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As filed with the Securities and Exchange Commission on April 15, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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VIRTUALFUND.COM, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1612861
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
7090 Shady Oak Road
Eden Prairie, Minnesota 55344
(612)941-8687
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Sandra Ferrian, Esq. Copies to: Thomas Martin, Esq.
General Counsel Dorsey & Whitney LLP
VirtualFund.com, Inc. Pillsbury Center South
7090 Shady Oak Road 220 South Sixth Street
Eden Prairie, Minnesota 55344 Minneapolis, Minnesota 55402
(612) 941-8687 (612) 340-8706
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Amount Maximum Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Share* Offering Price* Fee
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<S> <C> <C> <C> <C>
Common Stock
($.01 par value) 141,333 $4.29 $606,318.57 $178.87
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* Estimated solely for purposes of computing the registration fee and based
upon the average of the high and low sales prices for such Common Stock on
April 8, 1998 as reported on the Nasdaq Stock Market.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
Subject to Completion, dated April 15, 1998
PROSPECTUS
VIRTUALFUND.COM, INC.
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141,333 SHARES OF
COMMON STOCK
($.01 PAR VALUE)
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This Prospectus relates to up to an aggregate of 141,333 shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
VirtualFund.com, Inc., a Minnesota corporation ("VFC" or the "Company"), that
may be sold from time to time by one individual currently holding restricted
shares of the Company's Common Stock (the "Selling Shareholder"). See "Selling
Shareholder." The Shares have been acquired pursuant to a Stipulation of
Settlement agreement entered into by the Company. See "VirtualFund.com, Inc. -
Recent Developments" and "Selling Shareholder." The Company will not receive
any proceeds from the sale of the Shares. The Company has agreed to pay the
expenses of registration of the Shares, including certain legal and accounting
fees, other than commissions or discounts.
Any or all of the Shares may be offered from time to time in transactions
on the Nasdaq National Market, in brokerage transactions at prevailing market
prices or in transactions at negotiated prices. See "Plan of Distribution."
The Shares offered hereby have not been registered under the blue sky or
securities laws of any jurisdiction, and any broker or dealer should assure the
existence of an exemption from registration or effectuate such registration in
connection with the offer and sale of the Shares.
The Common Stock is traded on the Nasdaq National Market under the symbol
"LMTS." On April 8, 1998, the last reported sale price of the Common Stock as
reported on the Nasdaq National Market was $4.188 per share.
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FOR INFORMATION CONCERNING CERTAIN RISKS RELATED TO THIS OFFERING,
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offer contained herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities offered hereby in any
jurisdiction in which it is not lawful or to any person to whom it is not
lawful to make any such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that information herein is correct as of any time subsequent
to the date hereof.
The date of this Prospectus is April __, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational 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 can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
7 World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. 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, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis and Retrieval system. This Web site can be
accessed at http://www.sec.gov. In addition, the Common Stock of the Company is
listed on the Nasdaq National Market, and reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
National Association of Securities Dealers, 1735 K. Street N.W., Washington,
D.C. 20006. This Prospectus does not contain all the information set forth in
the Registration Statement and exhibits thereto which the Company has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), and to which reference is hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus:
(a) the Annual Report on Form 10-K for the year ended June 30, 1997;
(b) the Quarterly Report on Form 10-Q for the three month periods
ending September 28, 1997 and December 28, 1997, respectively;
(c) Proxy Statement for the annual meeting of stockholders held April
2, 1998; and
(d) the description of VFC's Common Stock contained in the Company's
Registration Statement filed pursuant to Section 12 of the Exchange Act and
any amendment or report filed for the purpose of updating any such
description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document all or part of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("FAS. No. 128"),
"Earnings Per Share", which is effective for financial statements issued for
the periods ended after December 15, 1997. The Company has adopted the
standard as required.
FAS. No. 128 requires previously reported amounts be recalculated and
disclosed for consistency purposes. The Company has recalculated the EPS for
the five years ending June 30, 1997. EPS for the year ended June 30, 1994
was previously reported as $.57 per share. Under the new standards, the
Company would have reported $.56 per share. All other previously report EPS
results had no change under the new standards.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Sandra Ferrian, General Counsel, VirtualFund.com, Inc., 7090 Shady
Oak Road, Eden Prairie, Minnesota 55344 or by telephone to (612) 941-8687.
