333,321 (100,301) 233,020
Unearned revenue 62,900 15,148 78,048 78,048
----------- ---------- ----------- ----------
Total current liabilities 513,737 1,169,292 1,683,029 836,564
Due to United States Aircraft Corp. 80,373 80,373 (80,373)
Long term debt, net 5,360 5,360 5,360
Minority Interest in NV-1, LLC 130,436 130,436 130,436
Stockholders' Equity - Capital stock
Class A: $.50 par value,
9,927,504 issued 4,963,752 4,963,752 (4,963,752)
Class B: $.001 par value,
4,962,801 issued 4,963 4,963 (4,963)
Common Stock, Neo Vision, Inc 6,250 6,250 (6,250)
New Common Shares
$.001 par value, 7,078,303 issued 7,078(1)(2)(3)(6) 7,078
Paid in Capital (1,838,862) (1,838,862) 2,647,270(1)(2)(3)(6) 808,408
Retained earnings (deficit) (3,144,117) (675,864) (3,819,981) 3,144,117 (675,864)
----------- ---------- ----------- ----------
(14,264) (669,614) (683,878) 139,622
----------- ---------- ----------- ----------
Total liabilities and
stockholders' equity $ 504,833 $ 710,487 $ 1,215,320 $1,111,982
=========== ========== =========== ==========
</TABLE>
See explanation of pro forma adjustments on following page.
32
<PAGE>
Pro Forma Adjustments:
1. To record the exchange of Class A shares outstanding for the New Common
shares on the basis of 10 Class A shares for 1 New Common share.
2. To record the exchange of Class B shares outstanding for the New Common
shares on the basis of 13 Class B shares for 1 New Common share.
3. To record the 4,577,560 additional New Common shares to be issued to the
former Neo Vision, Inc. shareholders pursuant to the June 30, 1998 exchange
agreement.
4. To record elimination of intercompany investment on Neo Vision, Inc. using
the purchase method of accounting with a reverse merger and Neo Vision,
Inc. being the acquirer for financial reporting purposes.
5. To eliminate intercompany receivables and payables.
6. To record the conversion of the Neo Vision, Inc. convertible debentures,
accrued interest to September 30, 1998, and the payment of financial
consulting fees all through the issuance of approximately 1,126,000 shares
of New Common stock.
33
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
PRO FORMA UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
BASIS OF PRESENTATION
The following unaudited pro forma consolidated statements of operations of
United States Aircraft Corporation for the year ended September 30, 1998 sets
forth the consolidation of United States Aircraft Corporation with Neo Vision,
Inc. under the purchase method of accounting as if the acquisition was completed
on October 1, 1998 and should be read in conjunction with and is qualified in
its entirety by the respective audited financial statements of United States
Aircraft Corporation and the audited financial statements of Neo Vision, Inc.
which begin on page F-1.
<TABLE>
<CAPTION>
United States Neo Vision
Aircraft Corp. Pro Forma Systems
And Subsidiaries Neo Vision, Inc. Adjustments Consolidated
---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue
Real estate education $ 494,258 $ 494,258
Travel Agency 1,281,689 1,281,689
Video Wall advertising 102,209 102,209
Other 99,407 745 (90,000)(1) 10,152
----------- --------- ----------
Total revenue 1,875,354 102,954 1,888,308
----------- --------- ----------
Expenses
Cost of sales travel agency 1,163,825 1,163,825
Personnel expenses 351,224 297,029 648,253
Facility cost 69,851 81,360 151,211
Other operating cost 120,249 181,725 301,974
General and administration 299,787 90,000 (90,000)(1) 299,787
----------- --------- ----------
Total expenses 2,004,936 650,114 2,565,050
----------- --------- ----------
Income (loss) before interest
Expense; Minority interest,
depreciation and amortization (129,582) (547,160) (676,742)
Interest expense 20,136 61,008 81,144
Minority interest in NV-1 LLC loss (44,564) (44,564)
Depreciation and amortization 39,766 112,260 152,026
----------- --------- ----------
Net income (loss) $ (189,484) $(675,864) $ (865,348)
----------- --------- ----------
Pro forma net income (loss) per
New common shares (2) (.12)
----------
</TABLE>
- ----------
1. To eliminate intercompany management fees.
2. Based on pro forma shares of 7,078,303 to be outstanding after the exchange
of Class A and B shares for the New Common shares to be authorized and the
New Common shares to be issued in the acquisition of Neo Vision, Inc. and
the conversion of the Neo Vision, Inc. convertible debentures.
34
<PAGE>
BUSINESS OF NEO VISION, INC.
INTRODUCTION
Neo Vision, Inc. ("Neo Vision") provides advertising, programming, and
information to remote audiences using computer, video, and signal transmission
technology. This is accomplished by showing mixed-media programming and
advertising onto video screen walls ("video walls") in regional shopping malls
or airports through satellite transmission from Neo Vision's production facility
in Phoenix, Arizona.
Neo Vision's video walls are highly visible and can range from 6-12 feet in
height to 10-30 feet in width, depending upon the particular configuration of
each mall or airport site. The sound system accompanying the screen is designed
to make it the center of attraction and highly audible. The audio sound system
is programmed to adjust its volume according to the traffic in the mall at any
given time. The visual image is greater than that of a television.
Neo Vision was incorporated in Arizona on June 29, 1997, and until June 1998
was a development stage company. Neo Vision has a 75% interest in NV-1, LLC, an
Arizona limited liability company formed in August 1997. NV-1, LLC owns and
operates the first video wall using Neo Vision's technology that is located at
Meadows Mall in Las Vegas, Nevada. References to Neo Vision herein include NV-1,
LLC, unless the context indicates otherwise.
CONCEPT
Neo Vision was conceived as a means to deliver cost-effective advertising to
large shopping audiences. Neo Vision sells advertisements (showings) in the form
of 30-second units to national, regional, and local companies. These showings
are put on Neo Vision video walls twice during a 90-minute time period. During
this same 90-minute period, Neo Vision integrates music, video, and public
service showings. In general, Neo Vision will show each 30-second advertising
spot approximately 440 times monthly, depending upon the season of the year and
operating hours.
Neo Vision seeks to persuade potential customers to use its services as an
alternative or supplemental advertisement placement strategy because the cost
per thousand of potential customers reached by an advertiser on a Neo Vision
video wall is much less than competing advertisement placement strategies.
MARKET
Malls with 8 to 12 million customers visited annually are Neo Vision's
primary target, with a secondary emphasis on major airport terminals. Neo
Vision's video walls advertising methods not only offer advertisers significant
advantages over other forms of advertising, but can also help direct the impulse
purchases of each mall visitor.
Neo Vision's video walls allow advertisers to send a direct message to the
potential customers who are shopping in a mall. This substantially increases the
likelihood of increasing sales by providing messages that motivate the customers
to seek out immediately available products and services to meet their needs and
impulse buying decisions.
35
<PAGE>
Moreover, malls are seeking an atmosphere to assist them in increasing
repeat visits to the mall and increasing the length of the customers' visits.
One strategy malls may seek to employ is to provide exciting visual effects and
entertainment. In addition, advertisers at airports seek to attract travelers
arriving in a city to their products and services. Neo Vision meets these needs
by offering high-impact programming combining multi-media effects, music, news,
current events, and advertising in a visually charged atmosphere.
Further, Neo Vision believes that advertisers will seek to employ Neo
Vision's video walls as an alternative or supplemental placement strategy that
is more cost effective than competing advertisement placement strategies.
Traditional advertising is becoming more expensive and agencies are being
directed to cut costs. Up to now, their focus has been on reducing management
layers and cutting internal costs. Neo Vision offers a way to reduce their
client's expenditures without reducing their own payroll or profitability.
MARKETING STRATEGY
Neo Vision's marketing strategy is based on securing specific target
locations to establish its video walls. The plan is designed to be implemented
with strategic partners that will enhance Neo Vision's presence within the
marketplace.
Neo Vision intends to seek to sell a maximum of 50 to 60 ads per screen per
month. To accomplish this in each major market, Neo Vision intends to employ an
in-house sales force, but also will develop a relationship with local sellers of
mall and street advertising. The size of each sales unit will depend upon the
number of malls serviced in each market area and the overall size of the market.
Additionally, Neo Vision intends to enter into strategic partner relationships
with national advertising agencies to fill the ad spots within the 90-minute
periods employed in its marketing strategy. This also will determine the number
of in-house sales personnel required.
Ads will be sold on a contractual basis with standard industry discounts
offered for six and twelve month contracts. Because advertising is so
time-sensitive, a small premium will be charged for ad changes, when made weekly
by the advertising companies and their agencies.
Neo Vision will advertise in trade publications and attend trade shows on a
regular basis. Standard public relations, media events, and other strategies
will be staged at the opening of each new market. Neo Vision will expand its
markets by targeting locations with high patron traffic counts such as airports,
trade shows, convention centers, and sports arenas, both national and
international.
PRODUCTION AND TRANSMISSION
Neo Vision does not design or produce advertisements shown on its video
walls. Instead, production of advertisements is undertaken by advertising
agencies or their agents that specialize in creating advertising for their
clients. The Neo Vision system operates in the following manner:
1) The 30-second commercials are sent to Neo Vision's Phoenix, Arizona
headquarters where each beta or analog tape is converted to a
world-wide standard digital video/audio format known as MPEG-2
compression technology.
36
<PAGE>
2) These digital files are transferred by satellite or internet
connections to the malls or other customer locations, and then are
stored on a computer designed to Neo Vision's specifications.
3) At a preprogrammed time, the computer converts the MPEG-2 format back
to analog video for transmission and playback through a video
projector located at the specified site onto a video wall.
The result is an audio/visual product presented to shoppers in regional
shopping malls or travelers arriving at airports.
Neo Vision's system technology is administered internally by a Neo Vision
computer specialist.
DEVELOPMENT
Neo Vision has constructed three video walls in Las Vegas, Nevada at a total
cost of $471,546 and has purchased approximately $91,477 in equipment for its
main transmission facilities of its Phoenix, Arizona office. During its
development phase, Neo Vision invested approximately $362,000 in the development
of its video wall system, consisting primarily of consulting fees to technical
personnel. All of these development costs have been included in the operating
costs for Neo Vision during the year ended Septermber 30, 1998.
LAS VEGAS VIDEO WALLS
The first Neo Vision video wall was installed in Meadows Mall, Las Vegas,
Nevada in April 1998. Two additional video walls were installed in June 1998 in
the recently opened "D" concourse in the McCarran International airport in Las
Vegas, Nevada.
Neo Vision leases wall space for its video walls at McCarran Airport and
Meadows Mall in Las Vegas, Nevada under operating lease agreements, expiring
June 2003 and September 2002, respectively. The base rent under the McCarran
lease is increased annually by the greater of 5% or 20% of the gross billings
for advertising on the video walls. The Meadows Mall agreement provides for the
payment of rent at a rate of 15% of the gross consideration received for
advertising on the video wall. Rent expense under these lease agreements for the
year ended September 30, 1998 was $60,000.
FUTURE SITES
Subject to the availability of sufficient capital, Neo Vision plans to
rapidly expand its video wall concept in malls and airports throughout the
United States. Neo Vision currently is in negotiations for establishing video
wall systems at two airport sites and six mall sites.
PRICING
Each showing consists of a 30 second spot appearing approximately 440 times
monthly. Neo Vision's current monthly pricing for a showing is approximately
$2,950 in malls and $3,950 in airports. Neo Vision believes this pricing is
substantially less than radio, television, and newspaper advertising costs on a
per customer basis in the comparable markets.
37
<PAGE>
TECHNOLOGY
Neo Vision does not hold any patents on any of its technologies relating to
its video wall system. Neo Vision does not believe that its technology can be
patented. Thus, Neo Vision relies on proprietary know-how and confidential
information and employs confidentiality agreements with its employees and
contractors to protect the processes, concepts, and documentation associated
with its proprietary rights. However, such methods do not afford complete
protection and there can be no assurance that competitors will not independently
develop technology similar to Neo Vision's video wall system.
SUPPLIERS
Neo Vision's video walls are constructed to specification by third party
contractors. The average cost of developing a new video wall is approximately
$250,000, subject to variation based upon size and configuration of a video wall
in a particular location. A video wall system generally consists of a screen,
projector audio system, and computer controls that are all readily available
from various manufacturers. The installation of a video wall system is completed
by general contractors under the supervision of Neo Vision staff and is expected
to be completed and operating approximately four to six weeks after site
approval.
COMPETITION
Neo Vision is not aware of any advertising systems similar to Neo Vision's
current video wall system. Neo Vision's competition in airports currently
consists of fixed advertising (primarily static boards) and other similar
structures. There is at least one company offering an advertising service
consisting of a series of three monitors attached to their booth in the center
of a mall aisle. This format provides low visual impact and, because of the size
of the screen, the sound and picture have limited visibility.
However, because of the proprietary nature of Neo Vision's video wall
system, competitors could seek to duplicate Neo Vision's technology. Thus, Neo
Vision will seek sufficient capital for Neo Vision to deploy its video wall
system in order to create brand name recognition and economies of scale.
EMPLOYEES
At September 30, 1998, Neo Vision had six employees, two of which are
managerial, two of which are technical, one of which is involved with sales, and
one of which is administrative. Further, Neo Vision employs five independent
contractors, three of whom provide technical services to Neo Vision, and two of
whom are sales representatives in Las Vegas, Nevada.
OFFICES
Neo Vision leases approximately 700 square feet of office space in Phoenix,
Arizona where its administrative, production, and transmission facilities are
located, at an annual rent of approximately $12,720.
38
<PAGE>
BUSINESS OF UNITED STATES AIRCRAFT CORPORATION
INTRODUCTION
Prior to the acquisition of Neo Vision, the Company was engaged in the adult
real estate education industry, the travel services industry, and the ownership
of real estate related to the planned development of a chain of RV Parks. The
Company intends to continue in these businesses; however the RV Park operation
is in the planning phase and the acquisition and development of parks will not
be launched until the project is capitalized. The Company was previously active
in the modification of the DC-3/C-47 aircraft and real estate property
management both of which were discontinued in 1984 and 1997 respectively.
The Company owns plans and specifications for the turbo-prop engine
conversion for the DC-3/C-47 aircraft, and has investigated methods of realizing
this investment. Possible methods to realize the Company's investment in the
plans and specifications include a new licensing agreement, sale of the plans
and specifications, acquisition or by obtaining financing and successful future
development. As of September 30, 1996, the Company was unable to identify any
cash flows from its investment in the plans and specifications. Accordingly, an
impairment loss of $649,999, that represents the excess of the carrying amount
over the present value of the identifiable net cash flow, has been included in
operations for the year ended September 30, 1996.
The Company was incorporated in Delaware on October 6, 1978 and began
operations in April 1980. The principal executive offices of the Company are
located at 3121 East Greenway Rd., Suite 201, Phoenix, Arizona 85032, telephone
number (602) 765-0500.
ADULT EDUCATION
GENERAL
The Company's adult education operation is conducted by its wholly owned
subsidiaries Ford Schools, Inc. and Western College, Inc.
Ford Schools, Inc. is an Arizona real estate training organization providing
the required training to individuals seeking a real estate salesperson's or
broker's license, and continuing education for licensed salespersons and
brokers.
Effective January 1, 1996, the Company acquired Western College, Inc. a real
estate training organization providing the same courses of study. On January 1,
1996, the operations of Ford and Western were combined at the Western campus and
operated as a single school under the name of Western College/Ford Schools.
Effective May 1, 1998, the Company adopted the name Westford College, Inc.
for its adult education operation. The school and its courses of study are
approved by the Arizona Department of Real Estate.
39
<PAGE>
In 1998, the State of Arizona required the following real estate training:
Courses and Hours
-----------------
Real Estate Salesperson License Principles of Real Estate - 90 hours
Real Estate Brokers License Principles of Real Estate - 90 hours
Renewal of License Various courses approved by Real Estate
Department generally 3 to 6 hours in
length. Total 24 hours every two years.
Currently, the required training must be completed in a classroom setting.
The Arizona Department of Real Estate is currently reviewing this requirement in
order to consider the establishment of policies and procedures for "out of the
classroom" or "distance" learning. Under consideration are, among other methods
of distance learning, computer-aided classroom settings, compact disc-based
program that can be studied at home, the Internet, and satellite TV and videos.
The Company intends to develop course materials to present distance learning
courses when such policies and procedures are adopted by the Arizona Department
of Real Estate.
During the three years ended September 30, 1998, student enrollments and
tuition revenues were as follows:
Average
Students Revenue Tuition
-------- ------- -------
Sales Licensing
1998 1,249 $294,715 $235.96
1997 1,049 $261,099 $248.90
1996 937 $204,453 $218.19
Broker Licensing
1998 38 $ 13,340 $351.05
1997 34 $ 14,840 $436.47
1996 (1) 41 $ 18,507 $451.39
Renewal
1998 10,896 $152,977 $14.04
1997 9,835 $134,206 $13.64
1996 (1) 7,252 $106,908 $14.74
- ----------
(1) Represents the combined operations of Western College, Inc. and Ford
Schools, Inc. since January 1, 1996. Statistics prior to January 1, 1996
represent Ford Schools, Inc. only.
There are approximately 50,000 licensed real estate salesperson and brokers
in Arizona. The number of individuals taking the licensing examination each
month varies, generally increasing as real estate activity increases and
decreasing when real estate activity decreases. In the fiscal year 1998, the
number taking the State of Arizona sales licensing tests that were given each
month ranged from approximately 300 to 450. Even though there are significant
40
<PAGE>
numbers taking the licensing exam each month, the number of licensed personnel
remains relatively constant as a significant number of licensees choose to let
their licenses lapse.
Western College/Ford Schools has continued its planned expansion program
with the opening of a second campus in northeast Phoenix, Arizona. Currently,
the two campuses, each with three class rooms, are located as follows:
West Campus 4425 West Olive, Suite #128
Glendale, Arizona
Northeast Campus 3121 East Greenway Rd., Suite #201
Phoenix, Arizona
STRATEGY
The Company advertises its real estate programs in metropolitan Phoenix
telephone directories plus through direct mail to its referral sources. In
October 1996, the Company began publishing the Renewal News, a monthly magazine
for real estate licensees with a circulation of approximately 15,000. The
magazine includes the class schedule for both locations along with relevant
articles and paid advertising revenue in the year ended September 30, 1998 was
$24,679. The Company has launched a program to increase the circulation, and the
advertising revenue plus expand the editorial content. Utilizing its existing
base in adult real estate education, the Company intends to expand and profit
from the adult career education field. Subject to the availability of any
necessary financing, the Company intends to expand into other geographic markets
and to expand its curriculum to include training for other professionals such as
travel and insurance agents, accountants and home inspectors. The expansion is
expected to include the offering of home study courses which in some cases will
use computer networks, video conferencing, and interactive multimedia courses,
all of which provide enhanced education and training that is not bound by time
or location. The Company may seek to acquire other adult education schools,
although the Company has not identified any particular acquisition candidates.
COMPETITION
At September 30, 1998, there were approximately four proprietary schools for
real estate training in the Phoenix metropolitan area that offered both license
and license renewal education. The Company believes that another metropolitan
Phoenix based school has the largest market share in Arizona, although the
Company does not know its total market share. While small schools will continue
to be formed, management believes the trend will be toward larger schools,
providing high quality instruction and a variety of programs.
41
<PAGE>
TRAVEL SERVICES
GENERAL
The Company, through acquisitions, implemented its travel services division
on July 1, 1997. Effective July 1, 1997 the Company purchased certain assets of
Travel Easy, Inc. and in August 1997 the assets of FirsTravel, both of which
were full service travel agencies. The Travel Easy agency has been closed and
its approximately 175 independent contractor Home Based Travel Agents became
affiliated with the Company's travel agency operated as FirsTravel.
FirsTravel is a full service travel agency registered with the Airline
Reporting Corporation. It serves the retail market from its office at 4700 North
Central Avenue, Phoenix Arizona and serves its approximately 175 independent
contractor Home Based Travel Agents located throughout the country by processing
the tickets and reservations for such agents.
Sales for the travel agency segment for the year ended September 30, 1998
and the three months from acquisition through September 30, 1997 were as
follows:
1998 1997
---- ----
Airline tickets $ 682,955 $339,217
Hotels 117,116 81,861
Automobiles 31,934 26,255
Cruises 247,822 116,508
Tours 189,905 161,362
Other 11,957 51,341
---------- --------
Total Sales $1,281,689 $776,544
========== ========
STRATEGY
In October, 1997 the major airlines changed their commission rate to travel
agencies from 10% to 8%. Accordingly, in January 1998 FirsTravel adopted the
policy of generally charging its customers a $10 service fee for each airline
ticket generated. Further, the Company intends to continue its policy to promote
leisure travel, such as tours and cruises, where the commissions generally range
from 10% to 13%. Management believes that the travel services operation can be
expanded through the acquisition of other travel service companies and that
FirsTravel can be expanded through the recruitment of new Home Based Travel
Agents. Additionally, the Company is in the process of implementing a travel
education program for individuals desiring to enter the travel services industry
and continuing education for active travel agents. The education program will be
presented by the Company's adult education division.
COMPETITION
The Company's travel services business competes with large national travel
agencies, including American Express and Thomas Cook, as well as with many
smaller local travel agencies.
42
<PAGE>
REAL ESTATE PROPERTY MANAGEMENT
Hansen & Associates, Inc. dba Property Masters is a Phoenix, Arizona
residential real estate brokerage that specializes in management of single
family residential homes. In August 1997 the Company decided to discontinue this
line of business and sold the stock in Hansen & Associates Inc. to the president
of the subsidiary in a transaction that was effective on September 30, 1997,
with a resulting gain on the sale of $53,796.
PROPERTIES
The Company maintains is corporate offices within the Westford campus at
3121 East Greenway Road, Suite 201 in Phoenix, Arizona 85032.
Westford maintains two campuses. The West campus is located at 4425 West
Olive, Suite 128 in Glendale, Arizona. The campus has three classrooms and
office space and is leased pursuant to a lease expiring in May 2001. The lease
rental is paid at $2,182 per month for eleven months each year with no rental
paid in December of each year.
The Northeast campus is located at 3121 East Greenway Road, Suite 201 in
Phoenix, Arizona. The campus has three classrooms and office space and is leased
pursuant to a five year lease expiring July 31, 2001. The monthly rent is $1,689
increasing to $2,343 over the term of the lease, plus common area charges that
approximate $585 per month.
FirsTravel maintains its office at 4700 North Central Avenue, Suite 205 in
Phoenix, Arizona. The office space is leased pursuant to a two year lease
expiring on December 31, 1999, the monthly rent is currently $333.
EMPLOYEES
Immediately prior to the Exchange, the Company had 15 employees. Further,
the Company had approximately 175 independent contractor home based travel
agents and fifteen to twenty independent contractor instructors for the real
estate training school.
43
<PAGE>
MANAGEMENT
The following table sets forth information concerning each of the directors
and executive officers of the Company:
Name Age Position
- ---- --- --------
Albert C. Lundstrom 58 President, Chief Executive Officer, and Director
Harry V. Eastlick 59 Executive Vice President, Treasurer, Chief Operating
Officer, Chief Financial Officer, and Director
Jack Eberenz 56 Executive Vice President, Secretary, and Director
Donald E. Cline 72 Director
Whipple H. Manning 62 Director
John R. Thomas 67 Director
ALBERT C. LUNDSTROM has served as President, Chief Executive Officer
and a Director of the Company since June 30, 1998. Mr. Lundstrom has served as
Chief Executive Officer of Neo Vision since its inception in June 1997. From
September 1997 to present, he has served as the Managing Partner of LEC and
Associates, LLC, a business consulting firm owned by Mr. Eberenz and Mr.
Lundstrom. Prior to September 1997, for a period in excess of five years, Mr.
Lundstrom acted as a sole proprietor business consultant with clients that
included, among others, Rockwell International and TSM Technical Services &
Marketing.
HARRY V. EASTLICK, a certified public accountant, served as Chairman of
the Board, President and Chief Executive Officer of the Company from October
1988 until June 30, 1998. Mr. Eastlick has served as Executive Vice President,
Treasurer, Chief Financial Officer, Chief Operating Officer, and a Director of
the Company since June 30, 1998.
JON G. (JACK) EBERENZ has served as Executive Vice President and a Director
of the Company since June 30, 1998 and has served as the Secretary of Neo Vision
since its inception. From September 1997 to present, he has served as the senior
partner of LEC and Associates, LLC, a business consulting firm owned by Mr.
Eberenz and Mr. Lundstrom. From August 1992 to September 1997, he served as the
Senior Consultant in Arizona for MAP, Inc. of Sherman Oaks, California, a
business consulting firm. From January 1985 until August 1992, he served as a
principal of Impac International, Inc., a business consulting firm.
DONALD E. CLINE has served as a Director of the Company since November 1989.
Mr. Cline has served as a business consultant since March 1991 and as the
Director of the State of Arizona Department of Commerce from February 1990 to
March 1991. Mr. Cline served as Chairman of the Board and Chief Executive
Officer of First National Utilities, Inc., an Arizona based water utility
holding company, from September 1987 to February 1990. Prior thereto, Mr. Cline
served as Vice President and Chief Executive Officer of the Arizona operations
of US West. He retired from US West after 37 years of employment.
WHIPPLE H. MANNING has served as a Director of the Company since April 1997.
Prior thereto, Mr. Manning served as director from November 1989 to July 1995.
Mr. Manning has been an independent real estate consultant since January 1989.
From 1983 through 1988 Mr. Manning served as Executive Vice President of Coast
Savings and Loan in charge of the Commercial/Industrial Real Estate Loan
Division. From 1978 to 1983, Mr. Manning was the Senior Vice President of
44
<PAGE>
California Federal Savings and Loan in charge of the Income Property Division.
Prior thereto, Mr. Manning spent 17 years in commercial real estate lending with
Pacific Mutual Life Insurance.
JOHN R. THOMAS, a certified public accountant, has served as a Director of
the Company since November 1989. Mr. Thomas has served as a business consultant
since 1993. From September 1990 to December 1993 he served as the Chairman of
the Board of Directors of G.T. Products, Inc., a manufacturer of flashlight
products and from September 1987 to September 1990, he served as Executive Vice
President, Chief Operating Officer, and Chief Financial Officer of T.G.
Environmental, Inc., a California based construction firm that specialized in
environmental projects. Prior thereto, for a period of 26 years Mr. Thomas was
with the national accounting firm of Coopers & Lybrand where he served as a
partner for the last 16 years.
There currently are no Committees of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation received by the
Company's Chief Executive Officer for services rendered in all capacities to the
Company for the fiscal years ended September 30, 1996, 1997, and 1998. No
officer of the Company received more than $100,000 in compensation during such
period.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
AWARDS PAYOUTS ALL
ANNUAL COMPENSATION ------ ------- OTHER
------------------- RESTRICTED SECURITIES COMPEN
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP -SATION
PRINCIPAL POSITION YEAR(1) SALARY($) BONUS COMPENSATION($) AWARD(S)($) OPTIONS(#) PAYOUTS($) ($)
- ------------------ ------- --------- ----- --------------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albert C. Lundstrom 1998 37,500(2) -- -- -- 300,000(5) -- --
President and Chief
Executive Officer
Harry V. Eastlick(3) 1998 75,000 -- -- -- 300,000(5) -- --
Chief Financial 1997 51,000(4) -- -- -- -- -- --
Officer 1996 36,000(4) -- -- -- -- -- --
</TABLE>
- ----------
(1) Fiscal Year Ended September 30.
(2) For the period from July 1, 1998 through September 30, 1998.
(3) Harry Eastlick served as Chief Executive Officer of the Company until June
30, 1998.
(4) Mr. Eastlick received 200,000 shares of Class A Common Stock (equivalent to
20,000 shares of New Common Stock) in each of the fiscal years 1996 and
1997 as partial payment of the salaries for those years. The value of these
shares was $20,000 in each of those years.
(5) Shares of New Common Stock.
45
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
There were no options outstanding held by any director or executive officer
to acquire the Company's Class A Common Stock or Class B Common Stock prior to
June 30, 1998. On June 30, 1998, the Board of Directors granted options to
acquire shares of New Common Stock to the executive officers of the Company as
follows:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SH) DATE 5% 10%
---- ------------- -------------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Anthony Christopher 375,000(2) 28% $1.00 June 30, 2008 $236,250 $603,750
Albert C. Lundstrom 300,000 22% $1.00 June 30, 2008 $189,000 $483,000
Harry V. Eastlick 300,000 22% $1.00 June 30, 2008 $189,000 $483,000
Jack Eberenz 225,000 17% $1.00 June 30, 2008 $141,750 $362,250
</TABLE>
- ----------
(1) The options were granted under the Company's 1998 Stock Option Plan,
adopted by the board of Directors on June 30, 1998, subject to stockholder
approval. See "PROPOSAL TO APPROVE THE 1998 STOCK OPTION PLAN."
(2) These options have expired as a result of Mr. Christopher's resignation as
a director and officer of the Company subsequent to fiscal year end.
DIRECTOR COMPENSATION
The three non-officer directors of the Company, Donald E. Cline, Whipple H.
Manning, and John R. Thomas, each received 50,000 shares of Class A Common Stock
during the fiscal year ended September 30, 1997, and Messrs. Cline and Thomas
each received 50,000 shares of Class A Common Stock during the fiscal year ended
September 30, 1996, as director compensation. Each of these three directors also
received 15,000 shares of Class A Common Stock for guaranteeing a bank loan to
the Company during the fiscal year ended September 30, 1997.
EMPLOYMENT AGREEMENTS
Messrs. Lundstrom, Eastlick, and Eberenz have entered into employment
agreements with the Company providing for them to serve in their current
executive positions. The agreements continue until December 31, 2003 and provide
for annual salaries of $150,000, $120,000, and $60,000, respectively, together
with expense reimbursement.
Mr. Anthony Christopher previously had an employment agreement with the
Company providing for annual compensation of $150,000 as the Chairman of the
Board of the Company. On November 9, 1998, Mr. Christopher resigned from the
Company as an employee and as a director. Mr. Christopher entered into a
separation agreement on December 17, 1998 providing for, among other things,
payment of accrued compensation of $41,250 beginning February 1, 1999.
Each employment agreement provides that the executive will receive 75% of
his base salary plus certain benefits to the end of the term of employment if
the executive's employment is terminated by the Company without cause or,
ownership or control of the Company, including illustratively, the majority of
the Board of Directors of the Company becomes vested, directly or indirectly, in
individuals other than individuals approved by the executive. In addition, each
employment agreement contains restrictive covenants pursuant to which the
executive has agreed not to compete with the Company or to solicit any clients
or employees of the Company during the term of the agreement.
46
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL
STOCKHOLDERS, DIRECTORS, AND OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Class A Common Stock and Class B Common
Stock as of December 31, 1998, held by each director and executive officer of
the Company, all directors and executive officers as a group, persons known by
the Company to hold more than 5% of the Company's Class A Common Stock or Class
B Common Stock, and three former shareholders of Neo Vision who are not
directors or officers of the Company. The table also provides information with
respect to the pro forma beneficial ownership of the Company's New Common Stock
held by each director and executive officer of the Company, all directors and
executive officers as a group, and all persons expected by the Company to hold
on a pro forma basis more than 5% of the New Common Stock, assuming the maximum
number of shares are issued under the Exchange Agreement:
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A CLASS B NEW PERCENT
COMMON COMMON COMMON WITHOUT PERCENT UPON
STOCK STOCK STOCK NEO VISION NEO VISION
BENEFICIALLY BENEFICIALLY BENEFICIALLY DEBENTURE DEBENTURE
NAME OF BENEFICIAL OWNER OWNED PERCENT OWNED PERCENT OWNED(1) CONVERSION CONVERSION(2)
- ------------------------ ----- ------- ----- ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Albert C. Lundstrom 614,000(3) 6.1% -- -- 1,766,711(4) 28.3% 23.8%
Harry V. Eastlick 603,708 6.0% 2,600,000(5) 52.3% 560,371(6) 8.9% 7.6%
Jack Eberenz 102,400(7) 1.0% -- -- 469,611(8) 7.6% 6.4%
Donald E. Cline 115,000 1.1% 50,000 1.0% 20,346(9) *% *%
Whipple H. Manning 65,000 .6% 50,000 1.0% 15,346(10) *% *%
John R. Thomas 115,000 1.1% 50,000 1.1% 20,346(11) *% *%
Former Neo Vision
Shareholders(12) 14,400 *% -- -- 34,399(13) *% *%
Anthony Christopher(14) 1,371,600 13.8% -- -- 2,676,450(15) 45.0% 37.6%
Directors and Executive
Officers as a group
(six persons) 1,512,708 15.2% 2,750,000 55.4% 2,608,120(16) 38.4% 32.8%
</TABLE>
- ----------
* Less than one percent.
** All of the officers and directors of the Company can be reached at the
offices of the Company c/o United States Aircraft Corporation, 3121 E.
Greenway, Suite 201, Phoenix, Arizona 85082; (602) 765-0500.
(1) In calculating the percentage or ownership, shares issuable upon exercise
of options are deemed to be outstanding for the purpose of computing the
percentage of shares of New Common Stock owned by each person, but are not
deemed to be outstanding for the purpose of computing the percentage of
shares of New Common Stock owned by any other person.
47
<PAGE>
(2) Assumes conversion of Neo Vision Debentures, and payment to a financial
consultant to Neo Vision for past services rendered to Neo Vision, of
approximately 1,156,000 shares of Neo Vision Common Stock at December 31,
1998.
(3) Includes 102,400 shares of Class A Common Stock held by LEC & Associates,
L.L.C. of which Mr. Lundstrom and Mr. Eberenz are members.
(4) Includes 1,405,311 additional shares of New Common Stock to be issued to
Mr. Lundstrom and LEC & Associates, L.L.C. pursuant to the Exchange
Agreement and 300,000 shares of New Common Stock issuable upon the
exercise of options.
(5) Includes 2,475,000 shares held in escrow by Security Pacific Bank (now
Bank of America).
(6) Includes 300,000 shares of New Common Stock issuable upon the exercise of
options.
(7) Includes 102,400 shares of Class A Common Stock held by LEC & Associates,
L.L.C. of which Mr. Lundstrom and Mr. Eberenz are members.
(8) Includes 234,371 additional shares of New Common Stock to be issued to LEC
& Associates, L.L.C. pursuant to the Exchange Agreement and 225,000 shares
of New Common Stock issuable upon the exercise of options.
(9) Includes 5,000 shares of New Common Stock issuable upon the exercise of
options.
(10) Includes 5,000 shares of New Common Stock issuable upon the exercise of
options.
(11) Includes 5,000 shares of New Common Stock issuable upon the exercise of
options.
(12) Three former shareholders of Neo Vision, who are not directors or officers
of the Company, and excluding Anthony Christopher.
(13) Includes 32,959 additional shares of New Common Stock to be issued to the
three former shareholders pursuant to the Exchange Agreement.
(14) Mr. Christopher's address is 6632 E. Moreland, Scottsdale, Arizona 85257.
(15) Includes 2,539,290 additional shares of New Common Stock to be issued to
Mr. Christopher pursuant to the Exchange Agreement. Mr. Christopher will
allocate an additional 600,000 shares of New Common Stock to debenture
holders and to a financial consultant to Neo Vision for past services
rendered to Neo Vision.
(16) Includes 840,000 shares of New Common Stock issuable upon the exercise of
options.
PRICE RANGE OF COMMON STOCK
The Company's Class B common stock is not publicly traded. The Company's
Class A common stock is traded on the NASDAQ OTC Bulletin Board under the symbol
"UAIRA". At September 30, 1998 and for the eight prior quarters, no significant
market has existed for the Company's Class A common stock. However, a diminutive
number of shares have traded during the last eight quarters at a low of $.01 and
a high of $.15. At January 5, 1999, the closing price of the Company's Class A
Common Stock was $0.05 per share.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On December 18, 1998, the Company engaged Semple & Cooper, LLP Certified
Public Accountant to examine their financial statements for the year ended
September 30, 1998. There were no disagreements with the former accountant on
any matter of accounting principles, financial statement disclosure or auditing
scope or procedure. The change of accountants was approved by the Board of
Directors.
48
<PAGE>
THE EXCHANGE
The detailed terms of the Exchange and the transactions related thereto are
contained in the Exchange Agreement attached as Appendix I to this Proxy
Statement. The following discussion describes the material aspects of the
Exchange and the terms of the Exchange Agreement. This description is qualified
in its entirety by reference to the Exchange Agreement, which the Company's
stockholders are urged to read carefully. Certain terms used but not defined in
the following discussion are defined in the Exchange Agreement.
BACKGROUND OF AND REASONS FOR THE EXCHANGE
During the past three years, the Company was considering a number of
alternatives to grow its business. The Company determined that the acquisition
of compatible businesses would offer stockholders an opportunity to own a
business which would have expanding growth opportunities. The Company during
this period explored a number of business opportunities for growing its
business, and concluded that expansion into the travel industry was compatible
with the Company's adult real estate educational activities. Thus, the Company
acquired two travel agencies during 1997. The Company continued to seek other
alternatives for expansion and entered into a number of discussions with owners
of other potential businesses, none of which the Company determined would
benefit the Company's stockholders.
On April 9, 1998, the Company had its first substantive meeting with Neo
Vision. This meeting was initiated by the Company. At this meeting, Mr.
Eastlick, then the Chief Executive Officer of the Company, and Mr. Al Lundstrom,
then the Chief Executive Officer of Neo Vision, met to discuss a possible
transaction. They discussed possible terms of a combination as well as the
structure of the proposed combined entity and the advantages of such a
combination. Meetings continued through April 1998. At these meeting information
was exchanged about both companies and a tentative agreement was developed.
Management of the Company determined that Neo Vision was in a high growth area
and that the experience of the Company in the service business was compatible
with Neo Vision's video wall advertising business, which involved a significant
service component. In addition, Neo Vision did not have the in-house financial
management which the Company was able to offer, and the Company believed that
the management of the two companies would provide a good overlap of expertise
and experience. On May 1, 1998, a tentative agreement was presented to the
Company's Board of Directors, who approved the concept and authorized Mr.
Eastlick to continue negotiations with Neo Vision. The parties' valuation of Neo
Vision was based largely on the growth potential of Neo Vision and the cost
savings and growth potential of a combined entity. After numerous additional
negotiating sessions and the completion of due diligence, the Exchange Agreement
was approved and closed on June 30, 1998.
Valuation negotiated between the parties represented a valuation of Neo
Vision requiring the Company to issue shares equal to approximately 80% of the
combined companies. However, the Company did not have sufficient shares
available for issuance. Thus, the initial payout represented substantially all
of the remaining shares of the Company's Class A Common Stock, or 2,000,000
shares, with an additional 4,577,000 shares of New Common Stock to be issued
upon approval of the stockholders of the Company. The Company and Neo Vision
believed that the immediate acquisition of Neo Vision pursuant to the Exchange
Agreement would allow the former management of Neo Vision and the management of
the Company to begin working together immediately to accomplish the Company's
business objectives, prior to meeting stockholder's approval for increasing the
shares of the Company available for issuance.
49
<PAGE>
In accordance with the Exchange Agreement, Anthony Christopher, the former
principal shareholder of Neo Vision, was elected a director and executive
officer of the Company. Mr. Christopher subsequently resigned his position as
both a director and as an employee on November 9, 1998. Mr. Christopher, the
Company, and Neo Vision entered into a separation agreement on December 17,
1998. The separation agreement provides that the Company will pay Mr.
Christopher $41,250 in accrued compensation. Payments will be $2000 per month
commencing February 1, 1999, and increase to $5000 per month commencing May 1,
1999, continuing at that rate until the entire $41,250 has been paid. If the
Company fails to pay this accrued compensation within the specified timeframe,
the agreement provides that Mr. Christopher is entitled to treble damages.
However, if the stockholders do not approve the reclassification, then Mr.
Christopher is not entitled to any payment of accrued compensation from the
Company. Under the agreement, Mr. Christopher waived his rights to receive
600,000 of New Common Stock to which he was entitled under the Exchange
Agreement. Of these shares, 400,000 are to be issued to the Debenture holders on
a pro rata basis and 200,000 are to be issued to a financial consultant to Neo
Vision for past services rendered to Neo Vision. Further, Mr. Christopher may
not compete with Neo Vision in the video wall business until December 17, 1999.
If Neo Vision has twelve video walls in operation by December 17, 1999, then Mr.
Christopher cannot compete for another one year period. The separation agreement
provides that Mr. Christopher will consult with the Company and Neo Vision on an
informal basis at his discretion. In addition, the agreement provides that Mr.
Christopher will vote in favor of the amendment and restatement of the Company's
certificate of incorporation. Finally, each party to the separation agreement
released each other party from all past or present claims and obligations.
The Company believes that the period between initial issuance of shares
under the Exchange Agreement and the submission of the proposals pursuant to
this Proxy Statement to stockholders of the Company has confirmed management's
belief that the transactions pursuant to the Exchange Agreement will be to the
benefit of the stockholders of the Company.
The Company's Board believes the Exchange Agreement and the exchange of
shares thereunder (the "Exchange") are fair to and in the best interests of the
Company's stockholders for, without limitation, the following reasons: (i) the
Company's current operations have limited growth potential, operating in small
growth rate industries; (ii) Neo Vision's video wall advertising service has
significant growth potential, operating in an expanding industry where start-up
companies can potentially achieve market penetration; (iii) the video wall
advertising line of business offers the Company an opportunity for long-term
growth; (iv) the Company's resources and Neo Vision's video wall advertising
service offer the Company the potential for increased revenues from operations,
greater access to financial resources, and the opportunity for improved
liquidity for the Company's stockholders.
The Company also considered certain potentially negative factors, including:
(a) the possibility of an initial increase in losses; (b) the loss of control by
the Company's stockholders; (c) and Neo Vision's limited operating history,
which exposes the Company to risks associated with start-up companies.
50
<PAGE>
The Company determined not to obtain an independent fairness opinion as to
the financial terms of the Exchange Agreement because the Company believes that
the cost of obtaining such an opinion was prohibitive in light of the Company's
financial situation. In addition, the valuation of the Company and Neo Vision
was negotiated by the respective managements of the two companies in an
arms-length transaction.
EXCHANGE RATIO
Pursuant to the Exchange Agreement, 2,000,000 shares of the Company's Class
A Common Stock (equivalent to 200,000 shares of New Common Stock) were issued in
exchange for 6,250,000 shares of Neo Vision Common Stock. Additionally, the
Exchange Agreement provides that an additional 4,577,560 shares New Common Stock
will be issued to former Neo Vision shareholders upon stockholder approval of
the reclassification of the Company's Class A Common Stock and Class B Common
Stock. These shares will be apportioned among these former shareholders in
proportion to their ownership interest in Neo Vision prior to its acquisition by
the Company, except that Anthony Christopher, the former principal shareholder
of Neo Vision, has agreed to waive receipt of 600,000 of such shares. If the
proposal to reclassify the Company's Class A Common Stock and Class B Common
Stock is adopted, the Class A Common Stock will be reclassified into New Common
Stock on the basis of 10 shares of Class A Common Stock into one share of New
Common Stock and the Class B Common Stock will be reclassified on the basis of
13 shares of the Class B Common Stock into one share of New Common Stock. Each
holder of shares of the Company's Class A Common Stock or Class B Common Stock
exchanged pursuant to the reclassification who would have otherwise been
entitled to receive a fraction of a share of the Company's New Common Stock
(after taking into account all certificates delivered by such holder) will
receive, in lieu thereof cash (without interest) in an amount equal to such
fractional portion of the closing price per share at the Effective Time.
EFFECTIVE TIME; EXCHANGE OF CERTIFICATES FOR CERTIFICATES REPRESENTING THE
COMPANY'S NEW COMMON STOCK
The Exchange Agreement was approved by the Company's Board of Directors,
executed, and became effective on June 30, 1998. As soon as reasonably
practicable after the stockholders' approval of the amendment and restatement of
the Company's Certificate of Incorporation and the filing of the amended and
restated Certificate of Incorporation reflecting the reclassification of the
Company's Class A Common Stock and Class B Common Stock into shares of the
Company's New Common Stock (the "Effective Time"), the Company will mail to each
holder a record of the Company's Class A Common Stock and Class B Common Stock
as of the date of the reclassification, a letter of transmittal and instructions
for surrendering certificates formerly representing the Company's Class A Common
Stock and Class B Common Stock in exchange for a certificate or certificates
representing the number of shares of the Company's New Common Stock into which
such shares were reclassified.
FAILURE OF STOCKHOLDERS TO APPROVE THE PROPOSALS
If the stockholders do not approve the amendment and restatement of the
Company's Certificate of Incorporation resulting in the reclassification of the
Company's Class A Common Stock and Class B Common Stock into New Common Stock,
then each of the former shareholders of Neo Vision will have the right to
rescind the Exchange Agreement. The Company believes that in view of the fact
that more than 90% of the shares of New Common Stock which would be issued to
the former shareholders of Neo Vision depend on such approval, and in view of
the fact that there will be no other consideration in lieu thereof if there is
no such stockholder approval, then in the event of the failure of the
stockholders to approve the amendment and restatement of the Company's
Certificate of Incorporation, each of the shareholders likely would rescind the
Exchange Agreement. In such event, the acquisition of the shares of Neo Vision
acquired by the Company with respect to each such shareholder would be
rescinded. Depending on the number of shareholders who rescinded the Exchange
Agreement, it is possible that the Company would become a minority shareholder
of Neo Vision. The Company would, however, be required to bear the costs and
expenses of its transactions with Neo Vision, including the cost of this Proxy
Statement, even if every shareholder of Neo Vision rescinded the Exchange
Agreement.
51
<PAGE>
If the Company's stockholders do not ratify and approve the Exchange
Agreement, then the Company's board of directors reserves the right to
reconsider any one or more of the terms of the Exchange Agreement, apart from
the financial terms of the Exchange. However, the failure of the stockholders to
ratify and approve the Exchange Agreement will not result in the rescission of
the Exchange Agreement.
If the stockholders do not approve the Company's 1998 Stock Option Plan,
then such Plan will continue to be valid. However, the shares issued pursuant to
options granted thereunder will not be available to receive incentive stock
option treatment and certain other benefits under the Internal Revenue Code.
MANAGEMENT, OPERATIONS AND HEADQUARTERS AFTER THE EXCHANGE
The Board of Directors of the Company currently consists of six members,
including Albert C. Lundstrom and Jack Eberenz, each former shareholders of Neo
Vision or their affiliates. Upon stockholders approval of the Exchange
Agreement, two additional members may be nominated by the former shareholders of
Neo Vision to the Board of Directors. Neither of these Directors has been
identified. Further, Albert C. Lundstrom serves as President and Chief Executive
Officer of the Company, Harry V. Eastlick serves as Chief Operating and
Financial Officer, and Jack Eberenz serves as Executive Vice President and
Secretary. The name of the Company will become Neo Vision Systems, Inc. upon
approval and filing of the amendment and restatement of the Certificate of
Incorporation, and Neo Vision shall remain a wholly owned subsidiary of the
Company. The headquarters of the Company will continue to be located in Phoenix,
Arizona. See "THE EXCHANGE - Management and Operations After the Exchange."
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
Certain directors and executive officers of the Company have interests in
the Exchange in addition to their interests as stockholders of the Company.
Messrs. Lundstrom and Eberenz were appointed as directors and executive officers
of the Company. Mr. Lundstrom and his affiliates will receive 1,466,711 shares
of the Company's New Common Stock upon stockholder approval of the
reclassification of the Company's Class A Common Stock and Class B Common Stock
into New Common Stock. Mr. Eberenz and his affiliates will receive 244,611
shares of the Company's New Common Stock upon stockholder approval of the
reclassification of the Company's Class A Common Stock and Class B Common Stock
into New Common Stock. Further, such officers, as well as Harry Eastlick, the
former President and Chief Executive Officer of the Company, and now its Chief
Financial Officer, were granted options to acquire a total of 825,000 shares of
New Common Stock at an exercise price of $1.00 per share. Mr. Anthony
Christopher, the former principal shareholder of Neo Vision, will receive
2,676,450 additional shares of New Common Stock upon the approval of the
reclassification. Mr. Christopher has waived his right to receive 600,000 of
these shares. Moreover, Messrs. Lundstrom, Eastlick, and Eberenz have entered
into employment agreements through December 31, 2003, providing for annual
salaries of $150,000, $120,000 and $60,000, respectively. In addition, the three
non-officer directors of the Company, Messrs. Cline, Manning, and Thomas, each
received options to acquire 5,000 shares of New Common Stock at $1.00 per share.
EMPLOYEE MATTERS
As a result of the acquisition of Neo Vision, the Company currently has 15
employees, of which four are executives, nine are managerial, and two are
administrative.
52
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The discussion in this "Federal Income Tax Consequences of the Exchange"
section represents the opinion of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears, a Professional Association, Phoenix, Arizona ("Counsel"), which is
counsel for the Company. Counsel's opinions expressed in the following
discussion are only opinions that the tax law results described are more likely
than not to be the tax law results which should occur, subject to any conditions
stated in the particular section of this discussion which states such tax law
conclusions. Although Counsel's opinions represent Counsel's best judgment as of
the date of this Proxy Statement and are based on legal authorities in effect as
of that date, Counsel's opinions are not binding on the Internal Revenue Service
and do not in any way constitute an assurance that the Internal Revenue Service
will agree with the federal income tax consequences described. Counsel's
opinions do not guarantee any particular tax treatment. Further, no rulings have
been requested from the Internal Revenue Service with respect to the matter
discussed in this section. The Company does not intend to obtain any such
rulings.
The Exchange of Neo Vision shares for shares of the Company's Class A Common
Stock and New Common Stock pursuant to the Exchange Agreement will have no
federal tax effect on the Company's stockholders who are not parties to the
Exchange.
The reclassification of the Company's Class A Common Stock and Class B
Common Stock into New Common Stock will more likely than not be treated as a
nontaxable exchange for federal income tax purposes, except with respect to the
receipt of cash in lieu of fractional shares. A stockholder's tax basis and
holding period for the shares received upon the reclassification will be the
same as such stockholder's tax basis and holding period in the shares
surrendered.
The foregoing is a summary of the federal income tax consequences of a
reclassification of the Company's Class A Common Stock and Class B Common Stock,
and does not address foreign, state or local tax consequences. Each stockholder
should consult with his or her own tax advisor with respect to the foreign,
state or local tax consequences of the reclassification as it may relate to his
or her personal tax situation.
ACCOUNTING TREATMENT
The June 30, 1998 acquisition of Neo Vision will be accounted under the
purchase method of accounting as a reverse merger, with Neo Vision, Inc. being
the acquirer for financial reporting purposes.
RESALES OF THE COMPANY'S NEW COMMON STOCK
Shares of the Company's New Common Stock will be freely transferable by
holders whose shares of Class A Common Stock or Class B Common Stock were not
"restricted securities" under Rule 144 of the Securities Act prior to the
reclassification. Shares of Class A Common Stock and Class B Common Stock which
constituted restricted securities prior to the reclassification, including
shares held by the former shareholders of Neo Vision, will constitute restricted
securities of New Common Stock after the reclassification.
DISSENTERS' RIGHTS
Under Delaware General Corporate Law, the stockholders of the Company will
not have statutory rights to demand and receive payment of the fair value of
their shares and, upon due approval, they will be bound by the terms of the
Exchange Agreement and the reclassification of the Company's Class A Common
Stock and Class B Common Stock.
53
<PAGE>
PROPOSAL TO RATIFY AND APPROVE THE EXCHANGE AGREEMENT
The Company entered into the Exchange Agreement on June 30, 1998 with the
former shareholders of Neo Vision. Pursuant to the Exchange Agreement, the
Company has issued 2,000,000 shares of Class A Common Stock (equivalent to
200,000 shares of New Common Stock) to the former shareholders of Neo Vision in
exchange for all of the outstanding shares of Common Stock of Neo Vision.
Pursuant to the Exchange Agreement, the Company has agreed to issue an
additional 4,577,650 shares of New Common Stock upon the approval of the
reclassification of the Company's Class A Common Stock and Class B Common Stock
into New Common Stock. The Exchange Agreement provides that a total of 3,500,000
shares of New Common Stock will be automatically issued to the former
shareholders of Neo Vision upon stockholder approval of the amendment and
restatement of the Company's Certificate of Incorporation and the filing of the
First Restated Certificate of Incorporation itself. The Exchange Agreement
provides that the remaining 1,077,560 shares will be issued if and when certain
performance criteria set forth in the Exchange Agreement are met by Neo Vision,
consisting of 30 days of program screening at the McCarran Airport or positive
cash flow for a 30-day period from the Meadow Mall video wall or a comparable
location. These conditions have been satisfied, and thus all 4,577,650 shares of
New Common Stock will be issued to the former shareholders of Neo Vision upon
stockholder approval of the amendment and restatement of the Company's
Certificate of Incorporation. Anthony Christopher, the former principal
shareholder of Neo Vision, has agreed to waive receipt of 600,000 of such
shares.
The Board of Directors believes that the Exchange Agreement and the Exchange
thereunder are in the bests interests of the stockholders of the Company. See
"The Exchange Agreement--Background of and Reasons for the Exchange". The
Exchange Agreement is included as Appendix I to this Proxy Statement.
STOCKHOLDER VOTE REQUIRED
The holders of a majority of the shares of Class A Common Stock and Class B
Common Stock of the Company present in person or represented by proxy at the
Special Meeting of Stockholders and entitled to vote thereon, voting together as
a single class, must ratify and approve the Exchange Agreement. As of the Record
Date, the former shareholders of Neo Vision and the Company's directors and
officers collectively beneficially own 2,898,708 shares of the collective
outstanding shares of Class A Common Stock and Class B Common Stock
(representing approximately 29% of the collective outstanding shares of Class A
Common Stock and Class B Common Stock). All of such shares are expected to be
voted in favor of the proposal to ratify and approve the Exchange Agreement.
If the Company's stockholders do not ratify and approve the Exchange
Agreement, then the Company's Board of Directors reserves the right to
reconsider any one or more of the terms of the Exchange Agreement, apart from
the financial terms of the Exchange. However, the failure of the stockholders to
ratify and approve the Exchange Agreement will not result in the rescission of
the Exchange Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION AND
APPROVAL OF THE EXCHANGE AGREEMENT.
54
<PAGE>
PROPOSAL TO AMEND AND RESTATE THE COMPANY'S
CERTIFICATE OF INCORPORATION
On June 30, 1998, the Board of Directors approved a proposal to amend the
Company's Certificate of Incorporation to: (i) authorize the issuance of
100,000,000 shares of a single new class of Common Stock, $.001 par value (the
"New Common Stock"); (ii) reclassify the Company's Class A Common Stock and
Class B Common Stock into shares of New Common Stock; (iii) authorize the
issuance of 750,000,000 shares of preferred stock; (iv) change the name of the
Company to Neo Vision Systems, Inc.; and (v) make certain technical amendments
set forth in the Company's First Restated Certificate of Incorporation. The
Board of Directors recommends a vote "for" the proposed amendment and
restatement of the Company's Certificate of Incorporation. The full text of the
proposed First Restated Certificate of Incorporation as proposed to be adopted
is included as Appendix II to this Proxy Statement. If approved by the
stockholders, the proposed amendment and restatement will become effective upon
the filing of the First Restated Certificate of Incorporation with the Secretary
of State of Delaware, which will occur as soon as reasonably practicable.
The Board of Directors believes that it is in the Company's and its
stockholders' best interests to authorize 100,000,000 shares of New Common Stock
in order to have a significant amount of authorized but unissued shares
available for issuance to meet business needs as they arise. The Board of
Directors believes that the availability of 100,000,000 shares of New Common
Stock will provide the Company with the flexibility to issue New Common Stock
for possible future financing, stock dividends or distributions, acquisitions,
stock option plans, or other proper corporate purposes which may be identified
in the future by the Board of Directors, without the possible expense and delay
of a special stockholders' meeting. The issuance of shares of New Common Stock
may have a dilutive effect on earnings per share and, for persons who do not
purchase additional shares to maintain their pro rata interest in the Company,
on such stockholders' percentage voting power.
The Board of Directors believes it is in the Company's and its stockholders'
best interests to reclassify its Class A Common Stock and Class B Common Stock
into a new single class of Common Stock (the "New Common Stock"). The Board of
Directors believes New Common Stock will make the Company more marketable to
outside investors, thus providing additional flexibility to raise capital in
connection with possible financings, acquisitions, and other corporate purposes,
including the possibility of a future public offering. Further, the Board of
Directors believes that a single class of common stock will provide stockholders
with greater liquidity.
The authorized shares of New Common Stock in excess of those issued in
connection with the Exchange Agreement, the reclassification of the Company's
Class A Common Stock and Class B Common Stock, and the 1998 Stock Option Plan
will be available for issuance at such times and for such corporate purposes as
the Board of Directors may deem advisable, without further action by the
Company's stockholders, except as may be required by applicable law or by the
rules of any stock exchange or national securities association trading system on
which the securities may be listed or traded. Holders of New Common Stock will
have no preemptive rights.
Except for issuances of New Common Stock in connection with the Exchange
Agreement, the reclassification of the Company's Class A Common Stock and Class
B Common Stock, the conversion of certain debentures issued by Neo Vision into
shares of New Common Stock, and the 1998 Stock Option Plan, the Company has no
55
<PAGE>
arrangements, agreements, understandings, or plans at the present time for the
issuance or use of the additional shares of New Common Stock proposed to be
authorized. The Board of Directors does not intend to issue any New Common Stock
except on terms which the Board of Directors deems to be in the best interests
of the Company and its then existing stockholders. Any future issuance of New
Common Stock will be subject to the rights of holders of outstanding shares of
any Preferred Stock which the Company may issue in the future.