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RISK FACTORS
PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION
APPEARING IN THIS PROSPECTUS.
CASH NEEDS. Although the Company has a credit agreement with a commercial
finance company that has adequately financed its cash requirements in the past.
Previously, net operating losses in fiscal 1996 and fiscal 1997 and
manufacturing and inventory requirements for product offerings resulted in a
need for additional financing. In September 1996, projected cash requirements
in excess of available sources required the issuance of private placements of
common stock and warrants to purchase common stock in the Company. There can be
no assurances that cash availability under the credit agreement will be adequate
to meet future needs, or that other sources of financing would be available to
the Company on favorable terms, or at all, if the Company's operations are
further affected by declining revenue from a lack of sales or significant
returns of existing products, introduction difficulties with new product lines,
competitive product introductions, or by market conditions in general. In
addition, there can be no assurance that the Company can achieve or maintain
profitability on a quarterly or annual basis in the future.
The Company's Senior Debt Agreement includes financial covenants which the
Company must meet. The financial performance of the Company in the past has made
it necessary for the Company to renegotiate the financial covenants to avoid
being declared in violation of the covenants by General Electric Capital Credit,
Inc. If future financial performance were to cause covenant violations and the
Company is unable to renegotiate its loan covenants at that time, it could be
forced to seek replacement financing at prices which may not be favorable to the
Company. If adequate sources of financing are not available, the Company may be
required to sell certain product lines or technologies on less than favorable
terms.
PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The pre-press and wide-format
color printing industries are highly competitive and are characterized by
frequent technological advances and new product introductions and enhancements.
As product life-cycles get shorter, the resulting consumable stream generated by
the installed base may be negatively impacted. Accordingly, the Company
believes that its future success depends upon its ability to enhance current
products, to develop and introduce new and superior products on a timely basis
and at acceptable pricing, to respond to evolving customer requirements, and to
design and build products which achieve general market acceptance. This process
involves adopting new and emerging technologies and components which may not
have product histories or long term use testing to establish expected life
cycles in the field or to assure long term field use. Any quality, durability
or reliability problems with existing or new products, regardless of
materiality, or any other actual or perceived problems with the Company's
products could have a material adverse effect on market acceptance of such new
products. Any quality problems with components could result in "epidemic"
failures of the products in the field causing return and refund requests that
would likely have a material effect on the financial results of the Company and
future sales potential. There can be no assurance that such problems or
perceived problems will not arise with respect to any existing products or that
even in the absence of such problems, the Company's products will achieve market
acceptance. In addition, the market anticipation or the announcement of new
products and technologies, whether offered by the Company or its competitors,
could cause customers to defer purchases of the Company's existing products,
which could have a material adverse effect on the Company's business and
financial condition.
The Company is currently undertaking a number of development projects and
has introduced a new family of printers, the DisplayMaker-Registered Trademark-
4000, 5000 and 6000 or HiRes 8-Color series, during September 1997. Three new
versions of these printers have been introduced since February, 1998.
Additionally, in March, 1998 the Company introduced the DesignWinder-TM- Pro, an
8-Color HiRes drum based printer. Although the Company has had successes
introducing new products in the past, some earlier products have experienced
limited market acceptance, the introductions of some products have been delayed,
and the quality and reliability reputation of certain products may unfavorably
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affect new products. There can be no assurance that the Company will be
successful with the new DisplayMaker series or future product introductions,
that future market introductions will be timely and competitive, that future
products will be priced appropriately, or that future products will achieve
market acceptance. The Company's inability to achieve market acceptance, for
technological or other reasons, could have a material adverse effect on the
Company's financial condition.
The Company is aware of intermittent customer issues with the performance
and formulation of certain inks used in the Company's printers. The Company is
taking steps to address the ink issues. However, failure to address ink
functionality issues, or some other failure of the product to perform as
expected by the customer may result in customer requests for compensatory
supplies or other requests which could have a material adverse effect on the
Company's financial performance.
The Company is dependent on a sole source supplier for the printheads for
the PressMate-FS. The Company has experienced availability and quality
consistency issues from this supplier. If the Company is unable to resolve the
availability and quality issues, the Company's production, support of its
installed base, and quality requirements will be adversely affected.