The Board of Directors believes that it is in the Company's and its
stockholders' best interests to provide for 75,000,000 authorized shares of
Preferred Stock to provide additional flexibility in connection with possible
financings, acquisitions, other corporate purposes, and in certain
circumstances, to be used as a means of discouraging, delaying, or preventing a
change of control of the Company. The Board of Directors, without further
approval of the stockholders, has the authority to fix the rights and terms
relating to dividends, conversion, voting, redemption, liquidation preferences,
sinking funds and any other rights, preferences, privileges, and restrictions
applicable to each such series of Preferred Stock. A purpose of authorizing the
Board of Directors to determine such rights and preferences is to eliminate
delays associated with a stockholder vote on specific issuances. There currently
are no commitments or options or other rights outstanding for the issuance of
Preferred Stock. The Company has no present plan to issue shares of its
Preferred Stock.
The Board of Directors believes that it is in the Company's and its
stockholders' best interests to change the name of the Company to "Neo Vision
Systems, Inc." The Board of Directors believes that Neo Vision Systems, Inc.
will more accurately describe the Company's primary line of business and in
turn, assist the Company in achieving market penetration in the advertising
industry. The Board of Directors believes that the name Neo Vision Systems, Inc.
will help the Company create a strong identity, develop an appropriate product
image, and attain name recognition.
The Board of Directors believes that it is in the Company's and its
stockholders best interest to make certain technical amendments to the Company's
Certificate of Incorporation including, a revised purpose for the Company, a
revised current address of its registered agent, Prentice-Hall, and revised
provisions to more correctly reflect current Delaware law. These technical
amendments are set forth in the Company's First Restated Certificate of
Incorporation.
DELAWARE GENERAL CORPORATION LAW
The Delaware General Corporation Law summarized below may have the effect of
discouraging, delaying, or preventing hostile takeovers, including those that
might result in a premium over the market price, or discouraging, delaying, or
preventing changes in control or management of the Company.
In general, Delaware corporate law prohibits a publicly held Delaware
corporation from engaging, under certain circumstances, in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless (i) prior to the date at which the stockholder became an
interested stockholder, the Board of Directors approved either the business
combination or the transaction in which the stockholder becomes an interested
stockholder; (ii) upon consummation of the transaction in which the stockholder
becomes an interested stockholder, the stockholder owned at least 85% of the
outstanding voting stock of the Company (excluding shares held by directors who
are officers or held in certain employee stock plans); or (iii) the business
combination is approved by the Board of Directors and by two-thirds of the
outstanding voting stock of the Company (excluding shares held by the interested
56
<PAGE>
stockholder) at a meeting of stockholders (and not by written consent) held on
or subsequent to the date of the business combination. An "interested
stockholder" is generally a person who, together with affiliates and associates,
owns (or at any time within the prior three years did own and who is now an
affiliate or associate of the Company) 15% or more of the Company's voting
stock. Section 203 defines a "business combination" to include certain mergers,
consolidations, stock sales and asset based transactions, and certain other
transactions resulting in a financial benefit to the interested stockholder.
STOCKHOLDER VOTE REQUIRED
The holders of a majority of the outstanding shares of both the Class A
Common Stock and Class B Common Stock of the Company, each voting as a separate
class, must approve the amendment and restatement of the Company's Certificate
of Incorporation. As of the Record Date, the former shareholders of Neo Vision
and the Company's directors and officers collectively beneficially own 2,898,708
shares of Class A Common Stock (representing approximately 29% of the
outstanding shares of Class A Common Stock), and 2,750,000 shares of the
outstanding shares of Class B Common Stock (representing approximately 55% of
the outstanding shares of Class B Common Stock). All of such shares are expected
to be voted in favor of the proposal to amend and restate the Company's
Certificate of Incorporation.
If the stockholders do not approve the amendment and restatement of the
Company's Certificate of Incorporation resulting in the reclassification of the
Company's Class A Common Stock and Class B Common Stock into New Common Stock,
then each of the former shareholders of Neo Vision will have the right to
rescind the Exchange Agreement. The Company believes that in view of the fact
that more than 90% of the shares of New Common Stock which would be issued to
the former shareholders of Neo Vision depend on such approval, in the event of
the failure of the stockholders to approve the amendment and restatement of the
Company's Certificate of Incorporation, each of the shareholders likely would
rescind the Exchange Agreement. In such event, the acquisition of the shares of
Neo Vision acquired by the Company with respect to each such shareholder would
be rescinded. Depending on the number of shareholders that rescinded the
Exchange Agreement, it is possible that the Company would become a minority
shareholder of Neo Vision. The Company would, however, be required to bear the
costs and expenses of its transactions with Neo Vision, including the cost of
this Proxy Statement, even if all of the shareholders of Neo Vision rescind the
Exchange Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR: APPROVAL OF THE
AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
57
<PAGE>
PROPOSAL TO APPROVE THE 1998 STOCK OPTION PLAN
The Board of Directors adopted the 1998 Stock Option Plan (the "1998 Plan")
on June 30, 1998. The 1998 Plan is divided into two programs: the Discretionary
Grant Program and the Automatic Grant Program. The Discretionary Grant Program
provides for the granting of options to acquire New Common Stock ("Options"),
the direct granting of New Common Stock ("Stock Awards"), the grant of stock
appreciation rights ("SARs"), or the granting of other cash awards ("Cash
Awards") (Stock Awards, SARs, and Cash Awards are collectively referred to
herein as "Awards"). Options and Awards under the 1998 Plan may be issued to
executive officers, directors, employees, consultants, and other independent
contractors who provide valuable services to the Company and its subsidiaries
(collectively, "Eligible Persons"). The Options issued may be incentive stock
options or non-qualified stock options. The Company believes that the
Discretionary Grant Program represents an important factor in attracting and
retaining executive officers and other key employees and constitutes a
significant part of its compensation program, providing them with an opportunity
to acquire a proprietary interest in the Company and giving them an additional
incentive to use their best efforts for the long-term success of the Company.
The Automatic Option Program provides for the automatic grant of options to
acquire New Common Stock ("Automatic Options"). Automatic Options are granted to
non-employee members of the Company's Board of Directors ("Eligible Directors").
The Company believes that the Automatic Option Program promotes the interests of
the Company by providing such directors the opportunity to acquire a proprietary
interest or otherwise increase their proprietary interest, in the Company, and
an increased personal interest in the Company's continued success and progress.
SHARES SUBJECT TO THE 1998 PLAN
A maximum of 2,500,000 shares of the Company's New Common Stock may be
issued under the 1998 Plan. If any change is made in the stock subject to the
1998 Plan or subject to any Option or SAR granted under the 1998 Plan (through
merger, consolidation, reorganization, recapitalization, stock dividend,
split-up, combination of shares, change in corporate structure, or otherwise),
the 1998 Plan provides that appropriate adjustments will be made as to the
maximum number of shares subject to the 1998 Plan, and the number of shares and
exercise price per share of stock subject to outstanding Options or Awards. As
of February 1, 1999, there were outstanding options to acquire 967,500 shares of
New Common Stock under the 1998 Plan.
ELIGIBILITY AND ADMINISTRATION
Options and Awards may be granted pursuant to the Discretionary Grant
Program only to persons ("Eligible Persons") who at the time of grant are either
(i) key personnel (including officers and directors) of the Company, or (ii)
consultants or independent contractors who provide valuable services to the
Company. Options that are incentive stock options may be granted only to key
personnel of the Company who are also employees of the Company. To the extent
that granted Options are incentive stock options, the terms and conditions of
those Options must be consistent with the qualification requirements set forth
in the Internal Revenue Code.
The Eligible Persons under the Discretionary Grant Program are divided into
two groups, and the Plan provides that there may be a separate administrator
(each a "Plan Administrator") for each group. One group consists of Eligible
Persons who are executive officers and directors of the Company and all persons
who own 10% or more of the Company's issued and outstanding stock. The power to
58
<PAGE>
administer the 1998 Plan with respect to those persons rests exclusively with a
committee ("Senior Committee") comprised of two or more non-employee directors
who are appointed by the Board of Directors. This Senior Committee currently
consists of the three non-employee Directors, Messrs. Cline, Manning, and
Thomas. The power to administer the 1998 Plan with respect to the remaining
Eligible Persons is vested with the Senior Committee or a committee of two or
more directors appointed by the Board of Directors ("Employee Committee").
Currently, this also is the Senior Committee. Each Plan Administrator determines
(i) which of the Eligible Persons in its group will be granted Options and
Awards; (ii) the amount and timing of the grant of such Options and Awards; and
(iii) such other terms and conditions as may be imposed by the Plan
Administrator consistent with the Plan.
EXERCISE OF OPTIONS
The expiration date, maximum number of shares purchasable, and the other
provisions of the Options are established at the time of grant, provided that no
options may be granted for a term of more than 10 years. Options vest and
thereby become exercisable in whole or in one or more installments at such time
as may be determined by the Plan Administrator upon the grant of the Options.
However, a Plan Administrator has the discretion to provide for the automatic
acceleration of the vesting of any options or Awards granted under the
Discretionary Grant Program in the event of a "Change in Control." The
definition of "Change in Control" includes the following events: (i) the
acquisition of beneficial ownership by certain persons, acting alone or in
concert with others, of 40% or more of the Company's New Common Stock pursuant
to a tender offer which the Board of Directors recommends that the Company's
stockholders not accept, or (ii) a change in the composition of the Board of
Directors occurs such that those individuals who were elected to the Board of
Directors at the last stockholders' meeting at which there was not a contested
election for Board membership subsequently ceased to comprise a majority of the
Board of Directors by reason of a contested election. The Exchange does not
constitute a Change in Control under the 1998 Plan as the Plan was approved
after the approval of the Exchange Agreement by the Board of Directors. Any
Change in Control occurred prior to such adoption. Thus, there was no
acceleration of vesting of awards under the Discretionary Grant Program.
Each Plan Administrator will determine the exercise prices of Options at the
time of grant. However, the exercise price of any Option may not be less than
100% of the fair market value of the Company Stock at the time of the grant
(110% if the Option is granted to a person who at the time the Option is granted
owns 10% of the total combined voting power of all classes of stock of the
Company). To exercise an Option, the optionholder will be required to deliver to
the Company full payment of the exercise price for the shares as to which the
Option is being exercised. Generally, Options can be exercised by delivery of
cash, bank cashier's check, or shares of New Common Stock.
TERMINATION OF EMPLOYMENT OR SERVICES
Except as otherwise allowed by the Plan Administrator with respect to
non-qualified Options, Options granted under the 1998 Plan are nontransferable
other than by will or by the laws of descent and distribution upon the death of
the optionholder and, during the lifetime of the optionholder, are exercisable
only by such optionholder. If any optionholder ceases to be employed by the
Company for a reason other than death or permanent disability, such optionholder
may, within 30 days after the termination of such employment, exercise some or
59
<PAGE>
all of the vested incentive stock options held by such employee. In the event of
the death of the participant incentive stock options may be exercised within 90
days thereafter (but never later than the expiration of the term of the Option).
If an optionholder's employment is terminated by reason of permanent disability,
however, incentive stock options may be exercised by the optionholder or the
optionholder's estate or successor by bequest or inheritance during the period
ending 180 days after the optionholder's retirement (but not later than the
expiration of the term of the Option). Termination of employment at anytime for
cause immediately terminates all Options held by the terminated employee.
If the proposed 1998 Plan is approved by the Stockholders, non-qualified
Options that are outstanding at the time an optionholder's service to the
Company terminates will remain exercisable for such period of time thereafter as
determined by the Plan Administrator at the time of grant of such Options.
However, if the optionholder is discharged for cause, all Options held by such
optionholder will terminate.
AWARDS
A Plan Administrator also may grant Awards to Eligible Persons under the
1998 Plan. Awards may be granted in the form of SARs, Stock Awards, or Cash
Awards.
Awards granted in the form of SARs entitle the recipient to receive a cash
payment equal to the appreciation in market value of a stated number of shares
of New Common Stock from the price on the date the SAR was granted or became
effective to the market value of New Common Stock on the date first exercised or
surrendered. The Plan Administrators may determine, consistent with the 1998
Plan, such terms, conditions, restrictions, and/or limitations, if any, on any
SARs.
Awards granted in the form of Stock Awards entitle the recipient to receive
shares of the Company's New Common Stock directly. Awards granted in the form of
cash entitle the recipient to receive direct payments of cash depending on the
market value or the appreciation of New Common Stock or other securities of the
Company. The Plan Administrators may determine such other terms, conditions, or
limitations, if any, on any Awards.
The 1998 Plan states that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its New Common Stock,
stock awards, or any other type of award. To the extent permitted by applicable
law, the Company may issue any other options, warrants, or awards other than
pursuant to the 1998 Plan without stockholder approval.
TERMS AND CONDITIONS OF AUTOMATIC OPTIONS
The 1998 Plan provides that each year at the meeting of the Board of
Directors held immediately after the annual meeting of stockholders, each
Eligible Director, including the current directors, is granted an Automatic
Option to acquire 5,000 shares of New Common Stock ("Annual Automatic Option").
The 1998 Plan will grant new Eligible Directors an Automatic Option to acquire
5,000 shares of New Common Stock ("Initial Automatic Option") on the date of
their first appointment or election to the Board. Each Automatic Option becomes
exercisable and vests in a series of three equal and successive annual
installments, with each annual installment to become exercisable on the day
before the Company's annual meeting of stockholders occurring in the applicable
60
<PAGE>
year. An Eligible Director is not eligible to receive an Annual Automatic Option
if the grant date is within 30 days of such Eligible Director receiving an
Initial Automatic Option.
The exercise price per share of New Common Stock subject to each Automatic
Option is equal to 100% of the fair market value per share on the date of the
grant of the Automatic Option. Each Automatic Option expires on the tenth
anniversary of the date on which an Automatic Option grant was made. Eligible
Directors also may be eligible to receive Options or Awards under the
Discretionary Grant Program or option grants or direct stock issuances under any
other plan of the Company. Cessation of service on the Board terminates any
Automatic Options for shares that were not vested at the time of such cessation.
Automatic Options are nontransferable other than by will or the laws of descent
and distribution on the death of optionholder and, during the lifetime of the
optionholder, are exercisable only by such optionholder.
The 1998 Plan provides that, in the event of Change in Control, all unvested
Automatic Options will automatically accelerate and immediately vest so that
each outstanding Automatic Option will, immediately prior to the effective date
of such Change in Control, become fully exercisable.
DURATION AND MODIFICATION
The Plan will remain in force until June 30, 2008. The Board of Directors of
the Company may at any time suspend, amend, or terminate the 1998 Plan, except
that without approval by the affirmative vote of the holders of a majority of
the outstanding shares of New Common Stock present in person or by proxy at a
meeting of stockholders of the Company convened for such purpose, the Board of
Directors may not (i) increase, except in the case of certain organic changes to
the Company, the maximum number of shares of New Common Stock subject to the
1998 Plan, (ii reduce the exercise price at which Options may be granted or the
exercise price for which any outstanding Options may be exercised, (iii) extend
the term of the 1998 Plan, (iv) change the class of persons eligible to receive
Options or Awards under the 1998 Plan, or (v) materially increase the benefits
accruing to participants under the 1998 Plan. Notwithstanding the foregoing, the
Board of Directors may amend the 1998 Plan from time to time as it deems
necessary in order to meet the requirements of any amendments to Rule 16b-3
under the Securities Exchange Act of 1934 without the consent of the stockholder
of the Company.
REASONS FOR AND EFFECT OF THE PROPOSED 1998 PLAN
The Board of Directors believes that the approval of the 1998 Plan is
necessary to achieve the purposes of the 1998 Plan and to promote the welfare of
the Company and its stockholders generally. Without stockholder approval,
options granted under the plan cannot qualify as incentive stock options under
the Internal Revenue Code and the Plan cannot comply with Section 162(m) of the
Code. The Board of Directors believes that the 1998 Plan will aid the Company in
attracting and retaining directors, officers, and key employees and motivating
such persons to exert their best efforts on behalf of the Company. In addition,
the Company expects that the proposed 1998 Plan will further strengthen the
identity of interest of the directors, officers, and key employees with that of
the stockholders.
61
<PAGE>
1998 PLAN INTENDED TO COMPLY WITH REVISED RULES
In May 1996, the Securities and Exchange Commission ("SEC") amended the
Rules promulgated pursuant to Section 16 of the Exchange Act. The amended Rules
became effective on November 1, 1996. In general, these Rules required the
Company's officers, directors, and holders of more than 10% of New Common Stock
to file reports or ownership and changes in ownership of New Common Stock with
the SEC. The Rules also exempt certain transactions in New Common Stock by the
Company's officers, directors, and 10% stockholders from liability for
"short-swing profits" under Section 16 of the Exchange Act.
1998 PLAN INTENDED TO COMPLY WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally allows a tax deduction
to the Company for compensation in excess of $1.0 million paid in any year to
its Chief Executive Officer and four other most highly compensated executive
officers (the "Highly Compensated Officers") only if such compensation qualifies
as "performance-based compensation." Upon stockholder approval of the 1998 Plan,
non-qualified options granted following the date of the Meeting generally will
qualify as "performance-based compensation" and will entitle the Company to take
a tax deduction for compensation paid as a result of option exercises by the
Company's Highly Compensated Officers.
FEDERAL INCOME TAX CONSEQUENCES
Certain options granted under the 1998 Plan will be intended to qualify as
incentive stock options under Code Section 422. Accordingly, there will be no
taxable income to an employee when an incentive stock option is granted to him
or her when that option is exercised, except to the extent the amount by which
the fair market value of the shares at the time of exercise exceeds the option
price is treated as an item of preference in computing the alternate minimum
taxable income of the optionholder. If an optionholder exercises an incentive
stock option and does not dispose of the shares within either two years after
the date of the grant of the option or one year after the date the shares were
transferred to the optionholder, any gain realized upon disposition will be
taxable to the optionholder as a capital gain. If the optionholder does not
satisfy the applicable holding periods, however, the difference between the
option price and the fair market value of the shares on the date of exercise of
the option will be taxed as ordinary income, and the balance of the gain, if
any, will be taxed as capital gain. If the shares are disposed of before the
expiration of the one-year or two-year periods and the amount realized is less
than the fair market value of the shares at the date of exercise, the employee's
ordinary income is limited to the amount realized less the option exercise price
paid. The Company will be entitled to a tax deduction only to the extent the
optionholder has ordinary income upon the sale or other disposition of the
shares received when the option was exercised.
Certain other options issued under the 1998 Plan, including options issued
automatically to the non-employee members of the Board of Directors, will be
non-qualified options. The income tax consequences of non-qualified options will
be governed by Code Section 83. Under Code Section 83, the excess of the fair
market value of the shares of New Common Stock acquired pursuant to the exercise
of any option over the amount paid for such stock (hereinafter referred to as
"Excess Value") must be included in the gross income of the optionholder in the
first taxable year in which New Common Stock acquired by the optionholder is not
subject to a substantial risk of forfeiture. In calculating Excess Value, fair
62
<PAGE>
market value will be determined on the date that the substantial risk of
forfeiture expires, unless a Section 83(b) election is made to include the
Excess Value in income immediately after the acquisition, in which case fair
market value will be determined on the date of the acquisition. Generally, the
Company will be entitled to a federal income tax deduction in the same taxable
year that the optionholder recognizes income. The Company will be required to
withhold income tax with respect to income reportable pursuant to Code Section
83 by an optionholder. The basis of the shares acquired by an optionholder will
be equal to the option price of those shares plus any income recognized pursuant
to Code Section 83. Subsequent sales of the acquired shares will produce capital
gain or loss. Such capital gain or loss will be long term if the stock has been
held for one year from the date of the substantial risk of forfeiture lapsed,
or, if a Section 83(b) election is made, one year from the date the shares were
acquired.
STOCKHOLDER VOTE REQUIRED
The holders of a majority of the shares of Class A Common Stock and Class B
Common Stock of the Company present in person or by proxy are entitled to vote
thereon, voting together as a single class, must approve the 1998 Stock Option
Plan. As of the Record Date, the former shareholders of Neo Vision and the
Company's directors and officers collectively beneficially own 5,648,708 shares
of the collective outstanding shares of Class A Common Stock and Class B Common
Stock (representing approximately 38% of the collective outstanding shares of
Class A Common Stock and Class B Common Stock). All of such shares are expected
to be voted in favor of the proposal to approve the 1998 Stock Option Plan.
If the stockholders do not approve the Company's 1998 Stock Option Plan,
then such Plan and the options issued thereunder will continue to be valid.
However, the shares issued pursuant to options granted thereunder will not be
available to receive incentive stock option treatment under the Internal Revenue
Code and the Plan cannot comply with Section 162(m) of the Code.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1998
STOCK OPTION PLAN.
63
<PAGE>
EXPERTS
The financial statements relative of the Company included in this Proxy
Statement and have been audited by Robert Martin, independent public accountant,
for the fiscal year ended September 30, 1997, as indicated in his report with
respect thereto, and are included herein in reliance upon the authority of Mr.
Martin as an expert in giving said report.
The financial statements of Neo Vision and the Company included in this
Proxy Statement have been audited by Semple & Cooper, LLP, independent public
accountants, for the fiscal year ended September 30, 1998, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
LEGAL OPINIONS
The validity of the shares of the Company's New Common Stock will be passed
on for the Company by O'Connor Cavanagh, Anderson, Killingsworth & Beshears, a
professional association, Phoenix, Arizona ("Counsel"). Counsel also has
provided an opinion with respect to the tax consequence of the Exchange,
included under "The Exchange-Federal Income Tax Consequences of the Exchange."
OTHER MATTERS
The Company's Board of Directors does not intend to bring any matter before
the Special Meeting other than as specifically set forth in the Notice of
Special Meeting of Stockholders, nor does it know of any matter to be brought
before the Special Meeting by others. If, however, any other matters properly
come before the Special Meeting, it is the intention of the proxyholders to vote
such proxy in accordance with the decision of a majority of the Company's Board
of Directors.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
UNITED STATES AIRCRAFT CORPORATION
Page
----
Reports of Independent Certified Public Accountant. F-2 and F-3
Balance sheets as of September 30, 1998 and 1997. F-4 and F-5
Statements of operations for each of the three years
in the period ended September 30, 1998. F-6
Statements of shareholders' equity for each of the
three years in the period ended September 30, 1998. F-7
Statements of cash flows for each of the three years
in the period ended September 30, 1998. F-8
Notes to the Financial Statements. F-9 through F-24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF NEO VISION, INC.
(A WHOLLY-OWNED UNCONSOLIDATED SUBSIDIARY)
Report of Independent Certified Public Accountant F-25
Consolidated Balance Sheet as of September 30, 1998 F-26
Consolidated Statement of Operations for the year
ended September 30, 1998 F-27
Consolidated Statement of Changes in Stockholders'
Equity for the year ended September 30, 1998 F-28
Consolidated Statement of Cash Flows for the year ended
September 30, 1998 F-29
Notes to Consolidated Financial Statements F-31
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors of
United States Aircraft Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of United States
Aircraft Corporation and Subsidiaries as of September 30, 1998, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in All material respects, the financial position, of United States
Aircraft Corporation and Subsidiaries as of September 30, 1998, and the results
of its operations, changes in shareholders' equity, and its cash flows for the
year 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 discussed in Note 18 to the
financial statements, the Company's signiicant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Semple & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
December 22, 1998
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
United States Aircraft Corporation
I have audited the accompanying consolidated balance sheets of United States
Aircraft Corporation, and subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the two year period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these consolidated
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining on a test basis evidence
supporting the amounts and disclosure in the consolidated 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. I believe that my audits provide a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
States Aircraft Corporation, and subsidiaries as of September 30, 1997, and the
results of their operations and their cash flows for each of the years in the
two year period ended September 30, 1997, in conformity with generally accepted
accounting principles.
/s/ ROBERT MARTIN
Mesa, Arizona
March 19, 1998
F-3
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
1998 1997
---------- ----------
Current assets
Cash $ 8,070 $ 20,427
Accounts receivable, less
allowance for doubtful accounts
of $7,500 (1997) 75,902 69,311
Notes receivable 7,000 8,000
Prepaid expenses 7,844 21,800
---------- ----------
Total current assets 98,816 119,538
Advance to officer 27,769
Notes receivable, net of current
portion 39,544 52,044
Land held for future development 577,327
Investment
RVP- LLC
Neo Vision, Inc. 103,338
Property and equipment, net of
accumulated depreciation of
$79,023 (1998) and $ 65,962 (1997) 47,613 57,154
Goodwill, net of accumulated
amortization of $26,397 (1998) and
$22,428 (1997) 103,339 87,308
Agency acquisitions-goodwill, net of
accumulated amortization of $25,733
(1998) and $5,514 (1997) 84,555 104,774
Course materials 13,754 15,718
Other 13,874 24,527
---------- ----------
Total assets $ 504,833 $1,066,159
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1998 1997
----------- -----------
Current liabilities
Current portion of long term debt $ 26,000 $ 37,775
Notes Payable, bank, with interest at
10 1/2% due March 1999 30,000
Trust deed notes payable 601,000
Convertible debentures and
related accrued interest 90,041 82,938
Accounts payable 90,734 86,159
Accrued expenses 214,062 68,263
Unearned tuition 62,900 45,290
----------- -----------
Total current liabilities 513,737 921,425
Long term debt, net of
current portion 5,360 19,979
----------- -----------
Total liabilities 519,097 941,404
----------- -----------
Commitments
Stockholders' equity (deficit)
Common Stock
Class A: $.50 par value
10,000,000 shares authorized,
9,927,504 (1998) and
7,652,504 (1997) shares
issued and outstanding 4,963,752 3,826,252
Class B: $.001 par value,
5,000,000 shares authorized
4,962,801 shares issued and
outstanding 4,963 4,963
Paid-in-capital (deficit) (1,838,862) (751,827)
Accumulated (deficit) (3,144,117) (2,954,633)
----------- -----------
(14,264) 124,755
----------- -----------
Total liabilities and
Stockholders' equity (deficit) $ 504,833 $ 1,066,159
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Consolidated Statement of Operations
For the Three Years Ended
September 30, 1998, 1997, and 1996
1998 1997 1996
---- ---- ----
Revenue
Real estate education $ 494,258 $ 436,710 $ 343,788
Travel agency 1,281,689 776,544
Other 99,407 8,989 42,385
----------- ----------- -----------
Total revenue 1,875,354 1,222,243 386,173
Operating costs and expenses
Cost of sales - travel agency 1,163,825 699,669
Personnel expenses 351,224 292,437 183,700
Facility cost 69,851 57,192 22,025
Other operating costs 120,249 129,076 64,330
General and administrative 299,787 110,639 82,514
Interest 20,136 14,933 12,979
Loss from write off of plans and
Specifications 649,999
Depreciation and amortization 39,766 26,412 15,281
----------- ----------- -----------
2,064,838 1,330,358 1,030,828
----------- ----------- -----------
Income (loss) from continuing
operations (189,484) (108,115) (644,655)
Discontinued operations
Income of Hansen & Associates, Inc.
dba Property Masters 4,397 11,671
Gain on disposal of Hansen &
Associates, Inc. dba Property
Masters 53,796
----------- ----------- -----------
Net income (loss) $ (189,484) $ (49,922) $ (632,984)
----------- ----------- -----------
Basic Net income (loss) per share
from continuing operations $ (.01) $ (.01) $ (.06)
Basic Net income (loss) per share
from discontinued operations $ $ .01 $
----------- ----------- -----------
Basic Net income (loss) per share $ (.01) $ -- $ (.06)
----------- ----------- -----------
Weighted average number of shares
outstanding 13,309,055 11,391,138 10,808,846
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the Three Years Ended
September 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Capital Stock
-------------
Class A Class B
---------------------- ----------------- Paid-in
Number Number Capital Accumulated
of Shares Amount of Shares Amount (Deficit) (Deficit)
--------- ------ --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 4,907,504 $2,453,752 4,962,801 $4,963 $ 396,173 $(2,271,727)
Year ended September 30, 1996
Shares issued in acquisition
of Western College, Inc. 1,000,000 500,000 (450,000)
Shares issued in payment for
services rendered 375,000 187,500 (150,000)
Net (loss) (632,984)
--------- ---------- --------- ------ ----------- -----------
Balance, September 30, 1996 6,282,504 $3,141,252 4,962,801 $4,963 $ (203,827) $(2,904,711)
Year ended September 30, 1997
Shares issued in acquisition of
Western College, Inc. 200,000 100,000 (80,000)
Shares issued in travel agency
operations acquisition 500,000 250,000 (200,000)
Shares issued in acquisition of
land held for future development 250,000 125,000 (100,000)
Shares issued in payment for
services rendered 420,000 210,000 (168,000)
Net (loss) (49,922)
--------- ---------- --------- ------ ----------- -----------
Balance, September 30, 1997 7,652,504 $3,826,252 4,962,801 $4,963 $ (751,827) $(2,954,633)
Year ended September 30, 1998
Shares issued in acquisition of
Western College, Inc, 200,000 100,000 (80,000)
Shares issued for loan guarantee 75,000 37,500 (30,000)
Shares issued in acquisition of
Neo Vision, Inc. 2,000,000 1,000,000 (977,035)
Net Income (189,484)
--------- ---------- --------- ------ ----------- -----------
Balance September 30, 1998 9,927,504 $4,963,752 4,962,801 $4,963 $(1,838,862) (3,144,117)
--------- ---------- --------- ------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
UNITED STATES AIRCRAFT CORPORATION
Consolidated Statements of Cash Flows
For the Three Years Ended
September 30, 1998, 1997, and 1996
1998 1997 1996
---- ---- ----
Cash flows from operating activities
Net income, (loss) $(189,484) $ (49,922) $(632,984)
Adjustments to reconcile net
income, (loss) to cash provided
by (used in) operating activities
(Income) loss from discontinued operations (4,397) (11,671)
Depreciation 13,061 10,788 8,792
Amortization 26,705 15,624 8,079
Allowance for doubtful accounts 7,500
Gain on disposal of operations (53,796)
Class A Shares issued in payment
for services rendered 7,500 42,000 37,500
Gain from write off of long term debt (30,000)
Loss from write off of plans
and specifications 649,999
Change in assets and liabilities
net of effects from acquisition
Accounts receivable (5,591) (21,977) (31,661)
Other (70,273) (3,069) (15,466)
Prepaid expenses 13,956 (14,609) (5,939)
Notes payable 30,000
Accounts payable 4,575 63,839 6,338
Accrued expenses 145,799 32,052 (14,678)
Unearned tuition 17,610 9,992 20,240
--------- --------- ---------
Net cash provided by (used in) operating
activities of continuing operations (6,142) 34,025 (11,451)
Net cash provided by (used in) discontinued
operations 2,917
--------- --------- ---------
Net cash provided by (used in) operating
activities (6,142) 34,025 (8,534)
Cash flows from investing activities
Changes in advance to officer 27,769 2,815 (4,399)
Decrease in notes receivable 12,500
Cash provided from acquisition of
Western College, Inc. 4,145
Addition to land for future development (51,327)
Investment in RVP-LLC (23,673)
Additions to intangible assets, net (61,172)
Additions to property and equipment (3,520) (7,580) (8,826)
--------- --------- ---------
Net cash provided by (used in)
investing activities 13,076 (117,264) (9,080)
Cash flows from financing activities
Increase in convertible debentures
and related accrued interest 7,103 8,879 17,609
Increase in trust deed notes payable 100,000
Proceeds from long term debt 36,822
Decrease in long term debt (26,394) (15,350) (32,339)
--------- --------- ---------
Net cash provided by (used in)
financing activities (19,291) 93,529 22,092
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (12,357) 10,290 4,478
Cash, beginning of year 20,427 10,137 5,659
--------- --------- ---------
Cash, end of year $ 8,070 $ 20,427 $ 10,137
--------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND
USE OF ESTIMATES
NATURE OF OPERATIONS
Unites States Aircraft Corporation (Company) was incorporated in Delaware on
October 6, 1978, and commenced operations in April, 1980. The Company, operating
solely in Arizona provides real estate educational services through its wholly
owned subsidiaries Western College, Inc. and Ford Schools, Inc. doing business
as Westford College. Travel agency services are provided through its wholly
owned operating division FirsTravel.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United States
Aircraft Corporation and its wholly owned subsidiaries except Neo Vision, Inc.
whose exchange agreement was entered into on June 30, 1998. Neo Vision, Inc. has
not been consolidated until its acquisition has been fully assured. See Note 6.