Various potential actions by any of the Company's competitors, especially
those with a substantial market presence, could have a material adverse effect
on the Company's business, financial condition and results of operations. Such
actions may include reduction of product price, increased promotion,
announcement or accelerated introduction of new or enhanced products, product
giveaways, product bundling or other competitive actions. Additionally, a
competitor's entry into the wide-format market in such ways as to compete more
directly and effectively with the Company's products could adversely affect
operational results.
UNCERTAINTY REGARDING DEVELOPMENT OF WIDE-FORMAT MARKET; UNCERTAINTY
REGARDING MARKET ACCEPTANCE OF NEW PRODUCTS. The Wide-Format market is
relatively new and evolving. The Company's future financial performance will
depend in large part on the continued growth of this market and the continuation
of present, Wide-Format printing trends such as use and customization of
large-format advertisements, use of color, transferring of color images onto a
variety of substrates, point-of-purchase printing, in-house graphics design and
production and the demand for limited printing runs of less than 200 copies.
The failure of the Wide-Format market to achieve anticipated growth levels or a
substantial change in Wide-Format printing customer preferences could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, in a new market, customer preferences can
change rapidly and new technology can quickly render existing technology
obsolete. Failure by the Company to respond effectively to changes in the
Wide-Format market, to develop or acquire new technology or to successfully
conform to industry standards could have a material adverse effect on the
business and financial condition and results of operations of the Company.
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TECHNOLOGICAL ADVANCEMENTS. The digital color inkjet printing market is
rapidly moving to two distinct technologies for the placement of ink on a
substrate: thermal inkjet cartridges and piezo-electric print heads. Any
company without a secure, economical source of these products will face serious
competitive pricing and margin pressures going forward. The Company currently
has a license to remanufacture specific HP 300 dpi inkjet cartridges for use in
its wide-format color inkjet printers. HP has introduced a new inkjet cartridge
with a visual resolution of 600 dpi. In addition, Lexmark is believed to have
developed a 600 dpi inkjet cartridge. Both companies are competitors in the
wide-format color market. Should the market for wide-format color demand the
increased resolution provided by these new products and the Company be unable to
secure adequate supplies at reasonable prices or develop a reasonably priced
substitute from other sources, the Company's sales of printer engines and the
related gross margins could be negatively impacted.
The Company's products target the market for high quality printing output.
Hardware and software technological advances have enhanced actual and perceived
resolution. There is no assurance that other companies will not achieve actual
or apparent resolution with less expensive printers and supplies and therefore
capture the market held by higher cost printers.
EXPANSION AND DIVERSIFICATION TO SOFTWARE AND SERVICES OUTSIDE OF THE CORE
PRINTER BUSINESS. The Company's continuing efforts to expand sales and increase
profits and desire to reposition itself as a diversified technology company is
stimulating a series of new product development activities. Currently the focus
of these new business opportunities is primarily internet based software and
service businesses. During this past year, the Company launched an electronic
commerce (e-commerce) initiative for selling specialty media for wide format
printers under the brand name of Media*By*Air-TM-. Internet based software and
service activities represent an extension of many of the printing and publishing
tools which are integral to the core technology of the Company.
Expansion into technologies outside of the core hard-copy base printer
business involves significant risk. Such risk includes, but is not limited to,
the following factors: New products may not meet customer needs or may face
significant competition from companies with lower overhead and product costs
and/or greater marketing and promotional budgets. In addition, the Company may
not be able to attract and retain key personnel and it may not be able to
develop the products in the time needed to gain market acceptance. Due to the
early stage development, the Company may not be able to predict product features
needed to gain market acceptance, development may require more time and
resources than anticipated for the development, it may turn out that the product
can not be feasibly developed. Diversification also carries the risk that the
new activity will distract management time and resources from focusing on the
core hard-copy based printer business. In addition, diversification may involve
risks related to the resources required to participate in this new business
including, but not limited to risks related to raising cash or obtaining cash
investments, doing business with one or more "partners" as a partnership or
joint venture, and risks related to acquisitions or other combinations of
businesses.