All significant intercompany transactions and balances have been eliminated in
consolidation.
RECOGNITION OF REVENUE
Real estate education services tuition fees are generally paid in advance and
recorded as unearned tuition. Tuition revenue is recognized when students attend
classes. Travel agency revenues are recognized at the time of booking travel
arrangements.
Included in revenue during the year ended September 30, 1996, is $30,000 related
to the reduction of certain accrued obligations recorded in prior years.
INDUSTRY SEGMENTS
During 1998 and 1997, approximately 53% and 44%, respectively, of the Company's
travel agency revenue was received from the airline industry. In 1997, the major
airlines reduced their commission rate from ten percent to eight percent, and
set a maximum amount paid on certain commissions. The company subsequently
adopted a policy of charging a service fee for airline tickets issued, and will
continue to promote other forms of leisure travel, such as tours and cruises,
where the commissions are generally higher. However, any adverse change in the
airline industry could have a material effect on the future operations of the
Company.
F-9
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial statements (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND
USE OF ESTIMATES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been included in the financial statements or
income tax returns. Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
PROPERTY AND EQUIPMENT
Property and equipment consists of office furniture and equipment recorded at
cost, and is depreciated using the straight line method over their estimated
useful lives ranging from five to ten years.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts represents an amount which, in managements
judgement, will be adequate to absorb probable losses on existing accounts
receivable that may become uncollectible.
PLANS AND SPECIFICATIONS
The Company owns plans and specifications for the turbo-prop engine conversion
for the DC-3/C-47 aircraft, and has investigated methods of realizing this
investment. Possible methods to realize the Company's investment in the plans
and specifications include a new licensing agreement, sale of the plans and
specifications, acquisition or by obtaining financing and successful future
development. As of September 30, 1996, the Company was unable to identify any
cash flows from its investment in the plans and specifications. Accordingly, an
impairment loss of $649,999, that represents the excess of the carrying amount
over the present value of the identifiable net cash flow, has been included in
operations for the year ended September 30, 1996.
F-10
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND
USE OF ESTIMATES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset and a review of industry conditions. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or net realizable
value. As more fully described in the preceding paragraph, "plans and
specifications", the Company recorded an impairment loss of $649,999 during the
year ended September 30, 1996.
GOODWILL
Goodwill results from acquisitions of subsidiaries in which the acquisition cost
exceeded the book value of the net assets acquired. Goodwill is being amortized
using the straight line method over 25 years.
AGENCY ACQUISITIONS
Agency acquisitions result from acquiring travel agency operations and assets in
which the acquisition cost exceeded the book value of net assets acquired and
represent the travel agency's base of customers and home-based travel agents.
Agency acquisitions are being amortized using the straight line method over five
years.
COURSE MATERIALS
Course materials represent the initial cost of the Principles of Real Estate
textbook. The textbook is updated annually and the annual costs are expensed as
incurred. Due to the acquisition of Western College, Inc. and the resulting
change in the use of the textbook, the Company is amortizing the initial cost
over a ten year period.
EARNINGS PER SHARE
Basic earnings per share amounts are based upon the average number of shares
outstanding. The effect of debentures convertible into Class A common stock on
the earnings per share calculations are antidilutive and therefore diluted
earnings per share are not presented.
ADVERTISING
The Company expenses advertising costs when the advertisement occurs. Total
advertising expenses amounted to $14,417, $11,308 and $8,045 in 1998, 1997 and
1996, respectively. There were no capitalized advertising costs for the periods
presented.
F-11
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND
USE OF ESTIMATES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATION
Certain items included in prior years' financial statements have been
reclassified to conform to the current year financial statement classification.
NOTE 2 - INCOME TAXES
At September 30, 1998, the Company had the following net operating loss and
credit carryovers for income tax purposes:
Taxable Year of Net
Year Expiration Operating Loss
------- ---------- --------------
1996 2011 556,000
1997 2012 77,000
The income tax effect of the net operating loss carryforward gives rise to a
deferred income tax asset as follows:
1998 1997
---------- ----------
Net operating loss carryforwards $ 663,000 $2,654,000
---------- ----------
Gross deferred tax assets 316,000 $1,327,000
Deferred tax asset valuation allowance 316,000 1,327,000
---------- ----------
Net deferred tax asset $ -- $ --
---------- ----------
F-12
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to consolidated Financial Statements (continued)
NOTE 2 - INCOME TAXES (CONTINUED)
The gross deferred tax deferred tax asset is reduced by a valuation allowance
based when upon management's estimate it is more likely than not that the tax
benefits will not be realized. The decrease in the valuation allowance during
the year ended September 30, 1998, is $1,011,000.
NOTE 3 - ADVANCES TO OFFICER
Advances to officer represent non-interest bearing advances with no stated terms
of repayment.
NOTE 4 - NOTES RECEIVABLE
The Company has notes receivable from the sale of Hansen & Associates, Inc. dba
Property Masters consisting of the following:
Note receivable from individual due
in semi-annual payments plus interest
at 7 1/2% $26,500
Non-Compete payments due in monthly
installments of $500 net of imputed interest
by $4,956 20,044
-------
46,544
Less current portion 7,000
-------
Balance September 30, 1998 $39,544
-------
NOTE 5 - INVESTMENTS - RVP-LLC
The Company has formed RVP-LLC, an Arizona limited liability company for the
purpose of owning recreational vehicle parks that will be leased to and operated
by the company.
The Company for over two years has investigated the recreational vehicle park
industry and instituted a program to establish a Chain of RV Parks. In
connection therewith, the Company has earned a consulting fee for its research
and development of the RV Parks program from which it will contribute $1,700,000
to RVP-LLC leaving $300,000 of consulting revenue which for financial reporting
purposes will be recognized when it is received.
On June 30, 1998 the Company approved the transfer to RVP-LLC of the 35.66 acres
of land in Glenn County, California subject to trust deeds payable in the amount
of $601,000. The land was acquired for the purpose of developing the initial
recreational vehicle park of the planned chain of RV parks. The holder of the
second trust deed filed a notice of default due to non payment of interest. The
LLC determined not to reinstate the defaulted trust deed and in August 1998
RVP-LLC lost the California land in a foreclosure sale.
At September 30, 1998, the members equity of RVP-LLC is $1,707,500 and consists
primarily of the $1,700,000 capital contribution to be received from the
consulting fee. For financial reporting purposes The Company has not recognized
any equity in RVP-LLC until the capital contribution of $1,700,000 is received.
The Company's interest in the RVP-LLC if the capital contributions were
recognized would be approximately $135,988.
F-13
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 6 - ACQUISITIONS
Effective January 1, 1996 the Company acquired all of the outstanding shares of
Western College, Inc. a real estate training organization whose operations have
been combined with the Company's wholly owned subsidiary, Ford Schools, Inc. The
acquisition was through a tax-free exchange of stock, resulting in the issuance
of 1,000,000 shares of the Company's Class A common stock plus an agreement to
issue an additional 600,000 Class A shares over the following three years
contingent on the gross tuition revenue equaling or exceeding $250,000 per year.
The acquisition is being accounted for by the purchase method. The 1,000,000
shares of Class A common stock has been recorded for accounting purposes at
$50,000. During each of the years ended September 30, 1998 and 1997, an
additional 200,000 shares of Class A common stock were issued pursuant to the
acquisition agreement and recorded for accounting purposes at $20,000. The
$90,000 purchase price exceeds the book value of the net assets of Western
College, Inc. by $99,361 which has been allocated as follows:
Property and equipment $31,713
Goodwill 67,648
The property and equipment is being depreciated over seven years and the
goodwill is being amortized over 25 years. Operations of Western College have
been included in the consolidated statement of operations from the date of
acquisition.
Supplemental cash flow information related to the assets acquired and
liabilities assumed from the acquisition of Western College, Inc., is as
follows:
Assets
Accounts receivable $ 4,500
Property and equipment 31,713
Goodwill 47,648
Deposits 1,904
-------
85,765
Liabilities
Current liabilities 13,587
Long-term debt 6,323
-------
19,910
Class A common shares of
the Company issued for
acquisition 70,000
-------
Cash provided from acquisition $ 4,145
-------
The Company, through asset acquisitions, implemented its travel services
division on July 1, 1997. Effective July 1, 1997, the Company purchased certain
assets of Travel Easy Inc., and in August, 1997, the assets of FirsTravel, both
of which were full service travel agencies. The Travel Easy agency has been
closed and its approximately 175 independent contractor Home Based Travel Agents
became affiliated with the Company's travel agency operated as FirsTravel.
F-14
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 6 - ACQUISITIONS (CONTINUED)
The acquisitions are being accounted for by the purchase method. The acquisition
price of $160,643 included the assumption of certain liabilities totaling
$110,643 and the issuance of 500,000 shares of Class A common stock which has
been recorded for accounting purposes at $50,000. The acquisition of the
Company's travel agency operations resulted in the acquisition cost exceeding
the cost of the assets acquired by $110,288. The excess has been recorded as
agency acquisitions-goodwill. At September 30, 1998 and 1997, accumulated
amortization on the agency acquisition is $25,733 and $5,514, respectively.
The results of operations of Western College, Inc., are included in the
consolidated statement of operations since January 1, 1996, the date of
acquisition. The results of operations of the travel services division are
included in the consolidated statement of operations beginning July 1, 1997, the
date of acquisition.
The following supplemental unaudited pro forma information has been prepared
assuming Western College, Inc., and the predecessor travel services operations
had been acquired as of the start of the years ended September 30:
1997 1996
---- ----
Revenue $5,727,606 $2,874,314
---------- ----------
Net income (loss) $ 102,887 $ (472,461)
---------- ----------
Per share based on weighted
average shares of 10,870,305 $ .01 $ (.04)
---------- ----------
At June 30, 1998 the Company acquired all of the outstanding shares of Neo
Vision, Inc. whose principal business purpose is to provide advertising,
programming and information to remote audiences using computer, video and
transmission technology throughout the United States. The merger was closed with
the exchange of 2,000,000 shares of the Company's Class A common stock for all
of the outstanding shares of Neo Vision, Inc. The exchange agreement requires
that an amendment and restatement of the Company's Certificate of Incorporation
be approved by the stockholders authorizing (i) the reclassification of the
Company's Class A Common Stock and Class B Common Stock in a single new class of
Common Stock ("New Common Stock,") pursuant to the following ratios: shares of
Class A Common Stock will be reclassified into shares of New Common Stock on the
basis of 10 shares of Class A Common Stock into one share of New Common Stock
and 13 shares of Class B Common Stock into one share of New Common Stock; (ii)
the issuance of up to 100,000,000 shares of New Common Stock: (iii) the issuance
of up to 75,000,000 shares of preferred stock: (iv) the change of the name of
the Company from United States Aircraft Corporation to Neo Vision Systems, Inc.
and (v) make certain technical amendments to the Company's Certificate of
Incorporation. The exchange agreement provides that if the amendment and
restatement of the Certificate of Incorporation is not approved by a majority of
each of the Class A and Class B stockholders then the Neo Vision stockholders
can each elect to rescind their exchange of shares with the Company.
F-15
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 6 - ACQUISITIONS (CONTINUED)
The financial statements of Neo Vision, Inc. will not be consolidated with the
Company, until approval of the amendment and restatement of the Certificate of
incorporation is fully assured. At September 30, 1998, the investment in Neo
Vision, Inc. representing the initial 2,000,000 Class A Common Stock shares
issued for all of the outstanding shares of Neo Vision, Inc. and has been
recorded for financial reporting purposes at $22,965. The investment, Neo
Vision, Inc, includes the following:
Acquisition of Neo Vision, Inc
common shares $ 22,965
Receivable from Neo Vision Inc. 80,373
--------
$103,338
--------
Upon approval of the amendment and restatement of the Certificate of
Incorporation an additional 3,977,560 shares of the New Common Stock will be
issued to the former stockholders of Neo Vision, Inc., approximately 973,000
shares of the New Common Stock will be in exchange for the outstanding Neo
Vision, Inc convertible debentures and 753,000 shares of the New Common Stock
issued in payments of fees to a Neo Vision, Inc. financial advisor. When the
acquisition of Neo Vision, Inc is fully assured it will be accounted for under
the purchase method of accounting as a reverse merger with Neo Vision, Inc.
being the acquirer for financial reporting purposes. See Note 16 for pro forma
financial information showing the consolidated pro forma balance sheet and
operating statements as if the acquisition was fully assured and consumated at
September 30, 1998.
NOTE 7 - GOODWILL
The acquisition of the Company's wholly owned subsidiaries, Western College,
Inc. and Ford Schools, Inc. each resulted in the acquisition cost exceeding the
book value of the net assets acquired. The excess has been recorded as goodwill
and is summarized as follows:
Ford Schools, Inc. $62,088 25 years
Western College, Inc. 67,648 25 years
---------
129,736
Less accumulated
amortization 26,397
---------
$ 103,339
---------
NOTE 8 - CONVERTIBLE DEBENTURES
The convertible debentures of $56,450 and accrued interest of $33,591 in 1998
and $26,488 in 1997 that were due in December, 1996, are convertible into common
shares at $.75 per share. The debentures bear interest at rates of 12% to 14%
per annum. Currently, the debentures remain unpaid and are in default.
F-16
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 9 - LONG TERM DEBT
At September 30, 1998 and 1997, long term debt consists of the following:
1998 1997
------- -------
Note payable, bank, due in monthly
principal payments of $833 plus
interest at 10.5% per annum $ 8,333 $16,665
Notes and payables to trade creditors
with interest ranging from 10% to 18% 23,027 41,089
------- -------
31,360 57,754
Less current portion 26,000 37,775
------- -------
$ 5,360 $19,979
------- -------
At September 30, 1998, maturities of long term debt are as follows:
Year ended
September 30,
-------------
1998 $26,000
1999 5,000
2000 360
-------
$31,360
-------
Substantially all assets are pledged as collateral for long term debt.
NOTE 10 - TRUST DEED NOTES PAYABLE
At September 30, 1997, trust deed notes payable consist of the following:
First trust deed, bearing interest at 14.5% per annum, payable in
$2,066 monthly installments of interest only, due February, 1999 $171,000
Second trust deed, bearing interest at 16% per annum, payable in
$1,333 monthly installments of interest only, due February, 1999 100,000
Seller carryback, bearing interest at 10% per annum, payable in
$2,750 monthly installments of interest only, due February, 2001 330,000
--------
$601,000
--------
On June 30, 1998 the land held for future development subject to the trust deeds
payable was transferred to RVP-LLC a limited liability company formed by the
Company. See note 5.
F-17
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The real estate training services operation leases two classroom facilities,
which include an office facility, pursuant to long term leases with monthly rent
of $4,500. The travel agency operation leases office facilities pursuant to a
long term lease with monthly rent of $333. The Company also has leased certain
computer equipment at a monthly rental of $450 plus taxes and insurance.
Minimum lease payments on long term operating leases are as follows:
Year ended
September 30,
-------------
1999 40,154
2000 35,812
2001 30,445
--------
$106,411
========
Rent expense under these operating leases totaled $73,022, $59,002 and $17,800
for the years ended September 30, 1998, 1997 and 1996 respectively.
The Company is not currently involved in any material litigation.
NOTE 12 - CAPITAL STOCK
The Company's articles of incorporation authorize issuance of two classes of
stock, Class A common stock and Class B common stock. The rights of the Class A
and Class B stockholders differ in the following respects:
The Class A stock has a preference in distribution of the
Company's assets upon liquidation in the amount of $.50 per
share. The liquidation preference is to be reduced by $.005 for
each $.01 of dividends paid on the Class A stock.
Dividends are not to be paid on the Class B stock until
dividends aggregating $.50 per share have been paid on the Class
A stock. Thereafter, both classes of stock are to share ratably
in dividends.
When an aggregate of $1.00 per share in dividends has been paid
on the Class A stock, the Class A stock and the Class B stock
are to be identical in all respects.
The Company intends to request stockholder authorization for New Common Shares
and the reclassification of the Class A and Class B shares into the New Common
shares. See Note 6.
F-18
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 13 - DISCONTINUED OPERATIONS
On September 30, 1997, the Company sold its wholly-owned subsidiary Hansen &
Associates, Inc. dba Property Masters to the President of Hansen & Associates,
Inc. Operating results of Hansen & Associates, Inc. are shown separately in the
accompanying income statements as discontinued operations for the years ending
September 30, 1997 and 1996.
NOTE 14 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
unearned tuition approximate fair value because of the short maturity of those
instruments. Financial instruments in notes receivable has no quoted market
prices and, accordingly, a reasonable estimate of fair market value could not be
made without incurring excessive costs. However, the Company believes by
reference to stated interest rates and land held, that the fair value of the
assets would not differ significantly from the carrying value.
Based on prevailing interest rates, the Company estimates that the fair value of
the Company's long-term debt, convertible debentures and related accrued
interest, and trust deed notes payable, approximates carrying value.
NOTE 15 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is the cash paid for interest for the three years ended September
30, 1998, 1997, and 1996:
1996 $ 6,841
1997 $27,106
1998 $ 8,783
Supplementary schedule of non-cash activities:
For the year ended September 30, 1996:
Class A shares issued in payment for services rendered $ 37,500
For the year ended September 30, 1997:
Class A shares issued in payment for services rendered $ 42,000
Acquisition of land held for future development:
Class A shares issued 25,000
Assumption of trust deed notes payable 501,000
Class A shares issued in acquisition of Western College, Inc. 20,000
Class A shares issued in acquisition of travel agency operations 50,000
Notes receivable received as consideration for sale of business 60,044
F-19
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 15 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
For the year ended September 30, 1998:
Class A shares issued in acquisition of Western College, Inc 20,000
Class A shares issued in acquisition of Neo Vision, Inc. 22,965
Class A shares issued for loan guarantee 7,500
The Class A shares issued for services during the years ended September 30,1997
and 1996 were to the board of directors, and an officer and shareholder of the
Company.
NOTE 16 - BUSINESS SEGMENTS
In 1996, the Company's operations consisted of real estate educational services.
In 1997, it expanded into the travel services business, and certain financial
information related to these two business segments for 1998 and 1997 is
summarized as follows:
Real Estate Travel Corporate &
education services eliminations Consolidated
--------- -------- ------------ ------------
Year ended September 30, 1997
Sales $436,710 $ 776,544 $ 8,989 $1,222,243
Operating income (loss) 38,713 (27,113) (119,715) (108,115)
Identifiable assets 216,583 164,256 685,320 1,066,159
Capital expenditures 4,248 11,570 (8,238) 7,580
Depreciation and
amortization 12,519 10,023 3,870 26,412
Year ended September 30, 1998
Sales $494,258 $1,281,689 $ 99,407 $1,875,354
Operating income (loss) 76,910 (44,111) 162,381 (129,582)
Identifiable assets 240,871 102,946 597,004 940,821
Capital expenditures 3,520
Depreciation and
Amortization 12,877 22,534 4,355 39,766
F-20
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE 17 - PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro forma Consolidated Balance Sheets of United Stated
Aircraft Corporation as of September 30, 1998 sets forth the consolidation of
United States Aircraft Corporation with Neo Vision, Inc. under the purchase
method of accounting with a reverse merger and Neo Vision, Inc. being the
acquirer for financial reporting purposes. The pro forma adjustments report the
exchange of the Class A and Class B shares for the New Common stock, the
issuance of 4,577,560 additional New Common shares pursuant to the Exchange
Agreement and approximately 1,126,000 of New Common shares for the conversion of
the Neo Vision, Inc convertible debentures.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS - September 30, 1998
<TABLE>
<CAPTION>
United States
Aircraft Corp. Neo Vision Pro Forma Neo Vision
ASSETS And Subsidiaries Incorporation Combined Adjustments Systems Inc.
---------------- ------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash $ 8,070 $ 83,577 $ 91,647 $ 91,647
Accounts Receivable 75,902 22,699 98,601 98,601
Notes Receivable 7,000 7,000 7,000
Prepaid expenses 7,844 1,349 9,193 9,193
----------- ---------- ----------- ----------
Total current assets 98,816 107,625 206,441 206,441
Investment, Neo Vision, Inc. 103,338 103,338 (103,338)(3)(4)(5)
Note receivable, net of current
portion 39,544 39,544 39,544
Property & equipment, net 47,613 584,094 631,707 631,707
Investment in RVP-LLC
Agency acquisition, net of
amortization 84,555 84,555 84,555
Goodwill, net 103,339 103,339 103,339
Course materials 13,754 13,754 13,754
Other 13,874 18,768 32,642 32,642
----------- ---------- ----------- ----------
Total assets 504,833 710,487 1,215,320 1,111,982
----------- ---------- ----------- ----------
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities
Note Payable, bank $ 30,000 15,000 45,000 45,000
Current portion of
long-term debt 26,000 26,000 26,000
Convertible debentures &
related accrued interest 90,041 746,164 836,205 (746,164) 90,041
Accounts payable 90,734 273,721 364,455 364,455
Accrued expenses 214,062 119,259 333,321 (100,301) 233,020
Unearned revenue 62,900 15,148 78,048 78,048
----------- ---------- ----------- ----------
Total current liabilities 513,737 1,169,292 1,683,029 836,564
Due to United States Aircraft Corp. 80,373 80,373 (80,373)
Long term debt, net 5,360 5,360 5,360
Minority Interest in NV-1, LLC 130,436 130,436 130,436
Stockholders' Equity - Capital stock
Class A: $.50 par value,
9,927,504 issued 4,963,752 4,963,752 (4,963,752)
Class B: $.001 par value,
4,962,801 issued 4,963 4,963 (4,963)
Common Stock, Neo Vision, Inc 6,250 6,250 (6,250)
New Common Shares
$.001 par value, 7,078,303 issued 7,078(1)(2)(3)(6) 7,078
Paid in Capital (1,838,862) (1,838,862) 2,647,270(1)(2)(3)(6) 808,408
Retained earnings (deficit) (3,144,117) (675,864) (3,819,981) 3,144,117 (675,864)
----------- ---------- ----------- ----------
(14,264) (669,614) (683,878) 139,622
----------- ---------- ----------- ----------
Total liabilities and
stockholders' equity $ 504,833 $ 710,487 $ 1,215,320 $1,111,982
=========== ========== =========== ==========
</TABLE>
See explanation of pro forma adjustments on following page.
F-21
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 17 - PRO FORMA FINANCIAL INFORMATION (CONTINUED)
Pro Forma Adjustments:
1. To record the exchange of Class A shares outstanding for the New
Common shares on the basis of 10 Class A shares for 1 New Common
Share.
2. To record the exchange of Class B shares outstanding for the New
Common shares on the basis of 13 Class B shares for 1 New Common
shares.
3. To record the 4,577,560 additional New Common shares to be issued to
the former Neo Vision, Inc. shareholders pursuant to the June 30, 1998
exchange agreement.
4. To record elimination of intercompany investment on Neo Vision, Inc
using the purchase method of accounting with a reverse merger and Neo
Vision, Inc being the acquirer for financial reporting purposes.
5. To eliminate intercompany receivables and payables.
6. To record the conversion of the Neo Vision, Inc convertible debentures
and the payment of financial consulting fees all through the issuance
of approximately 1,126,000 shares of New Common stock.
F-22
<PAGE>
UNITED STATES AIRCRAFT CORPORATION, AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 17 - PRO FORMA FINANCIAL INFORMATION (CONTINUED)
The following unaudited consolidated statements of operations of Unites States
Aircraft Corporation for the year ended September 30, 1998 sets forth the
consolidation of United States Aircraft Corporation with the Neo Vision, Inc.
under the purchase method of accounting as of the acquisition was competed on
October 1, 1998.
UNAUDITED PROFORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
United States Neo Vision
Aircraft Corp. Pro Forma Systems
And Subsidiaries Neo Vision, Inc. Adjustments Consolidated
---------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue
Real estate education $ 494,258 $ 494,258
Travel Agency 1,281,689 1,281,689
Video Wall advertising 102,209 102,209
Other 99,407 745 (90,000)(1) 10,152
----------- --------- ----------
Total revenue 1,875,354 102,954 1,888,308
----------- --------- ----------
Expenses
Cost of sales travel agency 1,163,825 1,163,825
Personnel expenses 351,224 297,029 648,253
Facility cost 69,851 81,360 151,211
Other operating cost 120,249 181,725 301,974
General and administration 299,787 90,000 (90,000)(1) 299,787
----------- --------- ----------
Total expenses 2,004,936 650,114 2,565,050
----------- --------- ----------
Income (loss) before interest
Expense; Minority interest,
depreciation and amortization (129,582) (547,160) (676,742)
Interest expense 20,136 61,008 81,144
Minority interest in NV-1 LLC loss (44,564) (44,564)
Depreciation and amortization 39,766 112,260 152,026
----------- --------- ----------
Net income (loss) $ (189,484) $(675,864) $ (865,348)
----------- --------- ----------
Pro forma net income (loss) per
New common shares (2) (.12)
----------
</TABLE>
- ----------
(1) To eliminate intercompany management fees.
(2) Based on pro forma shares of 7,078,303 to be outstanding after the exchange
of Class A and B shares for the New Common shares to be authorized and the
New Common shares to be issued in the acquisition of Neo Vision, Inc., the
conversion of the Neo Vision, Inc. convertible debentures and the payment
of financial consulting fees.
F-23
<PAGE>
18 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates continuation
of the Company as a going concern. However, the Company has sustained continuing
operating losses.
As shown in the accompanying statement of operations, the Company has incurred a
net loss of $189,484 for the year ended September 30, 1998. Unaudited
information subsequent to September 30, 1998 indicates that losses are
continuing. As of September 30, 1998, the accompanying balance sheet reflects
$14,264 in net stockholders' deficit and negative working capital of $414,921.
The above conditions indicate that the Company may be unable to continue in
existence. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts, or the amounts
and classification of liabilities that might be necessary should the Company be
unable to continue in existence.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors of
Neo Vision, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Neo Vision, Inc.
and Subsidiary as of September 30, 1998, and the related consolidated statements
of operations, changes in shareholders' equity (deficit), and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neo Vision, Inc. and
Subsidiary as of September 30, 1998, and the results of its operations, changes
in shareholders' equity (deficit), and its cash flows for the year 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 discussed in Note 8 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Semple & Cooper, LLP
Certified Public Accountants
Phoenix, Arizona
December 2, 1998
F-25
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1998
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 83,577
Accounts receivable, net (Note 1) 22,699
Debt issue costs, net (Note 1) 18,588
Prepaid expenses 1,349
-----------
Total Current Assets 126,213
-----------
Property and Equipment: (Note 1)
Furniture and fixtures 9,783
Home office equipment 92,565
Video walls 519,655
-----------
622,003
Less: accumulated depreciation (37,909)
-----------
584,094
-----------
Deposits 10,000
Deferred Financing costs (Note 1) 8,768
-----------
Total Assets 18,768
-----------
$ 729,075
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Note payable (Note 2) $ 15,000
Convertible debentures (Note 3) 800,750
Accounts payable 273,721
Accrued taxes and other 25,950
Accrued interest payable 57,312
Deferred revenue 15,148
Due to a related entity (Note 4) 80,373
-----------
Total Current Liabilities 1,268,254
=========
Commitments (Note 5) --
Minority Interests (Note 1) 130,436
-----------
Shareholders' Equity (Deficit):
Common stock, $.001 par value, 25,000,000
shares authorized, 6,250,000 shares issued
and outstanding 6,250
Accumulated deficit (675,865)
-----------
(669,615)
-----------
Total Liabilities and Shareholders'
Equity (Deficit) $ 729,075
===========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-26
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For The Year Ended September 30, 1998
Revenues $ 102,954
Operating Costs and Expenses:
Personnel expenses 271,888
Facility costs 73,480
Sales and marketing expense 60,341
General and administrative expenses 244,406
Depreciation and amortization 112,260
---------
Loss from Operations (659,421)
Interest expense (61,008)
Minority Interest in NV-1, LLC Loss 44,564
---------
Net Loss $(675,865)
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-27
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(DEFICIT)
For The Year Ended September 30, 1998
Total
Share-
Common Stock Holders'
------------ Accumulated Equity
Shares Amount Deficit (Deficit)
------ ------ ------- ---------
Balance at September 30, 1997 -- $ -- $ -- $ --
Stock issued for services 6,250,000 6,250 -- 6,250
Net loss for the year ended
September 30, 1998 -- -- (675,865) (675,865)
--------- ------ --------- ---------
Balance at September 30, 1998 6,250,000 $6,250 $(675,865) $(669,615)
========= ====== ========= =========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-28
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Year Ended September 30, 1998
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 80,255
Cash paid to suppliers and employees (349,163)
Interest paid (3,696)
---------
Net cash used by operating
activities (272,604)
---------
Cash flows from investing activities:
Purchase of fixed assets (622,003)
---------
Net cash used by investing
activities (622,003)
---------
Cash flows from financing activities:
Proceeds from debt 25,000
Proceeds from convertible debentures 707,811
Capital contributions of minority interests 175,000
Advances from parent company 80,373
Repayment of debt (10,000)
---------
Net cash provided by financing
activities 978,184
---------
Net increase in cash and cash equivalents 83,577
Cash and cash equivalents at beginning of year --
---------
Cash and cash equivalents at end of year $ 83,577
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-29
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For The Year Ended September 30, 1998
Reconciliation of Net Loss to Net Cash
Used by Operating Activities:
Net Loss $(675,865)
---------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 112,260
Minority interest in NV-1, LLC Loss (44,564)
Stock issued for services 6,250
Changes in Assets and Liabilities:
Accounts receivable, net (22,699)
Prepaid expenses (1,349)
Deposits (10,000)
Financing costs (8,768)
Accounts payable 273,721
Accrued taxes and other 25,950
Accrued interest payable 57,312
Deferred revenue 15,148
---------
403,261
---------
Net cash used by operating activities $(272,604)
=========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-30
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Nature of Operations and Use of
Estimates:
Nature of Operations:
Neo Vision, Inc. is a Corporation which was duly formed and organized under
the laws of the State of Arizona on June 29, 1997. The Company was dormant
until October 1, 1997 when operations commenced. The principal business
purpose of the Company is to provide advertising, programming and
information to remote audiences using computer, video and transmission
technology throughout the United States.
NV-1, LLC, is a limited liability company which was formed in August, 1997.
The Company was dormant until October 1, 1997 when operations commenced.
Neo Vision, Inc. owns an approximate seventy-five percent (75%) interest in
the company. The principal business purpose of the Company is to own and
operate a video screen, using Neo Vision, Inc.'s technology, at Meadows
Mall in Las Vegas, Nevada. Minority Interests represents capital
contributions of NV-1, LLC's minority partners less their proportionate
share of that entities losses.
Merger:
On June 30, 1998, the Company entered into a merger agreement with United
States Aircraft Corporation by exchanging all of its common stock for
2,000,000 shares of Class A common stock of United States Aircraft
Corporation (USAC). Up to an additional 4,577,560 shares will be exchanged
upon USAC's shareholders approving a change in their equity structure, as
well as several other conditions occurring. The merger constituted a
tax-free reorganization and will be accounted for as a reverse merger with
Neo Vision, Inc. as the accounting acquirer. The consolidated financial
statements include only the results of the Company for the period
presented, as the transaction can be reversed if the approval of the USAC
shareholders is not received.
Principles of Consolidation:
The consolidated financial statements include the accounts of Neo Vision,
Inc., and its subsidiary, NV-1, LLC. All significant intercompany accounts
and transactions have been eliminated in the accompanying consolidated
financial statements.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents:
Cash equivalents are considered to be all highly liquid investments
purchased with an initial maturity of three (3) months or less.
Accounts Receivable:
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense as a
percentage of accounts receivable based on a review of the individual
accounts outstanding, and the Company's prior history of uncollectible
accounts receivable. At September 30, 1998, no allowance has been
established for potentially uncollectible accounts receivable, as in the
opinion of management, all amounts are considered fully collectible.
F-31
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies, Nature of Operations and Use of
Estimates: (Continued)
Debt Issue Costs:
Debt issue costs represent costs incurred in connection with the Company's
convertible debenture offering. Debt issue costs are being amortized
ratably over the life of the debentures. Amortization expense for the year
ended September 30, 1998 was $74,351.
Property and Equipment:
Propertyand equipment are recorded at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the
assets. Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Betterments or renewals are capitalized when incurred. For the
year ended September 30, 1998, depreciation expense was $37,909.
A summary of the estimated useful lives is as follows:
Furniture and fixtures 5 years
Home office equipment 5 years
Video walls 10 years
Deferred Financing Costs:
Deferred financing costs represent costs incurred in connection with the
Company's attempt to secure a bank loan. Financing costs will be charged
ratably over the life of the loan if successfully completed or will be
charged as a period cost if the loan is not secured (See Note 8).
Income Taxes:
For the year ended September 30, 1998, no provisions were made for federal
or state income tax expense due to the net operating loss.
Deferred income taxes arise from timing differences resulting from revenues
and expenses reported for financial accounting and tax reporting purposes
in different periods. Deferred income taxes represent the estimated tax
asset or liability from different depreciation methods used for financial
accounting and tax reporting purposes and for timing differences in the
utilization of net operating loss carryforwards and valuation allowances.
Fair Value of Financial Instruments:
The fair value of the Company's notes payable and convertible debentures is
based on rates currently available from the bank for debt with similar
terms and maturities. The carrying amounts of accounts receivable, debt
issue costs, and deferred revenue approximate fair value because of the
short-term maturity of these items.
2. Note Payable:
At September 30, 1998, note payable consisted of the following:
$25,000 note payable to a bank, bearing interest
at the bank's Index Rate plus 3%, due on demand;
guaranteed by officers of the Corporation. $15,000
=======
F-32
<PAGE>
NEO VISION, INC.AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Convertible Debentures:
At September 30, 1998, convertible debentures consisted of the following:
Series A, bearing interest at 12%, payable in common stock,
convertible at a rate of $1.00 per share, due December,
1998. $472,000
Series B, bearing interest at 10%, payable in common stock,
convertible at a rate of $1.00 per share, due May, 1999. 190,000
Series C, bearing interest at 12%, payable in common stock,
convertible at a rate of $1.25 per share, due May, 1999. 138,750
--------
$800,750
========
The debentures further provide for automatic conversion into common stock
of the Company upon completion of a merger with a public reporting entity.
If all of the debentures convert, Neo Vision, Inc. would issue 833,325
shares of its common stock as of September 30, 1998, to convert the
outstanding principal balance of $800,750 and accrued interest of $57,312.
As of the date of this report, the Series A convertible debentures have not
been paid. The conversion is pending completion of the merger (See Note 1).
The Company further agreed to engage a consultant to assist in the
placement of the debentures. The agreement provides for the payment of a 5%
finders fee, plus the issuance of 756,828 shares of Neo Vision, Inc. common
stock when certain provisions are met, plus warrants for the purchase of
160,150 shares of Neo Vision, Inc. at $3.00 per share. None of the warrants
have been exercised as of September 30, 1998. Issuance of the common stock
has been held in abeyance pending the merger.
4. Due to a Related Entity:
At September 30, 1998, $80,373 is due to USAC. The amount represents
advances received from USAC, is non-interest bearing, and considered
short-term in nature.
5. Lease Obligations:
The Company leases office space in Phoenix, Arizona under cancellable
operating lease agreements with a related entity. Rent expense under these
lease agreements for the year ended September 30, 1998 was $17,610.
The Company also leases wall space for its video walls at McCarran Airport
and Meadows Mall in Las Vegas, Nevada under non-cancellable operating lease
agreements, expiring in June, 2003 and September, 2002, respectively. The
base rent under the McCarran lease is increased annually by the greater of
five percent (5%) per annum, or base rent plus twenty percent (20%) of the
gross billings for advertising on the video walls. The Meadows Mall
agreement provides for the payment of rent at a rate of fifteen percent
(15%) of the gross consideration received for advertising on the video
walls. Rent expense under these lease agreements for the year ended
September 30, 1998 was $87,818.
In addition, the Company is currently leasing a computer under a
cancellable operating lease agreement. Rent expense under the lease
agreement for the year ended September 30, 1998 was $1,320.
F-33
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Lease Obligations: (Continued)
A schedule of future minimum lease payments due under the non-cancellable
operating leases at September 30, 1998, is as follows:
Year
Ending Amount
------ ------
1999 $ 243,250
2000 255,412
2001 268,183
2002 281,592
2003 212,714
----------
$1,261,151
==========
6. Income Taxes and Deferred Income Taxes:
For the year ended September 30, 1998, components of deferred income taxes,
are as follows:
Long-Term Asset(Liability):
Net operating loss carryforward $ 290,000
Accumulated depreciation (1,000)
---------
289,000
Less: valuation allowance (289,000)
---------
$ --
=========
At September 30, 1998, the Company had federal and state net operating loss
carryforwards available to offset future federal and state taxable income,
in the approximate amount of $680,000 expiring primarily through September
30, 2013 and 2003, respectively.
Management has established a valuation allowance equal to the benefit of
the net operating loss carryforward as utilization of that benefit is
uncertain.
7. Consolidated Statement of Cash Flows:
Non-Cash Investing and Financing Activities:
The Company recognized investing and financing activities that affected
assets and liabilities, but did not result in cash receipts or payments:
For the year ended September 30, 1998, these non-cash activities are as
follows:
Stock in the amount of $6,250 was issued for services performed.
The minority interest loss in NV-1, LLC was $44,564.
Convertible debentures were issued net of costs of $92,939.
F-34
<PAGE>
NEO VISION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Going Concern:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation
of the Company as a going concern. However, the Company has sustained
continuing operating losses.
The primary business of the Company is to provide advertising, programming,
and information to remote audiences using video walls. Three of these video
walls began operating primarily in June, 1998, the end of the development
phase, and were not yet profitable in the year ended September 30, 1998.
As shown in the accompanying statement of operations, the Company has
incurred a net loss of $675,865 for the year ended September 30, 1998.
Unaudited information subsequent to September 30, 1998 indicates that
losses are continuing. As of September 30, 1998, the accompanying balance
sheet reflects $669,615 in net stockholders' deficit and negative working
capital of $1,142,041.
The above conditions indicate that the Company may be unable to continue in
existence. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management has received agreements from most of the debenture holders to
convert their convertible debentures and related accrued interest into
shares of USAC upon completion of the merger. The conversion of the
debentures results in a pro forma net equity of approximately $175,000.
Further, the Company has received a letter of intent for a $250,000 sale
and leaseback of the installed equipment at one of its locations, which
management expects to be funded before mid-February, 1999, pending the
completion of the lender's due diligence procedures. In addition, the
monthly sales of advertising have been increasing since the end of the
development phase, resulting in management's expectation of attaining
positive cash flow from operations commencing in 1999.
F-35
<PAGE>
APPENDIX I
- --------------------------------------------------------------------------------
EXCHANGE AGREEMENT
DATED AS OF JUNE 30, 1998
AMONG
UNITED STATES AIRCRAFT CORPORATION,
ANTHONY CHRISTOPHER,
ALBERT C. LUNDSTROM,
LEC & ASSOCIATES, L.L.C.,
EUGENE JOHNSON,
BRAD PETERSON,
AND
A. FREDERICK SCHAFFER, JR.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION 1 EXCHANGE OF SHARES..................................................1
1.1 Exchange of Shares..................................................1
SECTION 2 REPRESENTATIONS AND WARRANTIES......................................1
2.1 Representations and Warranties of Sellers...........................1
(a) Due Incorporation, Good Standing, and Qualification.......1
(b) Capital Stock.............................................1
(c) Options, Warrants, and Rights.............................1
(d) Subsidiaries..............................................2
(e) Financial Statements......................................2
(f) Books and Records.........................................2
(g) No Material Change........................................2
(h) Actions in the Ordinary Course of Business................2
(i) Title to Properties.......................................2
(j) Litigation................................................2
(k) Rights and Licenses.......................................3
(l) No Violation..............................................3
(m) Taxes.....................................................3
(n) Accounts Receivable.......................................3
(o) Contracts.................................................3
(p) Compliance with Law and Other Regulations.................3
(q) Insurance.................................................4
(r) Articles, Bylaws, and Minute Books........................4
(s) Employees.................................................4
(t) No Payments to Directors, Officers, Shareholders
or Others................................................4
(u) Status of NEO Common Stock Being Acquired.................4
(v) Accuracy of Statements....................................4
2.2 Further Representations and Warranties of Sellers...................4
(a) Ownership of Capital Stock of NEO.........................4
(b) Rights to Acquire Shares..................................4
(c) Power to Execute Agreement................................4
(d) Agreement Not in Breach of Other Instruments..............4
(e) Reliance Upon Seller's Advisors...........................5
(f) Intent and Access.........................................5
2.3 Representations and Warranties of Buyer.............................5
(a) Due Incorporation, Good Standing, and Qualification.......5
(b) Corporate Authority.......................................5
(c) Capital Stock.............................................5
(d) Options, Warrants, and Rights.............................6
(e) Subsidiaries..............................................6
(f) Financial Statements......................................6
(g) Books and Records.........................................6
(h) No Material Change........................................6
(i) Actions in the Ordinary Course of Business................6
(j) Title to Assets and Properties............................6
(k) Litigation................................................7
(l) Rights and Licenses.......................................7
(m) No Violation..............................................7
(n) Taxes.....................................................7
(o) Accounts Receivable.......................................7
(p) Contracts.................................................7
(q) Compliance with Law and Other Regulations.................8
(r) Insurance.................................................8
(s) Certificate, Bylaws, and Minute Books.....................8
(t) Employees.................................................8
(u) SEC Reports...............................................8
(v) Status of Class A Common Stock Being Issued...............8
(w) Accuracy of Statements....................................8
2.4 Survival of Representations and Warranties..........................8
<PAGE>
SECTION 3 COVENANTS OF SELLERS................................................9
3.1 Covenants of Sellers................................................9
(a) Filing of Tax Returns and Payment of Taxes................9
(b) Conversion of NEO Convertible Securities..................9
SECTION 4 COVENANTS OF BUYER..................................................9
4.1 Covenants of Buyer..................................................9
(a) Operation of NEO..........................................9
(b) Board of Directors of Buyer...............................9
(c) Employment Contracts......................................9
(d) Additional Shares of Common Stock Issued to Sellers......10
(e) Stockholders' Approval...................................10
SECTION 5 RIGHT OF SELLERS TO RESCIND TRANSACTION............................11
SECTION 6 FURTHER ASSURANCES.................................................11
SECTION 7 GENERAL............................................................11
7.1 Costs and Indemnity Against Finders................................11
7.2 Controlling Law....................................................11
7.3 Notices............................................................11
7.4 Binding Nature of Agreement; No Assignment.........................12
7.5 Entire Agreement...................................................12
7.6 Paragraph Headings.................................................12
7.7 Counterparts.......................................................12
<PAGE>
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT ("Agreement") entered into this 30th day of June,
1998, among UNITED STATES AIRCRAFT CORPORATION, a Delaware corporation
("Buyer"); and ANTHONY CHRISTOPHER, ALBERT C. LUNDSTROM, LEC & ASSOCIATES,
L.L.C., EUGENE JOHNSON, BRAD PETERSON, AND A. FREDERICK SCHAFFER, JR. (each, a
"Seller" and collectively, "Sellers").
Buyer and Sellers desire that Buyer acquire all of Sellers' shares of
capital stock (the "Shares") of Neo Vision, Inc., an Arizona corporation
("NEO"), in exchange for shares of Buyer's Class A Common Stock and shares of
New Common Stock (each as defined herein), all on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth herein, the parties agree as follows:
SECTION 1
EXCHANGE OF SHARES
1.1 Exchange of Shares. Based upon and subject to the representations,
warranties, covenants, agreements, and other terms and conditions set forth in
this Agreement, as of the date of this Agreement (the "Closing Date"), the
Sellers hereby convey, transfer, assign, and deliver the Shares to Buyer in
exchange for an aggregate of 2,000,000 shares of Buyer's Class A Common Stock,
par value $.50 per share (the "Class A Common Stock"). Each Seller hereby
conveys, transfers, assigns, and delivers to Buyer the number of Shares set
forth beside such Seller's name on Schedule 1.1 hereto, in exchange for the
number of shares of Class A Common Stock set forth beside such Seller's name on
Schedule 1.1 hereto. Buyer and each of the Sellers hereby acknowledges receipt
of the Shares and the shares of Class A Common Stock, respectively. Buyer and
each of the Sellers acknowledge and agree that shares of a New Common Stock
shall be issued to Sellers in accordance with Section 4 of this Agreement.
SECTION 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Sellers. Except as otherwise set
forth in the Sellers' Disclosure Schedule delivered herewith by Sellers to and
acknowledged as received by Buyer, Sellers jointly and severally represent and
warrant to Buyer as follows:
(a) Due Incorporation, Good Standing, and Qualification. NEO
is a corporation duly organized, validly existing, and in good standing under
the laws of Arizona with all requisite corporate power and authority to own,
operate, and lease its assets and properties and to carry on its business as now
being conducted. NEO is not subject to any material disability by reason of the
failure to be duly qualified as a foreign corporation for the transaction of
business or to be in good standing under the laws of any jurisdiction. Sellers
have heretofore delivered to Buyer a list setting forth, as of the date of this
Agreement, each jurisdiction in which (i) NEO currently conducts its business or
has in the past conducted its business on any basis, (ii) NEO is qualified to do
business, and (iii) NEO is qualified for the purposes of sales and income taxes.
(b) Capital Stock. As of the date hereof, NEO has an
authorized capital stock consisting of 25,000,000 shares of Common Stock, $.001
par value, of which 6,250,000 shares are issued and outstanding and all of which
are owned by Sellers, free and clear of all claims, liens, charges, and
encumbrances. All of the issued and outstanding shares of capital stock of NEO
have been validly authorized and issued and are fully paid and nonassessable.
(c) Options, Warrants, and Rights. All options, warrants, or
other rights to purchase, or securities or other obligations convertible into or
exchangeable for, or contracts, commitments, agreements, arrangements, or
understandings to issue, any shares of its capital stock or other securities of
NEO are set forth in Seller's Disclosure Schedule.
1
<PAGE>
(d) Subsidiaries. The outstanding shares of capital stock or
other equity interests of the subsidiaries of NEO owned by NEO or any of its
subsidiaries are owned free and clear of all claims, liens, charges, and
encumbrances. NEO does not own, directly or indirectly, any capital stock or
other equity securities of any other corporation or have any direct or indirect
equity or ownership interest in any other corporation or other business.
(e) Financial Statements. The Consolidated Balance Sheet of
NEO as of April 30, 1998 and the Consolidated Statements of Operations, the
Consolidated Statements of Shareholders' Equity, and the Consolidated Statements
of Cash Flows of NEO from inception through April 30, 1998, and all related
schedules and notes to the foregoing, have been prepared in accordance with
generally accepted accounting principles, which were applied on a consistent
basis (except as described therein), are correct and complete, and present
fairly, in all material respects, the financial position, results of operations,
and changes of financial position of NEO as of their respective dates and for
the periods indicated. NEO does not have any material liabilities or obligations
of a type that would be included in a balance sheet prepared in accordance with
generally accepted accounting principles, whether related to tax or non-tax
matters, accrued or contingent, due or not yet due, liquidated or unliquidated
or otherwise, except as and to the extent disclosed or reflected in the
Consolidated Balance Sheet of NEO as of April 30, 1998, or incurred since April
30, 1998, in the ordinary course of business or as contemplated by this
Agreement.
(f) Books and Records. The books of account and other
corporate records of NEO are complete and accurate, have been maintained in
accordance with good business practices, and the matters contained therein are
appropriately reflected in NEO's financial statements.
(g) No Material Change. Since April 30, 1998, there has not
been and there is not threatened (i) any material adverse change in the
business, assets, properties, financial condition, or operating results of NEO,
(ii) any loss or damage (whether or not covered by insurance) to any of the
assets or properties of NEO, which materially affects or impairs its ability to
conduct its business, or (iii) any mortgage or pledge of any assets or
properties of NEO, or any indebtedness incurred by NEO other than indebtedness,
not material in the aggregate, incurred in the ordinary course of business.
(h) Actions in the Ordinary Course of Business. Since April
30, 1998, NEO has not (i) taken any action outside of the ordinary and usual
course of business; (ii) borrowed any money or become contingently liable for
any obligation or liability of another; (iii) failed to pay any of its debts and
obligations as they became due; (iv) incurred any debt, liability or obligation
of any nature to any party except for obligations arising from the purchase of
goods or the rendition of services in the ordinary course of business, none of
which aggregate more than $10,000 with respect to the same supplier or customer;
(v) knowingly waived any right of substantial value; (vi) failed to use its best
efforts to preserve its business organization intact, to keep available the
services of its employees, or to preserve its relationships with its customers,
suppliers and others with which it deals; or (vii) increased or committed to
increase the salary, fee or compensation of any officer, employee, independent
contractor, agent, firm or person performing services for it.
(i) Title to Properties. NEO has good and marketable title to
all of its real and personal assets and properties, including all assets and
properties reflected in its April 30, 1998 Consolidated Balance Sheet or
acquired subsequent to April 30, 1998, except assets or properties disposed of
subsequent to that date in the ordinary course of business. Such assets and
properties are subject to no mortgage, indenture, pledge, lien, claim,
encumbrance, charge, security interest, or title retention or other security
arrangement, except for liens for the payment of federal, state, and other
taxes, the payment of which is neither delinquent nor subject to penalties, and
except for other liens and encumbrances incidental to the conduct of the
business of NEO or the ownership of its assets or properties, which were not
incurred in connection with the borrowing of money or the obtaining of advances
and which do not in the aggregate materially detract from the value of the
assets or properties of NEO or materially impair the use thereof in the
operation of its business, except in each case as disclosed in the April 30,
1998 Consolidated Balance Sheet. All leases pursuant to which NEO leases any
substantial amount of real or personal property are valid and effective in
accordance with their respective terms.
2
<PAGE>
(j) Litigation. There are no actions, suits, proceedings, or
other litigation pending or, to the knowledge of Sellers, threatened against
NEO, at law or in equity, or before or by any federal, state, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality that, if determined adversely to NEO, would individually or in
the aggregate have a material adverse effect on the business, assets,
properties, operating results, prospects, or condition, financial or otherwise,
of NEO.
(k) Rights and Licenses. NEO has provided Buyer with a list of
all of its trademarks, trademark rights, trade names, trade name rights, and
licenses.
(l) No Violation. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate or
result in a breach by NEO of, or constitute a default under, or conflict with,
or cause any acceleration of any obligation with respect to, (i) any provision
or restriction of any charter, bylaw, loan, indenture, or mortgage of NEO, or
(ii) any provision or restriction of any lien, lease agreement, contract,
instrument, order, judgment, award, decree, ordinance, or regulation or any
other restriction of any kind or character to which any assets or properties of
NEO is subject or by which NEO is bound.
(m) Taxes. NEO has duly filed in correct form all Tax Returns
(as defined below) relating to the activities of NEO required or due to be filed
(with regard to applicable extensions) on or prior to the Closing Date. All such
Tax Returns are accurate and complete in all material respects, and NEO has paid
or made provision for the payment of all Taxes (as defined below) that have been
incurred or are due or claimed to be due from it by federal, state, or local
taxing authorities for all periods ending on or before the Closing Date, other
than Taxes or other charges that are not delinquent or are being contested in
good faith and have not been finally determined and have been disclosed to
Buyer. The amounts set up as reserves for Taxes on the books of NEO are
sufficient in the aggregate for the payment of all unpaid Taxes (including any
interest or penalties thereon), whether or not disputed, accrued, or applicable.
No claims for taxes or assessments are being asserted or threatened against NEO.
Sellers have furnished to Buyer copies of all Tax Returns filed for or by NEO
since its inception. For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, fees, levies, or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, transfer, license,
payroll, and franchise taxes, imposed by the United States, or any state, local
or foreign government or subdivision or agency thereof and any interest,
penalties or additions attributable thereto, and the term "Tax Return" shall
mean any report, return, or other information required to be supplied to any
taxing authority or required by any taxing authority to be supplied to any other
person.
(n) Accounts Receivable. The accounts receivable of NEO have
been acquired in the ordinary course of business and, to the knowledge of
Seller, are valid and enforceable, and are fully collectible, subject to no
known defenses, set-offs, or counterclaims, except to the extent of the reserve
reflected in the books of NEO or in Sellers' Disclosure Schedule or in such
other amount not greater than $10,000 unless subject to setoff as a result of
actions by Buyer.
(o) Contracts. NEO is not a party to (i) any plan or contract
providing for bonuses, pensions, options, stock purchases, deferred
compensation, retirement payments, or profit sharing, (ii) any collective
bargaining or other contract or agreement with any labor union, (iii) any lease,
installment purchase agreement, or other contract with respect to any real or
personal property used or proposed to be used in its operations, excepting, in
each case, items included within aggregate amounts disclosed or reflected in the
April 30, 1998 Consolidated Balance Sheet, (iv) any employment agreement or
other similar arrangement not terminable by it upon 30 days or less notice
without penalty to it, (v) any contract or agreement for the purchase of any
commodity, material, fixed asset, or equipment in excess of $10,000, (vi) any
contract or agreement creating an obligation of $10,000 or more, (vii) any
contract or agreement that by its terms does not terminate or is not terminable
by it upon 30 days or less notice without penalty to it, (viii) any loan
agreement, indenture, promissory note, conditional sales agreement, or other
similar type of arrangement, (ix) any material license agreement, or (x) any
contract that may result in a material loss or obligation to it. All material
contracts, agreements, and other arrangements to which NEO is a party are valid
and enforceable in accordance with their terms; NEO and, to Sellers' knowledge,
all other parties to each of the foregoing have performed in any material
respects all obligations required to be performed to date; and neither NEO nor,
to Sellers' knowledge, any such other party is in default or in arrears under
the terms of any of the foregoing.
3
<PAGE>
(p) Compliance with Law and Other Regulations. NEO is not
subject to nor has NEO been threatened with any material fine, penalty,
liability, or disability as the result of its failure to comply with any
requirement of federal, state, local, or foreign law or any regulation or any
requirement of any governmental body or agency having jurisdiction over it, the
conduct of its business, the use of its assets and properties, or any premises
occupied by it.