COMPETITION. The computer printer industry is intensely competitive and
rapidly changing. Some of the Company's existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
technical resources, more established and larger sales and marketing
organizations, greater name recognition, larger customer bases and significantly
greater financial resources than the Company, which may result in a competitive
advantage. Suppliers of wide-format print engines and systems compete on the
basis of print quality, color, print time, print size, product features,
including ease of use, service, and price. Competitive product sales practices
such as price reductions, increased promotion, product giveaways and bundling,
or announcement or accelerated introduction of new or enhanced products could
have a material adverse effect on the sales and financial condition of the
Company. New product introductions and changes in pricing structure by
competitors have had, and can be expected to continue to have, a significant
impact on the demand for the Company's products. Currently Hewlett Packard Co.
(HP) has announced a new 54 inch wide-format inkjet printer it expects to begin
shipping in the near future. The product is expected to compete for market
share with the Company's current DisplayMaker 5000 and 6000 series of printers.
It is
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possible that the Company's sales of certain products will compete with, or
displace sales of other products sold by the Company.
The Company's DisplayMaker HiRes 8-Color series and DesignWinder Pro
products are based on relatively new technology, are complex and must be
reliable and durable to achieve market acceptance and enhance revenue
opportunities. Development and production of new, complex technologies and
products often have associated difficulties and delays. Consequently, customers
may experience unanticipated reliability and durability problems that arise only
as the product is subjected to extended use over a prolonged period of time.
There can be no assurance that the Company has completely resolved operational
problems that have occurred in the past or that the Company will successfully
resolve any future problems in the manufacture or operation of the Company's
existing printers or any new product. Failure by the Company to resolve
manufacturing or operational problems with its existing printers or any new
product in a timely manner could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's HiRes 8-Color DisplayMaker series of printers and the
DesignWinder product platforms utilize HP licensed inkjet technology. The
Company also purchases licensed inkjet cartridges from HP who is a sole source
of the cartridge component for the Company's aqueous ink consumable offerings.
The Company also competes with HP in the wide-format digital color printing
market. Both Companies design and market wide-format printing devices.
Currently, the Company has been granted access to these and select new
technologies for use in its products and pays a royalty for those rights. As
new technologies are developed, there can be no assurance the Company will be
able to negotiate additional licenses for newly developed technologies or that
the new terms are equal to the terms currently in place.
Certain companies that supply the Company with consumable products such as
ink and media compete with the Company by selling directly to users or selling
to competitors who may offer the products to the users. Additionally, OEM
private label ink products that may be used in the Company's own products may
compete with ColorSpan products. Further, a number of competitors have
introduced consumables which they allege to be compatible with the Company's
products and have priced the consumables below the ColorSpan-branded
consumables. Although the Company believes that its Big Color products possess
certain advantages over the competitors' products, the increased competition has
impacted sales volumes and margins and may continue to impact volumes and
margins in the future. The Company has generally competed in these markets by
introducing technologically advanced products that create new market demand and
products which offer optimum performance characteristics. There can be no
assurance that the Company will be able to continue to innovate to the extent
necessary to maintain a competitive advantage in these markets or that other
competitors will not achieve sufficient product performance to achieve customer
satisfaction with their products offering better pricing or other competitive
features.
INDUSTRY CONSOLIDATION. As a growth industry, the wide-format digital
printing market has generated many new entrants into the fragmented market with
new products and new technologies. As the market matures, and the industry's
growth rate slows, companies with technological or manufacturing efficiency
advantages will emerge as the market leaders maintaining or increasing their
market share. Those companies with less marketable advantages will face
significant pressure on revenue growth and gross margins. In order to remain
competitive, the smaller companies within this sector may have to seek merger or
consolidation opportunities with other companies.
DEPENDENCE ON COMPONENT AVAILABILITY AND COSTS. Certain components used in
the Company's current and planned products, including printer marking engines
and other printer components, are currently available from sole sources, and
certain other components are available from only a limited number of sources.
The Company has in the past experienced delays as a result of the failure of
certain suppliers to meet requested delivery schedules and standards of product
performance and quality. In addition, recent losses from operations of the
Company have restricted cash availability and the ability to keep supplier debt
current or within the established credit limits. The requirement to bring
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certain component suppliers' debt obligations current, or other restrictions in
credit terms of such component suppliers, could result in an inability to
manufacture certain product lines and thereby adversely affect the financial
performance of the Company. The Company's inability to obtain sufficient supply
of components, or to develop alternative sources, could result in delays in
product introductions, interruptions in product shipments, the need to redesign
products to accommodate substitute components or the need to substitute
alternative components which may not have the same performance capabilities, any
of which could have a material adverse effect on the Company's operating
results. A portion of the total manufacturing cost of the Company's typesetting
and Big Color products is represented by certain components, particularly
dynamic random access memory chips ("DRAMs"), the prices of which have
fluctuated significantly in recent years. Significant increases or decreases in
the price or reductions in the availability of DRAMs or other components, could
have a material affect on the Company's operating results.