(q) Insurance. NEO maintains in full force and effect
insurance coverage on its assets, properties, premises, operations, and
personnel in such amounts as NEO deems appropriate, all as set forth on Sellers'
Disclosure Schedule.
(r) Articles, Bylaws, and Minute Books. Sellers have
heretofore delivered to Buyer true and complete copies of the Articles of
Incorporation and Bylaws of NEO as currently in effect. The minute books of NEO
contain complete and accurate records of all meetings and other corporate
actions held or taken by the Board of Directors (or committees of the Board of
Directors) and shareholders of NEO since its incorporation.
(s) Employees. NEO has never maintained or contributed to any
"employee benefit plan," as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including, without
limitation, any stock option plan, stock purchase plan, deferred compensation
plan, or other similar employee benefit plan. NEO never contributed to any
"multi-employer pension plan," as such term is defined in Section 3(37)(A) of
ERISA.
(t) No Payments to Directors, Officers, Shareholders or
Others. Except to the extent that the following will have no material adverse
effect on the purchase by Buyer of the Shares or the business, assets, or
properties of NEO pursuant to this Agreement, since April 30, 1998, there has
not been any purchase or redemption of any shares of capital stock of NEO or any
transfer, distribution or payment by NEO, directly or indirectly, of any money
or other assets or properties to any director, officer, shareholder or any of
their affiliates or other person other than the payment of compensation for
services actually rendered at rates not in excess of the rates prevailing on the
March 31, 1998 balance sheet or payments in the ordinary course of business or
for goods or services in other than arm's length transactions.
(u) Status of NEO Common Stock Being Acquired. The Shares
being acquired in exchange for shares of Class A Common Stock and shares of New
Common Stock were validly authorized and issued, fully paid, and nonassessable.
(v) Accuracy of Statements. Neither this Agreement nor any
statement, list, certificate, or other information furnished by NEO or Sellers
to Buyer in connection with this Agreement or any of the transactions
contemplated hereby contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein, in light of circumstances in which they are made, not misleading.
2.2 Further Representations and Warranties of Sellers. Each Seller
makes the following further representations and warranties as to himself:
(a) Ownership of Capital Stock of NEO. Such Seller owns the
number of Shares set forth beside such Seller's name on Schedule 1.1 hereto.
Such Seller has good, marketable and unencumbered title to such Shares, and
there are no restrictions on his right to transfer such Shares to Buyer pursuant
to this Agreement.
(b) Rights to Acquire Shares. Such Seller does not have any
outstanding options, warrants, or other rights to purchase or subscribe for or
contracts or commitments to sell, or any interests, instruments, evidences of
indebtedness or other securities convertible in any manner into, any shares of
NEO's capital stock.
(c) Power to Execute Agreement. Such Seller has full power and
authority to execute, deliver, and perform this Agreement, and this Agreement is
the legal and binding obligation of such Seller, enforceable against such Seller
in accordance with its items, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefore may be brought.
4
<PAGE>
(d) Agreement Not in Breach of Other Instruments. The
execution and delivery of this Agreement, the consummation of the transactions
hereby contemplated, and the fulfillment of the terms hereof, will not result in
the breach of any term or provision of, or constitute a default under, or
conflict with, or cause the acceleration of any obligation under, any agreement
or other instrument of any description to which such Seller is a party or by
which such Seller is bound, or any judgment, decree, order or award of any
court, governmental body or arbitrator, or any law, rule or regulation
applicable to such Seller.
(e) Reliance Upon Seller's Advisors. Such Seller acknowledges
that he has been encouraged to rely upon the advice of his legal counsel and
accountants or other financial advisers with respect to the financial, tax, and
other considerations relating to the acquisition of the shares of Class A Common
Stock and shares of New Common Stock. Such Seller represents and warrants that
he has reviewed with the his own tax advisors the federal, state, local, and
foreign tax consequences of the investment in shares of Class A Common Stock and
shares of New Common Stock. Such Seller is relying solely on such advisors and
not on any statements or representations of Buyer or any of its officers,
directors, employees, or agents and understands that such Seller (and not Buyer)
shall be responsible for his own tax liability, if any, that may arise as a
result of the acquisition of Class A Common Stock and New Common Stock or the
transactions contemplated by this Agreement.
(f) Intent and Access. Such Seller is acquiring the shares of
Class A Common Stock without a view to the public distribution or resale in
violation of any applicable federal or state securities laws. Such Seller
acknowledges that the shares of Buyer's Class A Common Stock are not registered
under the Securities Act of 1933, as amended or any state securities laws and
cannot be sold publicly without registration thereunder or an exemption from
such registration. Such Seller understands that certificates for such shares
will contain a legend with respect to the restrictions on transfer under federal
and applicable state securities laws as well as the fact that the shares are
"restricted securities" under such federal and state laws. Such Seller has been
furnished with such information, both financial and non-financial, with respect
to the operations, business, capital structure, and financial position of Buyer
and its subsidiaries as he believes necessary and has been given the opportunity
to ask questions of and receive answers from Buyer and its subsidiaries and
their officers concerning Buyer and its subsidiaries. Without limiting the
foregoing, such Seller specifically acknowledges the receipt of Buyer's Form
10-K Report for the fiscal year ended September 30, 1997.
2.3 Representations and Warranties of Buyer. Except as otherwise set
forth in the Buyer Disclosure Schedule heretofore delivered by Buyer to Sellers,
and except as disclosed in any document heretofore filed by Buyer with the
Securities and Exchange Commission ("SEC"), Buyer represents and warrants to
Sellers as follows:
(a) Due Incorporation, Good Standing, and Qualification. Buyer
and each of its subsidiaries are corporations duly organized, validly existing,
and in good standing under the laws of their jurisdictions of incorporation with
all requisite corporate power and authority to own, operate, and lease their
assets and properties and to carry on their business as now being conducted.
Neither Buyer nor any of its subsidiaries is subject to any material disability
by reason of the failure to be duly qualified as a foreign corporation for the
transaction of business or to be in good standing under the laws of any
jurisdiction. As used in this Agreement with reference to Buyer, the term
"subsidiaries" shall include all direct or indirect subsidiaries of Buyer.
(b) Corporate Authority. Buyer has the corporate power and
authority to enter into this Agreement and carry out the transactions
contemplated hereby. The Board of Directors of Buyer has duly authorized the
execution, delivery, and performance of this Agreement. No other corporate
proceedings on the part of Buyer are necessary to authorize the execution and
delivery by Buyer of this Agreement or the consummation by Buyer of the
transactions contemplated hereby, except that a meeting of Buyer's stockholders
shall be required to approve those items set forth in Section 4.1(e) of this
Agreement and the Board of Directors of Buyer must adopt and approve the form of
the certificate of incorporation to be submitted to the stockholders and the
related matters in connection thereof. This Agreement has been duly executed and
delivered by, and constitutes a legal, valid, and binding agreement of, Buyer,
enforceable against it in accordance with its terms, except that (i) Buyer must
obtain the approvals referred to in the immediately preceding sentence, (ii)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, or other similar laws now or hereafter in effect relating to
creditors' rights, and (iii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefore may be
brought.
5
<PAGE>
(c) Capital Stock. As of the date hereof, Buyer has authorized
capital stock consisting of 10,000,000 shares of Class A Common Stock, of which
7,927,504 shares are issued and outstanding, and 5,000,000 shares of Class B
Common Stock, $.01 par value (the "Class B Common Stock"), of which 4,962,801
shares are issued and outstanding. As of the date hereof, 275,267 shares of
Class A Common Stock were reserved for issuance upon the exercise of outstanding
convertible debentures and the last installment of contingent shares pursuant to
the Western College, Inc. acquisition. All of the issued and outstanding shares
of capital stock of Buyer and each of its subsidiaries have been, and when
issued pursuant to this Agreement, each share of Class A Common Stock and New
Common Stock to be issued pursuant to this Agreement will be, validly authorized
and issued and fully paid and nonassessable.
(d) Options, Warrants, and Rights. Neither Buyer nor any of
its subsidiaries has outstanding any options, warrants, or other rights to
purchase, or securities or other obligations convertible into or exchangeable
for, or contracts, commitments, agreements, arrangements or understandings to
issue, any shares of their capital stock or other securities, other than those
referred to in Section 2.2(c).
(e) Subsidiaries. The outstanding shares of capital stock or
other equity interest of the subsidiaries of Buyer owned by Buyer or any of its
subsidiaries are owned free and clear of all claims, liens, charges, and
encumbrances. Buyer does not own, directly or indirectly, any capital stock or
other equity securities of any other corporation or have any direct or indirect
equity or ownership interest in any other corporation or other business.
(f) Financial Statements. The Consolidated Balance Sheets of
Buyer and its subsidiaries as of September 30, 1996 and September 30, 1997 and
the Consolidated Statements of Operations, the Consolidated Statements of
Shareholders' Equity, and the Consolidated Statements of Cash Flows of Buyer and
its subsidiaries for the three years ended September 30, 1997, and all related
schedules and notes to the foregoing, have been reported on by Robert Martin,
independent public accountants. All of the foregoing financial statements have
been prepared in accordance with generally accepted accounting principles, which
were applied on a consistent basis (except as described therein), are correct
and complete, and present fairly, in all material respects, the financial
position, results of operations, and changes of financial position of Buyer and
its subsidiaries as of their respective dates and for the periods indicated.
Neither Buyer nor any of its subsidiaries has any material liabilities or
obligations of a type that would be included in a balance sheet prepared in
accordance with generally accepted accounting principles, whether related to tax
or non-tax matters, accrued or contingent, due or not yet due, liquidated or
unliquidated or otherwise, except as and to the extent disclosed or reflected in
the Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30,
1997, or incurred since September 30, 1997, in the ordinary course of business
or as contemplated by this Agreement.
(g) Books and Records. The books of account and other
corporate records of Buyer are complete and accurate, have been maintained in
accordance with good business practices, and the matters contained therein are
appropriately reflected in Buyer's financial statements.
(h) No Material Change. Since September 30, 1997, there has
not been and there is not threatened (i) any material adverse change in the
business, assets, properties, financial condition, or operating results of Buyer
or its subsidiaries taken as a whole, (ii) any loss or damage (whether or not
covered by insurance) to any of the assets or properties of Buyer or its
subsidiaries, which materially affects or impairs their ability to conduct their
business, or (iii) any mortgage or pledge of any material amount of the assets
or properties of Buyer or any of its subsidiaries, or any indebtedness incurred
by Buyer or any of its subsidiaries, other than indebtedness, not material in
the aggregate, incurred in the ordinary course of business.
(i) Actions in the Ordinary Course of Business. Since
September 30, 1997, Buyer has not (i) taken any action outside of the ordinary
and usual course of business; (ii) borrowed any money or become contingently
liable for any obligation or liability of another; (iii) failed to pay any of
its debts and obligations as they became due; (iv) incurred any debt, liability
or obligation of any nature to any party except for obligations arising from the
purchase of goods or the rendition of services in the ordinary course of
business, none of which aggregate more than $10,000 with respect to the same
supplier or customer; (v) knowingly waived any right of substantial value; (vi)
failed to use its best efforts to preserve its business organization intact, to
keep available the services of its employees, or to preserve its relationships
with its customers, suppliers and others with which it deals; or (vii)
6
<PAGE>
increased or committed to increase the salary, fee or compensation of any
officer, employee, independent contractor, agent, firm or person performing
services for it.
(j) Title to Assets and Properties. Buyer and its subsidiaries
have good and marketable title to all of their respective real and personal
assets and properties, including all assets and properties reflected in the
Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30,
1997, or acquired subsequent to September 30, 1997, except assets or properties
disposed of subsequent to that date in the ordinary course of business. Such
assets and properties are subject to no mortgage, indenture, pledge, lien,
claim, encumbrance, charge, security interest, or title retention or other
security arrangement, except for liens for the payment of federal, state, and
other taxes, the payment of which is neither delinquent nor subject to
penalties, and except for other liens and encumbrances incidental to the conduct
of the business of Buyer and its subsidiaries or the ownership of their assets
or properties, which were not incurred in connection with the borrowing of money
or the obtaining of advances, and which do not in the aggregate materially
detract from the value of the assets or properties of Buyer and its subsidiaries
taken as a whole or materially impair the use thereof in the operation of their
respective businesses, except in each case as disclosed in the Consolidated
Balance Sheet as of September 30, 1997. All leases pursuant to which Buyer or
any of its subsidiaries lease any substantial amount of real or personal
property are valid and effective in accordance with their respective terms.
Buyer and each of its subsidiaries own or have the right to use all assets and
properties necessary to conduct their business as currently conducted.
(k) Litigation. There are no actions, suits, proceedings, or
other litigation pending or, to the knowledge of Buyer, threatened against Buyer
or any of its subsidiaries, at law or in equity, or before or by any federal,
state, municipal, or other governmental department, commission, board, bureau,
agency, or instrumentality that, if determined adversely to Buyer or its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the business, assets, properties, operating results, prospects, or
condition, financial or otherwise, of Buyer and its subsidiaries taken as a
whole.
(l) Rights and Licenses. Neither Buyer nor any of its
subsidiaries is subject to any material disability or liability by reason of its
failure to possess any trademark, trademark right, trade name, trade name right,
or license.
(m) No Violation. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate or
result in a breach by Buyer or any of its subsidiaries of, or constitute a
default under, or conflict with, or cause any acceleration of any obligation
with respect to, (i) any provision or restriction of any charter, bylaw, loan,
indenture, or mortgage of Buyer or any of its subsidiaries, or (ii) any
provision or restriction of any lien, lease agreement, contract, instrument,
order, judgment, award, decree, ordinance, or regulation or any other
restriction of any kind or character to which any assets or properties of Buyer
or any of its subsidiaries is subject or by which Buyer or any of its
subsidiaries is bound.
(n) Taxes. Buyer has duly filed in correct form all Tax
Returns relating to the activities of Buyer and its subsidiaries required or due
to be filed (with regard to applicable extensions) on or prior to the Closing
Date. All such Tax Returns are accurate and complete in all material respects,
and Buyer has paid or made provision for the payment of all Taxes that have been
incurred or are due or claimed to be due from it by federal, state, or local
taxing authorities for all periods ending on or before the Closing Date, other
than Taxes or other charges that are not delinquent or are being contested in
good faith and have not been finally determined and have been disclosed to
Seller. The amounts set up as reserves for Taxes on the books of Buyer and its
subsidiaries are sufficient in the aggregate for the payment of all unpaid Taxes
(including any interest or penalties thereon), whether or not disputed, accrued,
or applicable. No claims for taxes or assessments are being asserted or
threatened against Buyer or any of its subsidiaries.
(o) Accounts Receivable. The accounts receivable of Buyer and
its subsidiaries have been acquired in the ordinary course of business, are
valid and enforceable, and are fully collectible, subject to no known defenses,
setoffs, or counterclaims, except to the extent of the reserve reflected in the
books of Buyer and its subsidiaries or in such other amount that is not material
in the aggregate.
(p) Contracts. Neither Buyer nor any of its subsidiaries is a
party to (i) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, or profit sharing,
(ii) any collective bargaining or other contract or agreement with any labor
union, (iii) any lease,
7
<PAGE>
installment purchase agreement, or other contract with respect to any real or
personal property used or proposed to be used in its operations excepting, in
each case, items included within aggregate amounts disclosed or reflected in the
Consolidated Balance Sheet of Buyer and its subsidiaries as of September 30,
1997, (iv) any employment agreement or other similar arrangement not terminable
by it upon 30 days or less notice without penalty to it, (v) any contract or
agreement for the purchase of any commodity, material, fixed asset, or equipment
in excess of $10,000, (vi) any contract or agreement creating an obligation of
$10,000 or more, (vii) any contract or agreement that by its terms does not
terminate or is not terminable by it upon 30 days or less notice without penalty
to it, (viii) any loan agreement, indenture, promissory note, conditional sales
agreement, or other similar type of arrangement, (ix) any material license
agreement, or (x) any contract that may result in a material loss or obligation
to it. All material contracts, agreements, and other arrangements to which Buyer
or any of its subsidiaries is a party are valid and enforceable in accordance
with their terms; Buyer, its subsidiaries, and all other parties to each of the
foregoing have performed all obligations required to be performed to date;
neither Buyer, nor any of its subsidiaries, nor any such other party is in
default or in arrears under the terms of any of the foregoing; and no condition
exists or event has occurred that, with the giving of notice or lapse of time or
both, would constitute a default under any of them.
(q) Compliance with Law and Other Regulations. Neither Buyer
nor any of its subsidiaries is subject to or has been threatened with any
material fine, penalty, liability, or disability as the result of its failure to
comply with any requirement of federal, state, local, or foreign law or any
regulation or any requirement of any governmental body or agency having
jurisdiction over it, the conduct of its business, the use of its assets and
properties, or any premises occupied by it.
(r) Insurance. Buyer and each of its subsidiaries maintains in
full force and effect insurance coverage on their assets, properties, premises,
operations, and personnel in such amounts as Buyer deems appropriate.
(s) Certificate, Bylaws, and Minute Books. Buyer has
heretofore delivered to Sellers true and complete copies of its Certificate of
Incorporation and Bylaws of Buyer as currently in effect. The minute books of
Buyer contain complete and accurate records of all meetings and other corporate
actions held or taken by the Board of Directors (or committees of the Boards of
Directors) and stockholders of Buyer since its incorporation.
(t) Employees. Neither Buyer nor any of its subsidiaries has
ever maintained or contributed to any "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, including, without limitation, any stock
option plan, stock purchase plan, deferred compensation plan, or other similar
employee benefit plan, other than Buyer's Stock Option Plans. Neither Buyer nor
any of its subsidiaries has ever contributed to any "multi-employer pension
plan," as such term is defined in Section 3(37)(A) of ERISA.
(u) SEC Reports. Buyer's report on Form 10-K for the fiscal
year ended September 30, 1997 filed with the SEC does not contain a misstatement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading as of the
time the document was filed. Since the filing of such report on Form 10-K, no
other report, proxy statement, or other document has been required to be filed
by Buyer pursuant to Section 13(a) or 14(a) of the Securities Exchange Act of
1934 that has not been filed.
(v) Status of Class A Common Stock Being Issued. The shares of
Class A Common Stock issued in exchange for the Shares are validly authorized
and when issued in accordance with this Agreement shall be validly issued, fully
paid, nonassessable, authorized for trading on the Nasdaq Bulletin Board, and
free of preemptive or other similar rights, but subject to the resale
restrictions required by Rule 144 promulgated pursuant to the Securities Act of
1933, as amended ("Rule 144").
(w) Accuracy of Statements. Neither this Agreement nor any
statement, list, certificate, or other information furnished by Buyer to Sellers
in connection with this Agreement or any of the transactions contemplated hereby
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they are made, not misleading.
2.4 Survival of Representations and Warranties. Each of the
representations and warranties contained in this Agreement shall survive the
consummation of the transactions contemplated by this Agreement irrespective of
any investigations or inquiries made by any party or any knowledge that any
party may possess, and each party
8
<PAGE>
shall be entitled to rely upon such representations and warranties irrespective
of any investigations, inquiries, or knowledge. Notwithstanding the foregoing,
no claims for indemnity arising out of a false, misleading, or otherwise
incorrect representation or warranty may be made after one year from the Closing
Date, and neither Buyer nor Sellers shall be responsible for any indemnity claim
for an amount less than $25,000 or greater than $500,000 arising out of a false,
misleading, or otherwise incorrect representation or warranty relating to this
Agreement.
SECTION 3
COVENANTS OF SELLERS
3.1 Covenants of Sellers. Each Seller further agrees, unless Buyer
otherwise agrees in writing, subsequent to the Closing Date:
(a) Filing of Tax Returns and Payment of Taxes. As promptly as
practicable after the Closing Date, Sellers shall, at their cost and expense,
prepare or cause to be prepared all federal, state, and local corporation Tax
Returns for all periods prior to the Closing Date. Not less than 30 days prior
to the anticipated date for filing such returns, Sellers shall provide a copy of
each such Tax Returns to Buyer for its review and consent or approval. Sellers
shall make any revisions to such Tax Returns that Buyer may reasonably request.
Upon approval of such Tax Returns by Buyer, such approval not to be unreasonably
withheld, Sellers shall promptly file such Tax Returns or cause them to be
filed.
(b) Conversion of NEO Convertible Securities. Seller shall use
its best efforts to cause any securities convertible into NEO common stock to
become convertible into shares of New Common Stock on terms reasonably
acceptable to Buyer.
SECTION 4
COVENANTS OF BUYER
4.1 Covenants of Buyer. Buyer further agrees, unless Sellers otherwise
agree in writing, subsequent to the Closing Date:
(a) Operation of NEO. Unless otherwise determined by the Board
of Directors of Buyer following the stockholder approvals referred to in Section
4.1(e) hereof, NEO shall be operated as a separate subsidiary of Buyer with its
existing officers and management, except that the Board of Directors of NEO
shall consist of Anthony Christopher, Chairman, Albert C. Lundstrom, Jack
Eberentz, and Harry V. Eastlick. Harry V. Eastlick also shall serve as the
Treasurer and Chief Financial Officer of NEO.
(b) Board of Directors of Buyer. The Board of Directors of
Buyer shall be increased to nine members immediately following the date hereof
(the "Closing") and shall immediately following the Closing include the
following persons serving in the following capacities:
Name Position(s)
---- -----------
(i) Anthony Christopher Chairman of the Board of Directors
(ii) Albert C. Lundstrom President and Chief Executive Officer/
Director
9
<PAGE>
(iii) Harry V. Eastlick Executive Vice President, Treasurer, and
Chief Operating and Financial
Officer/Director
(iv) Jack Eberenz Executive Vice President and Secretary/
Director
(v) Donald E. Cline Director
(vi) Dale L. Dykema Director
(vii) Whipple H. Manning Director
(viii) John R. Thomas Director
One of the existing outside directors shall resign
immediately following the Closing and two new outside directors will be
nominated by Sellers and elected by the Board of Directors of Buyer.
(c) Employment Contracts. Buyer shall execute employment
contracts with Anthony Christopher, Albert Lundstrom, Jack Eberenz , and Harry
V. Eastlick attached hereto as Schedule 4.1(c).
(d) Additional Shares of Common Stock Issued to Sellers. Buyer
shall issue to Sellers (collectively, in the ratio equal to the ratio of the
shares of Class A Common Stock issued between Sellers as set forth in Schedule
1.1 hereto) up to 4,577,560 shares of New Common Stock, which amount the parties
acknowledge, has been adjusted to reflect the current reclassification ratio of
Class A Common Stock into New Common Stock set forth in Section 4.1(e)(iii)
hereof, upon the occurrence of the following events:
Additional Shares
(i) Approval by stockholders of the actions set forth 3,500,000
in Section 4.1(e).
(ii) Installation of the two screens in the "D" 2,000,000
concourse at the McCarran Airport in Las Vegas,
Nevada and program screening for a period of 30
days
(iii) Obtaining positive cash flow from operations for 1,000,000
a 30-day period from the operation of the
Meadows Mall Screen or comparable location
(e) Stockholders' Approval. Promptly following the Closing,
Buyer shall prepare and file with the Securities and Exchange Commission (the
"SEC") a preliminary proxy statement and shall use its best efforts to have the
SEC and any applicable state regulatory authorities approve as soon as
practicable a final proxy statement/prospectus for a meeting of Buyer's
stockholders, to approve the following actions by Buyer:
(i) Approval of this Exchange Agreement and the
transactions contemplated herein.
(ii) Authorization of a single new class of common stock,
$.001 par value per share, totaling 100,000,000 shares (the "New Common Stock"),
or as otherwise mutually agreed to by the Buyer and Sellers.
10
<PAGE>
(iii) Reclassification of the currently outstanding Class
A Common Stock into New Common Stock on the basis of 10 shares of the Class A
Common Stock into one share of the New Common Stock or such other ratio as may
be agreed between Buyer and Sellers.
(iv) Reclassification of the currently outstanding Class
B Common Stock into New Common Stock on the basis of 13 shares of the Class B
Common Stock into one share of the New Common Stock or such other ratio as may
be agreed between Buyer and Sellers.
(v) Approval of "Neo Vision Systems, Inc." as the new
name of Buyer or such other name mutually agreeable to Buyer and Sellers.
(vi) Adoption of a stock option plan and approval of
initial grants thereunder.
(vii) Authorization of preferred stock of Buyer of
75,000,000 shares with the Board of Directors being authorized to establish the
preferences for separate classes of preferred stock.
(viii) The amendment and restatement of Buyer's
certificate of incorporation as necessary to accomplish the foregoing
transactions.
(ix) Such other matters as shall be mutually agreed upon
by the Board of Directors of Buyer following the Closing.
SECTION 5
RIGHT OF SELLERS TO RESCIND TRANSACTION
Buyer agrees that if the stockholders of Buyer do not approve the New
Common Stock, any Seller may rescind the exchange of the Shares under Section 1
of this Agreement, in which case this Agreement and the transactions hereunder
shall be deemed null and void as to that Seller.
SECTION 6
FURTHER ASSURANCES
On and after the Closing Date, Sellers and Buyer shall execute and
deliver all such deeds, bills of sale, assignments, and other instruments and
shall take or cause to be taken such further or other actions as any party may
reasonably request from time to time in order to effectuate the transactions
provided for herein. The parties shall cooperate with each other and with their
respective counsel and accountants in connection with any steps to be taken as a
part of their respective obligations under this Agreement.
SECTION 7
GENERAL
7.1 Costs and Indemnity Against Finders. Each party hereto shall be
responsible for its own costs and expenses in negotiating and performing this
Agreement and hereby indemnifies and holds the other parties harmless against
any claim for finders' fees based on alleged retention of a finder by it.
7.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance, and enforcement shall be governed by and
construed in accordance with the laws of the state of Delaware, notwithstanding
any Delaware or other conflict-of-law provisions to the contrary.
11
<PAGE>
7.3 Notices. All notices, requests, demands, and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when delivered against receipt
or when deposited in the United States mails, first class postage prepaid,
addressed as set forth below:
If to Buyer: If to Sellers:
United States Aircraft Corporation
3121 E. Greenway Road Neo Vision
Suite 201 3629 N. 16th Street, Suite 100
Attention: Harry Eastlick Phoenix, Arizona 85016
Phoenix, Arizona 85032 Attention: Albert C. Lundstrom
Tel: (602) 765-0500 Tel: (602) 263-8887
Fax: (602) 787-1384 Fax: (602) 263-3640
With a copy given in the manner With a copy given in the manner
prescribed above, to: prescribed above, to:
O'Connor, Cavanagh, Anderson, Richard C. Cole, Jr., Esq.
Killingsworth & Beshears, P.A. 7321 N. 16th Street, Suite 102
One East Camelback Road Phoenix, Arizona 85020
Phoenix, Arizona 85012 Tel: (602) 997-6191
Attention: Richard M. Weinroth Fax: (602) 997-9807
Tel: (602) 263-2610
Fax: (602) 263-2900
Any party may alter the address to which communications or copies are
to be sent by giving notice to such other parties of change of address in
conformity with the provisions of this paragraph for the giving of notice.
7.4 Binding Nature of Agreement; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors, and assigns, except that no party may assign, delegate, or
transfer its rights or obligations under this Agreement without the prior
written consent of the other parties hereto. Any assignment, delegation, or
transfer made in violation of this Section 7.4 shall be null and void.
7.5 Entire Agreement. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
inducements, and conditions, express or implied, oral or written, except as
herein contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
7.6 Paragraph Headings. The paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not affect
its interpretation.
7.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER:
------
UNITED STATES AIRCRAFT CORPORATION
By:/s/ Harry Eastlick
----------------------------------------
Name: Harry Eastlick
--------------------------------------
Its: President
--------------------------------------
SELLERS:
--------
/s/ Anthony Christopher
-------------------------------------------
Anthony Christopher
/s/ Albert C. Lundstrom
-------------------------------------------
Albert C. Lundstrom
LEC & ASSOCIATES, L.L.C.
By:/s/ Jack Eberenz
-----------------------------------------
Name: Jack Eberenz
--------------------------------------
Its: Member
---------------------------------------
/s/ Eugene Johnson
-------------------------------------------
Eugene Johnson
/s/ Brad Peterson
-------------------------------------------
Brad Peterson
/s/ A. Frederick Schaffer, Jr.
-------------------------------------------
A. Frederick Schaffer, Jr.
13
<PAGE>
SCHEDULE 1.1
------------
Number of
Number of Initial Shares of
Shares of Class A Common Stock of
NEO to be Buyer to be
Seller Percent Transferred Acquired
------ ------- ----------- --------
Anthony Christopher 68.58% 4,286,500 1,371,600
Albert C. Lundstrom 25.58% 1,598,750 511,600
LEC & Associates, L.L.C. 05.12% 319,750 102,400
Eugene Johnson .24% 15,000 4,800
Brad Peterson .24% 15,000 4,800
A. Frederick Schaffer, Jr. .24% 15,000 4,800
------ -----
6,250,000 2,000,000
========= =========
<PAGE>
APPENDIX II
FIRST RESTATED CERTIFICATE OF INCORPORATION
OF
UNITED STATES AIRCRAFT CORPORATION
1. The name of the corporation is UNITED STATES AIRCRAFT CORPORATION
(which is hereinafter referred to as the "Corporation").