The Company is dependent on a sole source supplier for the printheads and
hot melt ink used in DisplayMaker Express. The Company has experienced
availability and quality issues with this supplier that have affected shipping
schedules and customer satisfaction and have negatively impacted operating
results in the past. While the Company has taken strong corrective measures in
dealing with this supplier, there can be no assurance that this supplier will be
able to meet the Company's production requirements in the future or that the
quality of on-going product supply will be acceptable.
The Company sells consumable print media and inks for use with its Big
Color product line, and film used with the PressMate-FS. The Company depends on
the availability of consumable products to support its installed base of print
engines. There is no assurance that the suppliers of these consumables will
continue to offer their products to the Company, or that the consumable products
will continue to be available to the Company at the same quantity, pricing and
terms. The unavailability of consumable products or negative changes in quality
could adversely impact the market acceptance of the Company's new and existing
products, and may adversely affect sales of consumables.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
results of operations have fluctuated and are expected to continue to fluctuate
significantly. These fluctuations have been caused by various factors,
including, but not limited to: the timing of new product announcements; product
introductions and price reductions by the Company and its competitors; the
availability and cost of key components and materials for the Company's
products; fluctuations and availability in customer financing; the relative
percentages of sales of consumables and printer architectures; risks related to
international sales and trade; and general economic conditions. In addition,
the Company's operating results are influenced by the seasonal buying patterns
of its customers, which have in the past generally resulted in reduced revenues
and earnings during the Company's first fiscal quarter. Further, the Company's
customers typically order products on an as-needed basis, and virtually all of
the Company's sales in any given quarter result from orders received in that
quarter. Certain products require significant capital expenditures, causing
some customers to delay their purchasing decision. Delays in purchases of
low-volume, high-cost printers may cause significant fluctuations in the sales
volume for a given period. Also, the Company's manufacturing plans, sales
staffing levels and marketing expenditures are primarily based on sales
forecasts. Accordingly, deviations from these sales forecasts may cause
significant fluctuations in operating results from quarter to quarter and may
result in unanticipated quarterly earnings shortfalls or losses. Historically,
a large percentage of orders have been received and shipped near the end of each
month. If anticipated sales and shipments do not occur, expenditure and
inventory levels may be disproportionately high and operating results could be
adversely affected.
RETURNS RESERVES. The Company has established reserves for the return of
merchandise. The amount of the returns reserve is based on historical data
regarding returns of products. For new products there may be insufficient
information to accurately predict return rate and therefore the required reserve
may not be sufficient. Additionally, there is no assurance that there will not
be an unknown or unanticipated problem with a product or any component thereof,
or a defect or shortage of repair
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components or the consumable media or inks that are needed to use the product
which could cause the actual returns to exceed the reserves. Returns of a
product which exceed reserves could have an adverse effect on the financial
operations and results of the Company.
DEPENDENCE ON CONSUMABLES REVENUES. The Company anticipates it will derive
an increasing component of its revenues and operating income from the sale of
ink, paper, film and other consumables to its customers. To the extent sales of
the Company's consumables are reduced because its customers are unsuccessful in
marketing their own printing services, product iterations by competitors and the
Company make the Company's products obsolete or customers substitute third-party
or private label consumables for those of the Company, the Company's results of
operations could be adversely affected. Reduced life-cycles of hardware
products are expected to negatively impact consumable revenues. Further,
although the Company's consumables are manufactured specifically to operate with
its printing products to produce optimum results, there can be no assurances
that other manufacturers of printing inks and papers will not develop products
that can be sold and compete with the Company's printing products, or that other
products will not produce results which are satisfactory to the customer at a
lower cost. The Company alleges that at least one manufacturer has improperly
used the Company's trade secrets to commence such competition. Although the
Company is involved in legal action against such manufacturer for
misappropriation of trade secrets, there can be no assurances that other
manufacturers will not independently and legitimately develop competing
consumable products. In addition, product quality issues, limitations in the
availability of sole source consumables or changes in credit or trade terms from
sole sources could adversely affect the sales of consumables.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company's ability to
compete effectively will depend, in part, on its ability to maintain the
proprietary nature of its technologies through patents, copyrights and trade
secrets. Important features of the Company's products are incorporated in
proprietary software, some of which is licensed from others and some of which is
owned by the Company. The Company attempts to protect its proprietary software
with a combination of patents, copyrights, trademarks and trade secrets,
employee and third-party nondisclosure agreements and other methods of
protection. Despite these precautions, it may be possible for unauthorized
third parties to copy certain portions of the Company's products or to
reverse-engineer or obtain and use information that the Company regards as
proprietary. Further, the Company's intellectual property may not be subject to
the same level of protection in all countries where the products are sold.