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on October 6, 1978.
3. This First Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted by the stockholders of the Corporation at a
meeting duly called, duly executed, and acknowledged by the officers of the
Corporation, and duly adopted in accordance with the provisions of Sections 103,
242, and 245 of the General Corporation Law of the State of Delaware, and
restates, integrates, and further amends the provisions of the Certificate of
Incorporation of the Corporation and, upon filing with the Secretary of State in
accordance with Section 103, shall thenceforth supersede the original
Certificate of Incorporation and all amendments thereto prior to the date of
such filing, and shall, as it may thereafter be amended in accordance with its
terms and applicable law, be the Certificate of Incorporation of the
Corporation.
4. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation shall be Neo Vision Systems, Inc.
ARTICLE II
ADDRESS
The registered office of the Corporation in the State of Delaware is
1013 Centre Road, City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is The Prentice-Hall Legal and
Financial Services.
ARTICLE III
PURPOSE
The purpose for which this Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
<PAGE>
ARTICLE IV
STOCK
The total number of shares of stock that the Corporation shall have the
authority to issue is one hundred seventy five million (175,000,000) consisting
of one hundred million (100,000,000) shares of a single class of Common Stock
(the "Common Stock" or the "New Common Stock"), par value of each share of
Common Stock shall be one-tenth of one cent ($.001) and seventy-five million
(75,000,000) shares of Preferred Stock, par value of each share of Preferred
Stock shall be one-tenth of one cent ($.001).
Effective at the time of the filing with the Secretary of State of the
State of Delaware of the First Restated Certificate of Incorporation of the
Corporation, which INTER ALIA, adds this paragraph to Article IV thereof, each
share of the Corporation's Class A Common Stock, par value $.50 per share,
issued and outstanding or held in treasury immediately prior to such time shall,
without any action on the part of the respective holders thereof, be
reclassified into one-tenth (1/10) of a share of New Common Stock, par value
$.001 per share, and each stock certificate that, immediately prior to the time
of such filing, represented shares of the Corporation's Class A Common Stock,
par value $.50 per share, shall, from and after such time and without the
necessity of presenting the same for exchange, represent the number of shares of
New Common Stock into which the shares of Class A Common Stock represented by
such stock certificate were reclassified pursuant hereto. Notwithstanding the
foregoing sentence, no person shall hold a fractional share of New Common Stock
of the Corporation as a result of the foregoing reclassification of Class A
Common Stock, but instead of any fraction of a share which would otherwise
result from such reclassification, the Corporation shall, upon the surrender for
cancellation by any former holder of Class A Common Stock of any certificate
formerly representing shares of the Corporation's Class A Common Stock pay in
cash in respect of such fraction in an amount equal to the product of (x) such
fraction and (y) $fair value of one share of Class A Common Stock.
Effective at the time of the filing with the Secretary of State of the
State of Delaware of the First Restated Certificate of Incorporation of the
Corporation which, INTER ALIA, adds this paragraph to Article IV thereof, each
share of the Corporation's Class B Common Stock, par value $.001 per share,
issued and outstanding or held in treasury immediately prior to such time shall,
without any action on the part of the respective holders thereof, be
reclassified into one-thirteenth (1/13) of a share of New Common Stock, par
value $.001 per share, and each stock certificate that, immediately prior to the
time of such filing, represented shares of the Corporation's Class B Common
Stock, par value $.001 per share, shall, from and after such time and without
the necessity of presenting the same for exchange, represent the number of
shares of New Common Stock into which the shares of Class B Common Stock
represented by such stock certificate were reclassified pursuant hereto.
Notwithstanding the foregoing sentence, no person shall hold a fractional share
of New Common Stock of the Corporation as a result of the foregoing
reclassification of Class B Common Stock, but, instead of any fraction of a
share which would otherwise result from reclassification, the Corporation shall,
upon the surrender for cancellation by any former holder of Class B Common Stock
of any certificate formerly representing shares of the Corporation's Class B
Common Stock pay cash in respect of such fraction in an amount equal to the
product of (x) such fraction and (y) $fair value of one share of Class B Common
Stock.
2
<PAGE>
Section 1.
COMMON STOCK. The Board of Directors of the Corporation may, from time
to time, distribute on a pro rata basis to its Common Stock stockholders, out of
assets or funds of the Corporation legally available therefor, a portion of its
assets, in cash or property.
The Board of Directors of the Corporation may, from time to time, cause
the Corporation to purchase shares of its own Common Stock out of assets or
funds of the Corporation legally available therefor.
The Corporation may issue rights and options to purchase shares of
Common Stock of the Corporation to Directors, Officers or employees of the
Corporation or any affiliate thereof, and no stockholder approval or
ratification of any such issuance of rights and options shall be required.
Section 2.
PREFERRED STOCK. The Corporation shall have authority to issue its
Preferred Stock in one or more series. The Board of Directors is vested with
authority to establish and designate series and to fix the number of shares to
be included in each such series and the rights, powers, preferences and
limitations, qualification, or restriction of each such series, subject to the
provisions set forth below. If the stated dividends and amounts payable on
liquidation are not paid in full, the shares of all series of the same class
shall share ratably in the payment of dividends including accumulations, if any,
in accordance with the sums which would be payable on such shares if all
dividends were declared and paid in full, and in any distribution of assets
other than by way of dividends in accordance with the sums which would be
payable in such distribution if all sums payable were discharged in full. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but not be limited to, determination of the following:
a. The number of shares constituting that series and the
distinctive designation of that series;
b. Whether dividends, if any, shall be cumulative or non
cumulative and, if so, from which date or dates, and the rights with respect to
dividends of the series;
c. Whether that series shall participate in unlimited dividend
rights, and, if so, the extent of such participation;
d. Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting rights,
including whether it shall vote as a separate series, or with other series of
Preferred Stock, or as one class with the holders of Common Stock, with or
without other series of Preferred Stock, and whether differently as to different
matters, or any combination of the foregoing;
e. Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
3
<PAGE>
f. Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
g. The amounts payable on the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
h. Restrictions on the issuance of shares of the same series or
of any other class or series; and
i. Any other rights, preferences and limitations of that series.
Dividends on outstanding Preferred Stock of each series shall be
declared and paid, or set apart for payment, before any dividends shall be
declared and paid, or set apart for payment, on the Common Stock with respect to
the same dividend period.
Upon any dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Preferred Stock shall be
entitled to receive out of the assets of the Corporation, before any
distribution shall be made to the holders of the Common Stock, the amounts
determined to be payable on the Preferred Stock of each series in the event of
voluntary or involuntary liquidation.
No holder of Preferred Stock shall be entitled to any preemptive
rights.
The Corporation may issue rights and options to purchase shares of
Preferred Stock of the Corporation to Directors, Officers or employees of the
Corporation or any affiliate thereof, and no stockholder approval or
ratification of any such issuance of rights and options shall be required.
ARTICLE V
BOARD OF DIRECTORS
The number of persons to serve on the Board of Directors shall be fixed
or in the manner provided by the Bylaws.
ARTICLE VI
LIMITATION OF LIABILITY AND INDEMNIFICATION
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware.
The Corporation shall, to the fullest extent permitted by the General
Corporation Law of the State
4
<PAGE>
of Delaware (the "GCL"), as the same may be amended and supplemented, indemnify
any and all persons whom it shall have power to indemnify from and against any
and all of the expenses, liabilities or other matters referred to in or covered
by the GCL, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE VII
ELECTION OF DIRECTORS
All elections of Directors will be by ballot vote where a ballot vote
is demanded by any person entitled to vote prior to the time the voting begins;
otherwise, a voice vote will suffice.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Bylaws may be altered, amended, repealed or temporarily or
permanently suspended, in whole or in part, or new bylaws adopted by the action
of the Board of Directors or the stockholders, in accordance with the provisions
set forth below:
Section 1.
BY ACTION OF THE BOARD OF DIRECTORS. The Bylaws may be altered,
amended, repealed or temporarily or permanently suspended, in whole or in part,
or new bylaws adopted by the action of the Board of Directors only upon the
affirmative vote of a majority of the entire Board of Directors. Such vote may
be taken at any annual, regular or special meeting of the Board of Directors if
notice of such alteration, amendment, repeal or adoption of the new bylaws shall
be contained in the notice of such annual, regular or special meeting.
Section 2.
BY ACTION OF THE STOCKHOLDERS. The Bylaws may be altered, amended or
repealed or new bylaws may be adopted by the stockholders only upon the
affirmative vote as to all the stock held by the holders of not less than
sixty-six and two-thirds percent (66 2/3%) of the combined voting power of the
issued and outstanding shares of Voting Stock (as defined in Article IX), voting
together as a single class. Such vote may be taken at any annual or special
meeting of the stockholders if notice of such alteration, amendment, repeal, or
adoption of the new bylaws shall be contained in the notice of such annual or
special meeting.
5
<PAGE>
ARTICLE IX
BOARD CONSIDERATIONS UPON SIGNIFICANT EVENTS
The Board, when evaluating any (A) tender offer or invitation for
tenders, or proposal to make a tender offer or request or invitation for
tenders, by another party, for any equity security of the Corporation, or (B)
proposal or offer by another party to (1) merge or consolidate the Corporation
or any subsidiary with another corporation or other entity, (2) purchase or
otherwise acquire all or substantially all of the properties or assets of the
Corporation or any subsidiary, or sell or otherwise dispose of to the
Corporation or any subsidiary all or a substantial portion of the properties or
assets of such other party, or (3) liquidate, dissolve, reclassify the
securities of, declare an extraordinary dividend of, recapitalize or reorganize
the Corporation, shall take into account all factors that the Board deems
relevant, including, without limitation, to the extent so deemed relevant, the
potential impact on employees, customers, suppliers, partners, joint venturers
and other constituents of the Corporation and the communities in which the
Corporation operates.
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal relating to
this Article IX must be approved by the affirmative vote of the holders of at
least sixty six and two-thirds percent (66 2/3%) of the combined voting power of
the issued and outstanding shares of Voting Stock, voting together as a single
class. Voting Stock is defined as all issued and outstanding shares of capital
stock of the Corporation that pursuant to or in accordance with this First
Restated Certificate of Incorporation are entitled to vote generally in the
election of directors of the Corporation, and each reference herein, where
appropriate, to a percentage or portion of shares of Voting Stock shall refer to
such percentage or portion of the voting power of such shares entitled to vote.
The issued and outstanding shares of Voting Stock shall not include any shares
of Voting Stock that may be issuable pursuant to any agreement, or upon the
exercise or conversion of any rights, warrants or options, or otherwise.
ARTICLE X
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal of this
Article X must be approved by the affirmative vote of the holders of at least
sixty six and two-thirds percent (66 2/3%) of the combined voting power of the
issued and outstanding shares of Voting Stock (as defined in Article IX), voting
together as a single class.
ARTICLE XI
STOCKHOLDER CONSENT
No action that is required or permitted to be taken by the stockholders
of the Corporation at any annual or special meeting of stockholders may be
effected by written consent of stockholders in lieu of a meeting of
stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
6
<PAGE>
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal of this
Article XI must be approved by the affirmative vote of the holders of at least
sixty six and two-thirds percent (66 2/3%) of the combined voting power of the
issued and outstanding shares of Voting Stock (as defined in Article IX), voting
together as a single class.
7
<PAGE>
IN WITNESS WHEREOF, this First Restated Certificate of Incorporation
has been signed this ____ day of February, 1999.
UNITED STATES AIRCRAFT CORPORATION
By:
------------------------------
Albert C. Lundstrom, President
<PAGE>
APPENDIX III
UNITED STATES AIRCRAFT CORPORATION
1998 STOCK OPTION PLAN
ARTICLE 1
GENERAL
1.1 PURPOSE OF PLAN; TERM
(a) ADOPTION. This plan shall be known as the United States Aircraft
Corporation 1998 Stock Option Plan (the "Plan").
(b) DEFINED TERMS. All initially capitalized terms used hereby shall
have the meaning set forth in ARTICLE V hereto.
(c) GENERAL PURPOSE. The Plan shall be divided into two programs: the
Discretionary Grant Program and the Automatic Grant Program.
(i) DISCRETIONARY GRANT PROGRAM. The purpose of the Discretionary
Grant Program is to further the interests of the Company and its stockholders by
encouraging key persons associated with the Company (or Parent or Subsidiary
Corporations) to acquire shares of the Company's Stock, thereby acquiring a
proprietary interest in its business and an increased personal interest in its
continued success and progress. Such purpose shall be accomplished by providing
for the discretionary granting of options to acquire the Company's Stock
("Discretionary Options"), the direct granting of the Company's Stock ("Stock
Awards"), the granting of stock appreciation rights ("SARs"), or the granting of
other cash awards ("Cash Awards") (Stock Awards, SARs, and Cash Awards shall be
collectively referred to herein as "Awards").
(ii) AUTOMATIC GRANT PROGRAM. The purpose of the Automatic Grant
Program is to promote the interests of the Company by providing non-employee
members of the Company's Board of Directors (the "Board") the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Company and to thereby have an increased personal interest in
its continued success and progress. Such purpose shall be accomplished by
providing for the automatic grant of options to acquire the Company's Stock
("Automatic Options").
(d) CHARACTER OF OPTIONS. Discretionary Options granted under this Plan
to employees of the Company (or Parent or Subsidiary Corporations) that are
intended to qualify as "incentive stock options" as defined in Code ss. 422
("Incentive Stock Options") will be specified in the applicable stock option
agreement. All other Options granted under this Plan will be nonqualified
options.
(e) RULE 16B-3 PLAN. With respect to persons subject to Section 16 of
the Securities Exchange Act of 1934, as amended ("1934 Act"), the Plan is
intended to comply with all applicable conditions of Rule 16b-3 (and all
subsequent revisions thereof) promulgated under
<PAGE>
the 1934 Act. In such instance, to the extent any provision of the Plan or
action by a Plan Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by such Plan
Administrator. In addition, the Board may amend the Plan from time to time as it
deems necessary in order to meet the requirements of any amendments to Rule
16b-3 without the consent of the stockholders of the Company.
(f) DURATION OF PLAN. The term of the Plan is 10 years commencing on
the date of adoption of the Plan by the Board as specified in SECTION 1.1(A)
hereof. No Option or Award shall be granted under the Plan unless granted within
10 years of the adoption of the Plan by the Board, but Options or Awards
outstanding on that date shall not be terminated or otherwise affected by virtue
of the Plan's expiration.
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
(a) DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The stock
subject to the provisions of the Plan and issuable upon the grant of Stock
Awards or upon the exercise of SARs or Options granted under the Plan is shares
of the Company's proposed new class of common stock, $.001 par value per share
when such stock is authorized by the Company's stockholders (the "Stock"), which
may be either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in SECTION 4.1 hereof, the
aggregate number of shares of Stock covered by the Plan and issuable hereunder
shall be 2,500,000 shares of Stock.
(b) CALCULATION OF AVAILABLE SHARES. For purposes of calculating the
maximum number of shares of Stock which may be issued under the Plan: (i) the
shares issued (including the shares, if any, withheld for tax withholding
requirements) upon exercise of an Option shall be counted, and (ii) the shares
issued (including the shares, if any, withheld for tax withholding requirements)
as a result of a grant of a Stock Award or an exercise of a SAR shall be
counted.
(c) RESTORATION OF UNPURCHASED SHARES. If an Option or SAR expires or
terminates for any reason prior to its exercise in full and before the term of
the Plan expires, the shares of Stock subject to, but not issued under, such
Option or SAR shall, without further action or by or on behalf of the Company,
again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
(a) APPROVAL BY STOCKHOLDERS. The Plan shall be submitted to the
stockholders of the Company for their approval at a regular or special meeting
to be held within 12 months after the adoption of the Plan by the Board.
Stockholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the shares of the Company's currently outstanding Class A
Common Stock and Class B Common Stock present in person or by proxy and voting
at the meeting. The date such stockholder approval has been obtained shall be
referred to herein as the "Effective Date."
(b) COMMENCEMENT OF PROGRAMS. The Automatic Grant Program, as revised
herein, shall commence immediately. The Discretionary Grant Program, as revised
herein, shall commence immediately, subject to the terms set forth in SECTION
1.1(A).
2
<PAGE>
(c) AMENDMENTS TO PLAN. The Board may, without action on the part of
the Company's stockholders, make such amendments to, changes in and additions to
the Plan as it may, from time to time, deem necessary or appropriate and in the
best interests of the Company; provided, the Board may not, without the consent
of the applicable Optionholder, take any action which disqualifies any
Discretionary Option previously granted under the Plan for treatment as an
Incentive Stock Option or which adversely affects or impairs the rights of the
Optionholder of any Discretionary Option outstanding under the Plan, and further
provided that, except as provided in Article IV hereof, the Board may not,
without the approval of the Company's stockholders, (i) increase the aggregate
number of shares of Stock subject to the Plan, (ii) reduce the exercise price at
which Discretionary Options may be granted or the exercise price at which any
outstanding Discretionary Option may be exercised, (iii) extend the term of the
Plan, (iv) change the class of persons eligible to receive Discretionary Options
or Awards under the Plan, or (v) materially increase the benefits accruing to
participants under the Plan. Notwithstanding the foregoing, Discretionary
Options or Awards may be granted under this Plan to purchase shares of Stock in
excess of the number of shares then available for issuance under the Plan if (A)
an amendment to increase the maximum number of shares issuable under the Plan is
adopted by the Board prior to the initial grant of any such Option or Award and
within one year thereafter such amendment is approved by the Company's
stockholders and (B) each such Discretionary Option or Award granted is not to
become exercisable or vested, in whole or in part, at any time prior to the
obtaining of such stockholder approval.
ARTICLE 2
DISCRETIONARY GRANT PROGRAM
2.1 PARTICIPANTS; ADMINISTRATION.
(a) ELIGIBILITY AND PARTICIPATION. Discretionary Options and Awards may
be granted only to persons ("Eligible Persons") who at the time of grant are (i)
key personnel (including officers and directors) of the Company or Parent or
Subsidiary Corporations, or (ii) consultants or independent contractors who
provide valuable services to the Company or Parent or Subsidiary Corporations;
provided that (A) Incentive Stock Options may only be granted to key personnel
of the Company (or its Parent or Subsidiary Corporations) who are also employees
of the Company (or its Parent or Subsidiary Corporations), and (B) the maximum
number of shares of Stock with respect to which Options, Awards, or any
combination thereof, may be granted to any employee during the term of the Plan
shall not exceed 50 percent of the shares of Stock covered by and issuable under
the Plan. A Plan Administrator shall have full authority to determine which
Eligible Persons in its administered group are to receive Discretionary Option
grants under the Plan, the number of shares to be covered by each such grant,
whether or not the granted Discretionary Option is to be an Incentive Stock
Option, the time or times at which each such Discretionary Option is to become
exercisable, and the maximum term for which the Discretionary Option is to be
outstanding. A Plan Administrator shall also have full authority to determine
which Eligible Persons in such group are to receive Awards under the
Discretionary Grant Program and the conditions relating to such Award.
(b) GENERAL ADMINISTRATION. Unless otherwise expressly provided in this
Plan, the power to administer the Discretionary Grant Program shall be vested
exclusively with a committee (the "Senior Committee"). The membership of the
Senior Committee shall be constituted so as to comply at all times with the
applicable requirements of Rule 16b-3 and Code ss.162(m); provided, however,
that if, at any time Rule 16b-3 and Code ss.162(m) and any
3
<PAGE>
implementing regulations (and any successor provisions thereof) so permit
without adversely affecting the ability of the Plan to comply with the
conditions for exemption from Section 16 of the Exchange Act (or any successor
provision) provided by Rule 16b-3 and the exemption from the limitations on
deductibility of certain executive compensation provided by Code ss.162(m), the
Board may delegate the administration of the Plan, in whole or in part, on such
terms and conditions, and to such other person or persons as it may determine in
its discretion; provided further, however, that the Board may at any time
appoint a committee (the "Employee Committee") of two or more persons who are
members of the Board and delegate to such Employee Committee the power to
administer the Discretionary Grant Program with respect to Eligible Persons that
are not Affiliates. For purposes of this Plan, the term "Affiliates" shall mean
all "officers" (as that term is defined in Rule 16a-1(f) promulgated under the
1934 Act), all "covered persons" (as that term is defined in Code ss. 162(m)),
directors of the Company, and all persons who own 10 percent or more of the
Company's issued and outstanding equity securities.
(c) PLAN ADMINISTRATORS. The Board, the Senior Committee, and/or the
Employee Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to its
administered group, to select which Eligible Persons shall participate in the
Discretionary Grant Program, to grant Discretionary Options or Awards under the
Discretionary Grant Program, to establish such rules and regulations as they may
deem appropriate with respect to the proper administration of the Discretionary
Grant Program and to make such determinations under, and issue such
interpretations of, the Discretionary Grant Program and any outstanding
Discretionary Option or Award as they may deem necessary or advisable. Unless
otherwise required by law or specified by the Board with respect to any
committee, decisions among the members of a Plan Administrator shall be by
majority vote. Decisions of a Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Grant Program or any
outstanding Discretionary Option or Award. The Senior Committee, the Employee
Committee, and/or any other committee allowed hereunder, in their respective
sole discretion, may make specific grants of Discretionary Options or Awards
conditioned on approval of the Board.
The Board may establish an additional committee or committees of
persons who are members of the Board and delegate to such other committee or
committees the power to administer all or a portion of the Discretionary Grant
program with respect to all or a portion of the Eligible Persons. Members of the
Senior Committee, Employee Committee, or any other committee allowed hereunder
shall serve for such period of time as the Board may determine and shall be
subject to removal by the Board at any time. The Board may at any time terminate
all or a portion of the functions of the Senior Committee, the Employee
Committee, or any other committee allowed hereunder and reassume all or a
portion of powers and authority previously delegated to such committee.
(d) GUIDELINES FOR PARTICIPATION. In designating and selecting Eligible
Persons for participation in the Discretionary Grant Program, a Plan
Administrator shall consult with and give consideration to the recommendations
and criticisms submitted by appropriate managerial and executive officers of the
Company. A Plan Administrator also shall take into account the duties and
responsibilities of the Eligible Persons, their past, present and potential
contributions to the success of the Company and such other factors as a Plan
Administrator shall deem relevant in connection with accomplishing the purpose
of the Plan.
4
<PAGE>
2.2 TERMS AND CONDITIONS OF OPTIONS
(a) ALLOTMENT OF SHARES. A Plan Administrator shall determine the
number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of a Discretionary Option to a person shall neither entitle such person to, nor
disqualify such person from, participation in any other grant of Options or
Stock Awards under this Plan or any other stock option plan of the Company.
(b) EXERCISE PRICE. Upon the grant of any Discretionary Option, a Plan
Administrator shall specify the option price per share, which may not be less
than 100 percent of the fair market value per share of the Stock on the date the
Discretionary Option is granted (110 percent if the Discretionary Option is
intended to qualify as an Incentive Stock Option and is granted to a stockholder
who at the time the Discretionary Option is granted owns or is deemed to own
stock possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary Corporation). The
determination of the fair market value of the Stock shall be made in accordance
with the valuation provisions of SECTION 4.5 hereof.
(c) INDIVIDUAL STOCK OPTION AGREEMENTS. Discretionary Options granted
under the Plan shall be evidenced by option agreements in such form and content
as a Plan Administrator from time to time approves, which agreements shall
substantially comply with and be subject to the terms of the Plan, including the
terms and conditions of this SECTION 2.2. As determined by a Plan Administrator,
each option agreement shall state (i) the total number of shares to which it
pertains, (ii) the exercise price for the shares covered by the Option, (iii)
the time at which the Options vest and become exercisable, and (iv) the Option's
scheduled expiration date. The option agreements may contain such other
provisions or conditions as a Plan Administrator deems necessary or appropriate
to effectuate the sense and purpose of the Plan, including covenants by the
Optionholder not to compete and remedies for the Company in the event of the
breach of any such covenant.
(d) OPTION PERIOD. No Discretionary Option granted under the Plan that
is intended to be an Incentive Stock Option shall be exercisable for a period in
excess of 10 years from the date of its grant (five years if the Discretionary
Option is granted to a stockholder who at the time the Discretionary Option is
granted owns or is deemed to own stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company or of any
Parent or Subsidiary Corporation), subject to earlier termination in the event
of termination of employment, retirement or death of the Optionholder. A
Discretionary Option may be exercised in full or in part at any time or from
time to time during the term of the Discretionary Option or provide for its
exercise in stated installments at stated times during the Option's term.
(e) VESTING; LIMITATIONS. The time at which the Optioned Shares vest
with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator. Notwithstanding the foregoing, to the extent
a Discretionary Option is intended to qualify as an Incentive Stock Option, the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time become exercisable as Incentive Stock
Options during any one calendar year shall not exceed the sum of $100,000
(referred to herein as the "$100,000 Limitation"). To the extent that any person
holds two or more Options which become exercisable for the first time in the
5
<PAGE>
same calendar year, the foregoing limitation on the exercisability as an
Incentive Stock Option shall be applied on the basis of the order in which such
Options are granted.
(f) NO FRACTIONAL SHARES. Options shall be exercisable only for whole
shares; no fractional shares will be issuable upon exercise of any Discretionary
Option granted under the Plan.
(g) METHOD OF EXERCISE. In order to exercise a Discretionary Option
with respect to any vested Optioned Shares, an Optionholder (or in the case of
an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written notice of
exercise signed in writing by the person exercising the Discretionary Option
specifying the number of shares of Stock with respect to which the Discretionary
Option is being exercised;
(ii) pay the aggregate Option Price in one of the alternate
forms as set forth in SECTION 2.2(H) below; and
(iii) furnish appropriate documentation that the person or
persons exercising the Discretionary Option (if other than the Optionholder) has
the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising this Discretionary Option in accordance herewith) a certificate or
certificates representing the Stock for which the Discretionary Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Discretionary Option be exercised for any fractional shares.
(h) PAYMENT OF OPTION PRICE. The aggregate Option Price shall be
payable in one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the
Company's order; or
(ii) Full payment in shares of Stock held for the requisite
period necessary to avoid a charge to the Company's reported earnings and valued
at fair market value on the Exercise Date (as determined in accordance with
SECTION 4.5 hereof); or
(iii) If a cashless exercise program has been implemented by
the Board, full payment through a sale and remittance procedure pursuant to
which the Optionholder (A) shall provide irrevocable written instructions to a
designated brokerage firm to effect the immediate sale of the Optioned Shares to
be purchased and remitted to the Company, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise price
payable for the Optioned Shares to be purchased, and (B) shall concurrently
provide written directives to the Company to deliver the certificates for the
Optioned Shares to be purchased directly to such brokerage firm in order to
complete the sale transaction.
6
<PAGE>
(i) REPURCHASE RIGHT. The Plan Administrator may, in its sole
discretion, set forth other terms and conditions upon which the Company (or its
assigns) shall have the right to repurchase shares of Stock acquired by an
Optionholder pursuant to a Discretionary Option. Any repurchase right of the
Company shall be exercisable by the Company (or its assignees) upon such terms
and conditions as the Plan Administrator may specify in the Stock Repurchase
Agreement evidencing such right. The Plan Administrator may also, in its
discretion, establish as a term and condition of one or more Discretionary
Options granted under the Plan that the Company shall have a right of first
refusal with respect to any proposed sale or other disposition by the
Optionholder of any shares of Stock issued upon the exercise of such
Discretionary Options. Any such right of first refusal shall be exercisable by
the Company (or its assigns) in accordance with the terms and conditions set
forth in the Stock Repurchase Agreement.
(j) TERMINATION OF INCENTIVE STOCK OPTIONS
(i) TERMINATION OF SERVICE. If any Optionholder ceases to be
in Service to the Company for a reason other than death, the Optionholder's
vested Incentive Stock Options on the date of termination of such Service shall
remain exercisable only for 30 days after the date of termination of such
Service or until the stated expiration date of the Optionholder's Option,
whichever occurs first; provided, that (i) if Optionholder is discharged for
Cause, or (ii) if after the Service of the Optionholder is terminated, the
Optionholder commits acts detrimental to the Company's interests, then the
Incentive Stock Option shall thereafter be void for all purposes. "Cause" shall
be limited to a termination of Service for (A) commission of a crime by the
Optionholder or for reasons involving moral turpitude; (B) an act by the
Optionholder which tends to bring the Company into disrepute; or (C) negligent,
fraudulent or willful misconduct by the Optionholder. Notwithstanding the
foregoing, if any Optionholder ceases to be in Service to the Company by reason
of permanent disability within the meaning of section 22(e)(3) of the Code (as
determined by the applicable Plan Administrator), the Optionholder shall have
180 days after the date of termination of Service, but in no event after the
stated expiration date of the Optionholder's Incentive Stock Options, to
exercise Incentive Stock Options that the Optionholder was entitled to exercise
on the date the Optionholder's Service terminated as a result of such
disability.
(ii) DEATH OF OPTIONHOLDER. If an Optionholder dies while in
the Company's Service, the Optionholder's vested Incentive Stock Options on the
date of death shall remain exercisable only for 90 days after the date of death
or until the stated expiration date of the Optionholder's Option, whichever
occurs first, and may be exercised only by the person or persons ("successors")
to whom the Optionholder's rights pass under a will or by the laws of descent
and distribution. A Discretionary Option may be exercised and payment of the
Option Price made in full by the successors only after written notice to the
Company specifying the number of shares to be purchased. Such notice shall state
that the Option Price is being paid in full in the manner specified in SECTION
2.2 hereof. As soon as practicable after receipt by the Company of such notice
and of payment in full of the Option Price, a certificate or certificates
representing the Optioned Shares shall be registered in the name or names
specified by the successors in the written notice of exercise and shall be
delivered to the successors.
(k) TERMINATION OF NONQUALIFIED OPTIONS. Any Options which are not
Incentive Stock Options and which are outstanding at the time an Optionholder
dies while in Service to the Company or otherwise ceases to be in Service to the
Company shall remain
7
<PAGE>
exercisable for such period of time thereafter as determined by the Plan
Administrator at the time of grant and set forth in the documents evidencing
such Options; provided, that no Option shall be exercisable after the Option's
stated expiration date, and provided further, that if the Optionholder is
discharged for Cause or, if after the Optionholder's Service to the Company is
terminated, the Optionholder commits acts detrimental to the Company's
interests, then the Option will thereafter be void for all purposes.
(l) OTHER PLAN PROVISIONS STILL APPLICABLE. If a Discretionary Option
is exercised upon the termination of Service or death of an Optionholder under
this SECTION 2.2, the other provisions of the Plan shall still be applicable to
such exercise, including the requirement that the Optionholder or its successor
may be required to enter into a Stock Repurchase Agreement.
(m) DEFINITION OF "SERVICE." For purposes of this Plan, unless it is
evidenced otherwise in the option agreement with the Optionholder, the
Optionholder shall be deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or to
any Parent or Subsidiary Corporation) in the capacity of an employee, director,
or an independent consultant or advisor. In the discretion of a Plan
Administrator, an Optionholder shall be considered to be rendering continuous
services to the Company even if the type of services change, e.g., from employee
to independent consultant. The Optionholder shall be considered to be an
employee for so long as such individual remains in the employ of the Company or
one or more of its Parent or Subsidiary Corporations.
2.3 TERMS AND CONDITIONS OF STOCK AWARDS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to receive
Stock Awards. The Plan Administrator of each administered group shall determine
the number of shares of Stock to be awarded from time to time to any Eligible
Person in such group. The grant of a Stock Award to a person shall neither
entitle such person to, nor disqualify such person from participation in, any
other grant of options or awards by the Company, whether under this Plan or
under any other stock option or award plan of the Company.
(b) AWARD FOR SERVICES RENDERED. Stock Awards shall be granted in
recognition of an Eligible Person's past services to the Company. The grantee of
any such Stock Award shall not be required to pay any consideration to the
Company upon receipt of such Stock Award, except as may be required to satisfy
any applicable Delaware corporate law, employment tax, and/or income tax
withholding or other legal requirements.
(c) CONDITIONS TO AWARD. All Stock Awards shall be subject to such
terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under circumstances that it deems
appropriate.
(d) AWARD AGREEMENTS. A Plan Administrator may require as a condition
to a Stock Award that the recipient of such Stock Award enter into an award
agreement in such form and content as that Plan Administrator from time to time
approves.
8
<PAGE>
2.4 TERMS AND CONDITIONS OF SARS
(a) ELIGIBILITY. All Eligible Persons shall be eligible to receive
SARs. The Plan Administrator of each administered group shall determine the SARs
to be awarded from time to time to any Eligible Person in such group. The grant
of a SAR to a person shall neither entitle such person to, nor disqualify such
person from participation in, any other grant of options or awards by the
Company, whether under this Plan or under any other stock option or award plan
of the Company.
(b) AWARD OF SARS. Concurrently with or subsequent to the grant of any
Discretionary Option to purchase one or more shares of Stock, a Plan
Administrator may award to the Optionholder with respect to each share of Stock
underlying the Option, a related SAR permitting the Optionholder to be paid the
appreciation on the Stock underlying the Discretionary Option in lieu of
exercising the Option. In addition, a Plan Administrator may award to any
Eligible Person a SAR permitting the Eligible Person to be paid the appreciation
on a designated number of shares of the Stock, whether or not such Shares are
actually issued.
(c) CONDITIONS TO SAR. All SARs shall be subject to such terms,
conditions, restrictions or limitations as the applicable Plan Administrator
deems appropriate, including, by way of illustration but not by way of
limitation, restrictions on transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the recipient of any applicable employment or withholding taxes. Such
Plan Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under circumstances that it deems appropriate.
(d) SAR AGREEMENTS. A Plan Administrator may require as a condition to
the grant of a SAR that the recipient of such SAR enter into a SAR agreement in
such form and content as that Plan Administrator from time to time approves.
(e) EXERCISE. An Eligible Person who has been granted a SAR may
exercise such SAR subject to the conditions specified by the Plan Administrator
in the SAR agreement.
(f) AMOUNT OF PAYMENT. The amount of payment to which the grantee of a
SAR shall be entitled upon the exercise of each SAR shall be equal to the
amount, if any, by which the fair market value of the specified shares of Stock
on the exercise date exceeds the fair market value of the specified shares of
Stock on the date the Discretionary Option related to the SAR was granted or
became effective, or, if the SAR is not related to any Option, on the date the
SAR was granted or became effective.
(g) FORM OF PAYMENT. The SAR may be paid in either cash or Stock, as
determined in the discretion of the applicable Plan Administrator and set forth
in the SAR agreement. If the payment is in Stock, the number of shares to be
delivered to the participant shall be determined by dividing the amount of the
payment determined pursuant to SECTION 2.4(F) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon as practicable after
exercise, the Company shall deliver to the SAR grantee a certificate or
certificates for such shares of Stock.
9
<PAGE>
(h) TERMINATION OF EMPLOYMENT; DEATH. SECTION 2.2(J), applicable to
Incentive Stock Options, and SECTION 2.2(K), applicable to nonqualified options,
shall apply equally to SARs issued in tandem with such Options.
2.5 TERMS AND CONDITIONS OF CASH AWARDS
(a) IN GENERAL. The Plan Administrator of each administered group shall
have the discretion to make other awards of cash to Eligible Persons in such
group ("Cash Awards"). Such Cash Awards may relate to existing Options or to the
appreciation in the value of the Stock or other Company securities.
(b) CONDITIONS TO AWARD. All Cash Awards shall be subject to such
terms, conditions, restrictions, and limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
ARTICLE 3
AUTOMATIC GRANT PROGRAM
3.1 ELIGIBLE PERSONS UNDER THE AUTOMATIC GRANT PROGRAM. The persons
eligible to participate in the Automatic Grant Program shall be limited to Board
members who are not employed by the Company, whether or not such persons qualify
as Non-Employee directors as defined herein ("Eligible Directors"). Persons who
are eligible under the Automatic Grant Program may also be eligible to receive
Discretionary Options or Awards under the Discretionary Grant Program or option
grants or direct stock issuances under other plans of the Company.
3.2 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
(a) AMOUNT AND DATE OF GRANT. During the term of this Plan, Automatic
Grants shall be made to each Eligible Director ("Optionholder") as follows:
(i) ANNUAL GRANTS. Each year on the Annual Grant Date an
Automatic Option to acquire 5,000 shares of Stock shall be granted to each
Eligible Director for so long as there are shares of Stock available under
SECTION 1.2 hereof. The "Annual Grant Date" shall be the date of the Company's
annual stockholders meeting commencing as of the next annual meeting occurring
after the annual meeting held on the Effective Date. Any Person that was granted
an Automatic Option under SECTION 3.2(A)(II) hereof within 30 days of an Annual
Grant Date shall be ineligible to receive an Automatic Option grant pursuant to
this SECTION 3.2(A)(I) on such Annual Grant Date.
(ii) INITIAL NEW DIRECTOR GRANTS. On the Initial Grant Date,
every new member of the Board who is an Eligible Director and has not previously
received an Automatic Option grant under this SECTION 3.2(A)(II) shall be
granted an Automatic Option to acquire 5,000 shares of Stock for so long as
there are shares of Stock available under SECTION 1.2 hereof. The "Initial Grant
Date" shall be the date that an Eligible Director is first appointed or elected
to the Board. Any Eligible Person that was granted an Automatic Option pursuant
to
10
<PAGE>
SECTION 3.2(A)(III) shall be ineligible to receive an Automatic Option grant
pursuant to this SECTION 3.2(A)(II).
(iii) INITIAL EXISTING DIRECTOR GRANTS. On the date hereof,
each current Eligible Director shall receive an Automatic Option to acquire
5,000 shares of Stock.
(b) EXERCISE PRICE. The exercise price per share of Stock subject to
each Automatic Option Grant shall be equal to 100 percent of the fair market
value per share of the Stock on the date the Automatic Option was granted as
determined in accordance with the valuation provisions of SECTION 4.5 hereof
(the "Option Price").
(c) VESTING. Each Automatic Option Grant shall become exercisable and
vest in a series of three equal and successive yearly installments, with each
annual installment to become exercisable on the day before the Company's annual
stockholders' meeting occurring in the applicable year. Each installment of an
Automatic Option shall only vest and become exercisable if the Optionholder has
not ceased serving as a Board member as of such vesting date.
(d) METHOD OF EXERCISE. In order to exercise an Automatic Option with
respect to any vested Optioned Shares, an Optionholder (or in the case of an
exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
(i) execute and deliver to the Company a written notice of
exercise signed in writing by the person exercising the Automatic Option
specifying the number of shares of Stock with respect to which the Automatic
Option is being exercised;
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in SECTION 3.2(E) below; and
(iii) furnish appropriate documentation that the person
or persons exercising the Automatic Option (if other than the Optionholder) has
the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising the Automatic Option in accordance herewith) a certificate or
certificates representing the Stock for which the Automatic Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Automatic Option be exercised for any fractional shares.
(e) PAYMENT OF OPTION PRICE. The aggregate Option Price shall be
payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Company's order; or
(ii) full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with SECTION 4.5 hereof); or
11
<PAGE>
(iii) if a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(f) TERM OF OPTION. Each Automatic Option shall expire on the tenth
anniversary of the date on which an Automatic Option Grant was made ("Expiration
Date"). Except as provided in SECTION 4.4 hereof, should an Optionholder's
service as a Board member cease prior to the Expiration Date for any reason
while an Automatic Option remains outstanding and unexercised, then the
Automatic Option term shall immediately terminate and the Automatic Option shall
cease to be outstanding in accordance with the following provisions:
(i) The Automatic Option shall immediately terminate
and cease to be outstanding for any shares of Stock which were not vested at the
time of Optionholder's cessation of Board service.
(ii) Should an Optionholder cease, for any reason other
than death, to serve as a member of the Board, then the Optionholder shall have
30 days measured from the date of such cessation of Board service in which to
exercise the Automatic Options which vested prior to the time of such cessation
of Board service. In no event, however, may any Automatic Option be exercised
after the Expiration Date of such Automatic Option.
(iii) Should an Optionholder die while serving as a
Board member or within 30 days after cessation of Board service, then the
personal representative of the Optionholder's estate (or the person or persons
to whom the Automatic Option is transferred pursuant to the Optionholder's will
or in accordance with the laws of descent and distribution) shall have a 90 day
period measured from the date of the Optionholder's cessation of Board service
in which to exercise the Automatic Options which vested prior to the time of
such cessation of Board service. In no event, however, may any Automatic Option
be exercised after the Expiration Date of such Automatic Option.
ARTICLE 4
MISCELLANEOUS
4.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock
subject to the Plan, the number of shares covered by outstanding Options and
Awards, and the price per share stated in such Options and Awards shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Stock of the Company resulting from a subdivision or
consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without the Company's receipt of consideration therefor in money,
services or property.
12
<PAGE>
4.2 MERGERS, ETC. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option or
Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in SECTION 4.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
4.3 CORPORATE TRANSACTION. In the event of stockholder approval of a
Corporate Transaction, (a) all unvested Automatic Options shall automatically
accelerate and immediately vest so that each outstanding Automatic Option shall,
one week prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the Optioned Shares, and (b) the Plan
Administrator shall have the discretion and authority, exercisable at any time,
to provide for the automatic acceleration of one or more of the outstanding
Discretionary Options or Awards granted by it under the Plan. Upon the
consummation of the Corporate Transaction, all Options shall, to the extent not
previously exercised, terminate and cease to be outstanding.
4.4 CHANGE IN CONTROL
(a) AUTOMATIC GRANT PROGRAM. In the event of a Change in Control, all
unvested Automatic Options shall automatically accelerate and immediately vest
so that each outstanding Automatic Option shall, immediately prior to the
effective date of such Change in Control, become fully exercisable for all of
the Optioned Shares. Thereafter, each Automatic Option shall remain exercisable
until the Expiration Date of such Automatic Option.
(b) DISCRETIONARY GRANT PROGRAM. In the event of a Change in Control, a
Plan Administrator shall have the discretion and authority, exercisable at any
time, whether before or after the Change in Control, to provide for the
automatic acceleration of one or more outstanding Discretionary Options or
Awards granted by it under the Plan upon the occurrence of such Change in
Control. A Plan Administrator may also impose limitations upon the automatic
acceleration of such Options or Awards to the extent it deems appropriate. Any
Options or Awards accelerated upon a Change in Control will remain fully
exercisable until the expiration or sooner termination of the Option term.
4.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market value of
a share of Stock on any relevant date shall be determined in accordance with the
following provisions:
(i) If the Stock is not at the time listed or admitted
to trading on any stock exchange but is traded in the over-the-counter market,
the fair market value shall be the mean between the highest bid and lowest asked
prices (or, if such information is available, the closing selling price) per
share of Stock on the date in question in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its Nasdaq system or any successor system, or if not so available, on the Nasdaq
Bulletin Board or "Pink Sheets" or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Stock on the
date in question, then the mean between the highest bid price and lowest asked
price (or the closing selling price) on the last preceding date for which such
quotations exist shall be determinative of fair market value.
(ii) If the Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the closing
selling price per share of Stock on the
13
<PAGE>
date in question on the stock exchange determined by the Board to be the primary
market for the Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no reported sale of Stock on such
exchange on the date in question, then the fair market value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(iii) If the Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value shall be determined by the Board after taking
into account such factors as the Board shall deem appropriate, including one or
more independent professional appraisals.
4.6 USE OF PROCEEDS. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any, shall
be used for general corporate purposes.
4.7 CANCELLATION OF OPTIONS. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Discretionary
Options granted under the Plan by that Plan Administrator and to grant in
substitution therefore new Discretionary Options under the Plan covering the
same or different numbers of shares of Stock as long as such new Discretionary
Options have an exercise price per share of Stock no less than the minimum
exercise price as set forth in SECTION 2.2(B) hereof on the new grant date.
4.8 REGULATORY APPROVALS. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the Options or Awards granted under it and the Stock issued
pursuant thereto.
4.9 INDEMNIFICATION. Each and every member of a Plan Administrator,
i_)n addition to such other available rights of indemnification as they may
have, the members of a Plan Administrator shall be indemnified and held harmless
by the Company, to the extent permitted under applicable law, for, from and
against all costs and expenses reasonably incurred by them in connection with
any action, suit, legal proceeding to which any member thereof may be a party by
reason of any action taken, failure to act under or in connection with the Plan
or any rights granted thereunder and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a judgment of any such
action, suit or proceeding, except a judgment based upon a finding of bad faith.
4.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without stockholder approval.
4.11 COMPANY RIGHTS. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
14
<PAGE>
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
4.12 PRIVILEGE OF STOCK OWNERSHIP. An Optionholder shall not have any
of the rights of a stockholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date of such exercise and full payment for
such Optioned Shares.
4.13 ASSIGNMENT. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered, or otherwise transferred by any
Optionholder except as specifically provided herein. Except as may be
specifically allowed by the Plan Administrator at the time of grant and set
forth in the documents evidencing a Discretionary Option or Award, no Option or
Award granted under the Plan or any of the rights and privileges conferred
thereby shall be assignable or transferable by an Optionholder or grantee other
than by will or the laws of descent and distribution, and such Option or Award
shall be exercisable during the Optionholder's or grantee's lifetime only by the
Optionholder or grantee. Notwithstanding the foregoing, no Incentive Stock
Option granted under the Plan or any of the rights and privileges conferred
thereby shall be assignable or transferable by an Optionholder or grantee other
than by will or the laws of descent and distribution, and such Incentive Stock
Option shall be exercisable during the Optionholder's or grantee's lifetime only
by the Optionholder or grantee. The provisions of the Plan shall inure to the
benefit of, and be binding upon, the Company and its successors or assigns, and
the Optionholders, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
4.14 SECURITIES RESTRICTIONS
(a) LEGEND ON CERTIFICATES. All certificates representing shares of
Stock issued upon exercise of Options or Awards granted under the Plan shall be
endorsed with a legend reading as follows:
THE SHARES OF COMMON STOCK EVIDENCED BY THIS CERTIFICATE HAVE
BEEN ISSUED TO THE REGISTERED OWNER IN RELIANCE UPON WRITTEN
REPRESENTATIONS THAT THESE SHARES HAVE BEEN PURCHASED SOLELY
FOR INVESTMENT. THESE SHARES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED UNLESS IN THE OPINION OF THE COMPANY AND ITS LEGAL
COUNSEL SUCH SALE, TRANSFER OR ASSIGNMENT WILL NOT BE IN
VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS THEREUNDER.
(b) PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and Awards are
and shall be made available only to a limited number of present and future key
personnel who have knowledge of the Company's financial condition, management
and its affairs. The Plan is not intended to provide additional capital for the
Company, but to encourage ownership of Stock among the Company's key personnel.
By the act of accepting an Option or Award, each grantee
15
<PAGE>
agrees (i) that, any shares of Stock acquired pursuant to any Option or Award
will be solely for investment and not with any intention to resell or
redistribute those shares and, (ii) such intention will be confirmed by an
appropriate certificate at the time the Stock is acquired if requested by the
Company. The neglect or failure to execute such a certificate, however, shall
not limit or negate the foregoing agreement.
(c) REGISTRATION STATEMENT. If a Registration Statement covering the
shares of Stock issuable upon exercise of Options granted under the Plan is
filed under the Securities Act of 1933, as amended, and is declared effective by
the Securities Exchange Commission, the provisions of SECTIONS 4.14(A) AND (B)
shall terminate during the period of time that such Registration Statement, as
periodically amended, remains effective.
4.15 TAX WITHHOLDING
(a) GENERAL. The Company's obligation to deliver Stock upon the
exercise of Options under the Plan shall be subject to the satisfaction of all
applicable federal, state and local income tax withholding requirements.
(b) SHARES TO PAY FOR WITHHOLDING. The Board may, in its discretion and
in accordance with the provisions of this SECTION 4.15(B) and such supplemental
rules as it may from time to time adopt, provide any or all Optionholders with
the right to use shares of Stock in satisfaction of all or part of the federal,
state and local income tax liabilities ("Taxes") incurred by such Optionholders
in connection with the exercise of their Options. Such right may be provided to
any such Optionholder in either or both of the following formats:
(i) STOCK WITHHOLDING. The Plan Administrator may, in its
discretion, provide the Optionholder with the election to have the Company
withhold, from the Stock otherwise issuable upon the exercise of an Option, a
portion of those shares of Stock with an aggregate fair market value equal to
the percentage (not to exceed 100 percent) of the applicable Taxes designated by
the Optionholder.
(ii) STOCK DELIVERY. The Plan Administrator may, in its
discretion, provide the Optionholder with the election to deliver to the
Company, at the time the Option is exercised, one or more shares of Stock
previously acquired by such individual (other than pursuant to the transaction
triggering the Taxes) with an aggregate fair market value equal to the
percentage (not to exceed 100 percent) of the Taxes incurred in connection with
such Option exercise as designated by the Optionholder.
4.16 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Arizona, without regard to conflicts of laws principles.
ARTICLE 5
DEFINITIONS
The following capitalized terms used in this Plan shall have the
meaning described below:
16
<PAGE>
"AFFILIATES" shall mean all "executive officers" (as that term is
defined in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the
Company and all persons who own ten percent or more of the Company's issued and
outstanding Stock.
"ANNUAL GRANT DATE" shall mean the date of the Company's annual
stockholder meeting.
"AUTOMATIC GRANT PROGRAM" shall mean that program set forth in Article
III of this Agreement pursuant to which Eligible Directors, as defined herein,
are automatically granted Options upon certain events.
"AUTOMATIC OPTION GRANT" shall mean those automatic option grants made
on the Annual Grant Date and on the Initial Grant Date.
"AUTOMATIC OPTIONS" shall mean those Options granted pursuant to the
Automatic Grant Program.
"AWARD" shall mean a Stock Award, SAR or Cash Award.
"BOARD" shall mean the Board of Directors of the Company.
"CASH AWARD" shall mean an award to be paid in cash and granted under
SECTION 2.5 hereunder.
"CHANGE IN CONTROL" shall mean and include the following transactions
or situations (i) a person or related group of persons, other than the Company
or a person that directly or indirectly controls, is controlled by, or under
common control with the Company, acquires ownership of 40 percent or more of the
Company's outstanding common stock pursuant to a tender or exchange offer which
the Board of Directors recommends that the Company's stockholders not accept, or
(ii) the change in the composition of the Board occurs such that those
individuals who were elected to the Board at the last stockholders' meeting at
which there was not a contested election for Board membership subsequently
ceased to comprise a majority of the Board by reason of a contested election.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean United States Aircraft Corporation, a Delaware
corporation.
"CORPORATE TRANSACTION" shall mean (a) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state in which the Company is
incorporated; (b) the sale, transfer of or other disposition of all or
substantially all of the assets of the Company and complete liquidation or
dissolution of the Company, or (c) any reverse merger in which the Company is
the surviving entity but in which the securities possessing more than 50 percent
of the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
17
<PAGE>
"DISCRETIONARY GRANT PROGRAM" shall mean the program described in
Article II of this Plan pursuant to which certain Eligible Directors are granted
Options or Awards in the discretion of the Plan Administrator.
"DISCRETIONARY OPTIONS" shall mean Options granted under the
Discretionary Grant Program.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by
the stockholders as set forth in SECTION 1.3(A) hereof.
"ELIGIBLE DIRECTOR" shall mean, with respect to the Automatic Grant
Program, those Board members who are not employed by the Company, whether or not
such members are Non-Employee Directors as defined herein.
"ELIGIBLE PERSONS" shall mean (a) with respect to the Discretionary
Grant Program, those persons who, at the time that the Discretionary Option or
Award is granted, are (i) key personnel (including officers and directors) of
the Company or Parent or Subsidiary Corporations, or (ii) consultants or
independent contractors who provide valuable services to the Company or Parent
or Subsidiary Corporations; and (b) with respect to the Automatic Grant Program,
the Eligible Directors.
"EMPLOYEE COMMITTEE" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of two
or more persons who are members of the Board.
"EXERCISE DATE" shall be the date on which written notice of the
exercise of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"EXPIRATION DATE" shall be the 10-year anniversary of the date on which
an Automatic Option Grant was made.
"INCENTIVE STOCK OPTION" shall mean a Discretionary Option that is
intended to qualify as an "incentive stock option" under Code ss. 422.
"INITIAL GRANT DATE" shall mean the date that an Eligible Director is
first appointed or elected to the Board.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTORS" shall mean those Directors who satisfy the
definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated
under the 1934 Act.
"$100,000 LIMITATION" shall mean the limitation pursuant to which the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time be exercisable as Incentive Stock Options
during any one calendar year shall not exceed the sum of $100,000.
18
<PAGE>
"OPTIONHOLDER" shall mean an Eligible Person or Eligible Director to
whom Options have been granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from
time to time to any Eligible Director.
"OPTION PRICE" shall mean (i) with respect to Discretionary Options,
the exercise price per share as specified by the Plan Administrator pursuant to
SECTION 2.2(B) hereof, and (II) with respect to Automatic Options, the exercise
price per share as specified by SECTION 3.2(B) hereof.
"OPTIONS" shall mean options to acquire Stock granted under the Plan.
"PARENT CORPORATION" shall mean any corporation in the unbroken chain
of corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"PLAN" shall mean this stock option plan for United State Aircraft
Corporation.
"PLAN ADMINISTRATOR" shall mean (a) either the Board, the Senior
Committee, or any other committee, whichever is applicable, with respect to the
administration of the Discretionary Grant Program as it relates to Affiliates,
and (b) either the Board, the Employee Committee, or any other committee,
whichever is applicable, with respect to the administration of the Discretionary
Grant Program as it relates to Non-Affiliates and with respect to the Automatic
Grant Program.
"SAR" shall mean stock appreciation rights granted pursuant to SECTION
2.4 hereunder.
"SENIOR COMMITTEE" shall mean that committee appointed by the Board to
administer the Discretionary Grant Program with respect to the Affiliates and
comprised of two or more Disinterested Directors.
"SERVICE" shall have the meaning set forth in SECTION 2.2(M) hereof.
"STOCK" shall mean shares of the Company's proposed new class of common
stock, $.001 par value per share, which may be unissued or treasury shares, as
the Board may from time to time determine.
"STOCK AWARDS" shall mean Stock directly granted under the
Discretionary Grant Program.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken
chain of corporations starting with the employer corporation, where, at each
link of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation below.
19
<PAGE>
EXECUTED as of the 30th day of June, 1998.
UNITED STATES AIRCRAFT CORPORATION
By: /s/ Harry V. Eastlick
-----------------------------
Name: Harry V. Eastlick
---------------------------
ATTESTED BY: Its: Chief Financial Officer
----------------------------
/s/ Jack Eberenz
- ----------------------------
Secretary
20
<PAGE>
"Preliminary Copy"
UNITED STATES AIRCRAFT CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
February 17, 1999
The undersigned stockholder of UNITED STATES AIRCRAFT CORPORATION, a
Delaware corporation (the "Company"), hereby acknowledges receipt of the Notice
of Special Meeting of Stockholders and Proxy Statement, each dated February 1,
1999, and hereby appoints Albert C. Lundstrom, Jack Ebernz, and Harry V.
Eastlick, each of them, proxies and attorneys-in-fact, with full power of
substitution, on behalf of and in the name of the undersigned, to represent the
undersigned at a Special Meeting of Stockholders of the Company, to be held on
February 17, 1999, at 10:00 a.m., Arizona time, at the offices of the Company,
and at any adjournment or adjournments thereof, and to vote all shares of Class
A Common Stock and Class B Common Stock that the undersigned would be entitled
to vote if then and there personally present, on the matters set forth below.
All defined terms have the meaning set forth in the Proxy Statement.
1. Ratification and Approval of the Exchange Agreement providing for the
issuance of 2,000,000 shares of Class A Common Stock of the Company and
4,577,560 shares of the Company's New Common Stock in connection with the
transactions contemplated by the Exchange Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval and adoption of the amendment and restatement of the Company's
Certificate of Incorporation to:
(a) Authorize the issuance of up to 100,000,000 shares of New Common
Stock, $.001 par value per share.
(b) Reclassify the Company's Class A Common Stock and Class B Common Stock
into shares of New Common Stock on the basis of 10 shares of Class A
Common Stock into one share of New Common Stock and 13 shares of Class
B Common Stock into one share of New Common Stock.
(c) Authorize the issuance of up to 75,000,000 shares of Preferred Stock.
(d) Change the name of the Company to Neo Vision Systems, Inc.
(e) Approval of certain technical amendments set forth in the Company's
First Restated Certificate of Incorporation attached as Appendix II to
the Proxy Statement/Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval and adoption of the Company's 1998 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR RATIFICATION AND APPROVAL OF THE EXCHANGE
AGREEMENT; FOR APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION; FOR APPROVAL OF THE COMPANY'S 1998 STOCK OPTION
PLAN; AND AS SAID PROXY IS DEEMED ADVISABLE ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE SPECIAL MEETING.
A majority of such attorneys or substitutes as shall be present and
shall act at said meeting or any adjournment or adjournments thereof (or if only
one shall be present and act, then that one) shall have and may exercise all of
the powers of said attorneys-in-fact hereunder.
Dated: , 1999
---------------
-----------------------------------
Signature
-----------------------------------
Signature
(This proxy should be dated,
signed by the stockholder(s)
exactly as his or her name appears
hereon, and returned promptly in
the enclosed envelope. Persons
signing in a fiduciary capacity
should so indicate. If shares are
held by joint tenants or as
community property, both
stockholders should sign.)