There can be no assurance that the measures taken by the Company will be
adequate to protect the intellectual property or that others will not
independently develop or patent products similar or superior to those developed,
patented or planned by the Company, or that others will not be able to design
products which circumvent any patents relied upon by the Company.
The Company has been granted various United States patents for inventions
related resolution of conventional laser printer engines, high-resolution
imaging and image enhancement and wide-format printing technologies and
techniques, the Company's Big Ink Delivery System, product patents, and
consumable formulations. Additional patent applications are pending. There can
be no assurance that patents will be issued from any of these pending
applications. With regard to current patents or patents that may be issued,
there can be no assurance that the claims allowed will be sufficiently broad to
protect the Company's technology or that issued patents will not be challenged,
invalidated or violated, requiring expenditures of cash to pursue and enforce
the Company's rights in the patented technology. Applications to patent the
basic TurboRes, ThermalRes and Big Ink Delivery System approaches and related
technologies have been filed in selected foreign countries. Patent applications
filed in foreign countries are subject to laws, rules and procedures which
differ from those of the United States, and there can be no assurance that
foreign patents will be granted as a result of these applications. Furthermore,
even if these patent applications result in the issuance of foreign patents,
some foreign countries provide significantly less patent protection than the
United States.
The Company relies on a variety of trademarks in the promotion and
identification of its products. The Company has a variety of trademarks which
are registered, and others that are not registered, or cannot be registered.
There is no assurance that there will not be some challenge to the
-8-
<PAGE>
rights of the Company to use one or more trademarks, or an allegation that the
use or display of one or more trademark violates the trademark rights of another
party, which could subject the Company to damages and losses related to the
inability to use recognized marks in the promotion of its products.
Additionally, patent, copyright and trademark protection has not been
sought, or may not be available in all foreign countries. Although the Company
has not received any notices from third parties alleging intellectual or
proprietary property infringement, there can be no assurance that third parties
will not assert infringement claims against the Company in the future or that
any such assertion will not require the Company to expend funds defending such
claims or requiring the Company to enter into royalty arrangements on such terms
as may be available, which may adversely affect financial performance of the
Company. Any claim that the Company's current or future products or
manufacturing processes infringes on the proprietary rights of others, with or
without merit, could result in costly litigation which could adversely affect
the financial performance of the Company.
The Company is actively pursuing development of new and unique print
solutions and processes, media and inks. Although the research and development
process involves an analysis of protected proprietary rights in any technology
that is being pursued, there is no assurance that competitors or others will not
interpret any such products or processes developed by the Company as violating
protected intellectual rights and pursue legal action, which could be costly and
may affect the financial performance of the Company. In addition, although the
Company does not have any knowledge of violations of its intellectual property
rights, there can be no assurance that the Company will not be forced to take
action to protect its intellectual property portfolio. Such enforcement
activity could require the expenditure of significant cash resources and could
affect the financial performance of the Company.
Although the Company has not received notices from third parties alleging
infringement claims that the Company believes would have a material adverse
effect on the Company's business, there can be no assurance that third parties
will not claim that the Company's current or future products or manufacturing
processes infringe the proprietary rights of others. Any such claim, with or
without merit, could result in costly litigation or might require the Company to
enter into a royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all, which could have a material adverse effect upon the
Company's business, financial condition and results of operations. If the
Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or it could find
that the development, manufacture or sale of products requiring such licenses
could be enjoined. In addition, the Company could incur substantial costs in
defending itself in suits brought against the Company on such patents or in
bringing suits to protect the Company's patents against infringement, which
could adversely affect the Company's financial condition or results. If the
outcome of any such litigation is adverse to the Company, the Company's business
and financial results could be adversely affected.
LITIGATION AND LITIGATION COSTS. The Company has instituted action against
a competitor for copyright violation and other causes of action. The competitor
has counter-claimed for copyright misuse by the Company. The counterclaims have
been dismissed. Although the Company does not believe any of its practices
violate applicable copyright laws, there is no assurance that claims or actions
will not be commenced by customers, competitors or governmental authorities
based on copyright, trade or anti-trust claims which could affect the Company's
operations and cash position.
The Company is also engaged in various actions related to transactional
matters, employee matters, customers credit and product quality and/or warranty
issues. Some of these actions include claims against the Company for punitive,
exemplary or multiple damages. An award of punitive damages may not bear a
direct relationship to the actual or compensatory damages claimed from the
Company. Although the Company does not believe there are any actions pending or
threatened against the Company which would have a material adverse impact on the
financial position of the Company,
-9-
<PAGE>
there is no assurance that there will not be an adverse award of multiple
punitive or exemplary damages which could adversely affect the cash position of
the Company.
Any litigation which the Company is involved in may have an adverse impact
on the Company's operations and may result in a distraction or diversion of
management's attention, thereby adversely affecting the operations of the
Company.
INTERNATIONAL OPERATIONS. The Company expects that international revenues
will continue to represent a substantial portion of its total revenues.
International operations are subject to various risks, including exposure to
currency fluctuations, political and economic instability, differing economic
conditions and trends, differing trade and business laws, unexpected changes in
applicable laws, rules, regulatory requirements or tariffs, difficulty in
staffing and managing foreign operations, longer customer payment cycles,
greater difficulty in accounts receivable collection, potentially adverse tax
consequences and varying degrees of intellectual property protection.
Fluctuations in currency exchange rates could result in lower sales volume
reported in U.S. dollars. Fluctuations in foreign exchange rates are
unpredictable and may be substantial. From time to time the Company has engaged
in limited foreign currency hedging transactions. There can be no assurance
that the Company will be successful if it engages in such practices to a
significant degree in the future.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon certain key personnel, including Mr. Masters, its Chief Executive
Officer and President, Lawrence Lukis, Chief Engineer, and key research and
development staff. The loss of key management or technical personnel, could
adversely affect the Company's business. The Company maintains key person life
insurance in the amount of $2,000,000, payable to the Company, on each of Mr.
Masters and Mr. Lukis. In addition, the Company has certain non-compete and
continuation contracts with key personnel. The Company also depends on its
ability to attract and retain highly skilled personnel. Competition for
employees in technology related markets is high and there can be no assurance
that the Company will be able to attract and retain the employees needed. In
addition, past financial performance of the Company may limit the ability to
hire and retain management professionals.
THE YEAR 2000 ISSUE. The Company has assessed and continues to assess the
impact of The Year 2000 Issue on its operational systems and its products. The
Year 2000 Issues exists because many computer systems and applications currently
store a two-digit date field to designate a year. As the century date occurs,
date sensitive systems will recognize the year 2000 as 1900 or not at all.
Management believes the Company's Big Color products are compliant with this
issue and performance will not be significantly impacted by the date changes
into the 21st century. The Company has initiated projects to identify and
correct the potential problem in all of its enterprise systems. The cost of
such programs, most of which has been incurred and expended already, is not
considered material to the Company's financial results. Management believes it
has taken the necessary steps to prepare for this issue, but there can be no
assurance additional issues will not occur or unforeseen problems arise causing
additional expense to the Company.
-10-
<PAGE>
ENVIRONMENTAL. The Company is subject to local and federal laws and
regulations regarding the use, storage and disposition of inks used with the
Company's print products. Although the Company believes it is in compliance
with all such laws and regulations, and the Company is not aware of any notice
or complaint alleging any violation of such laws or regulations, there can be no
assurance that there will not be some accidental contamination, disposal or
injury from the use, storage, or disposition of inks or other materials used in
the Company's operations. In the event of such accident, the Company could be
held liable for any damages that result and any such liability could have a
material adverse effect on the Company's financial condition. In addition,
there can be no assurance that the Company will not be required to comply with
environmental claims, laws, or regulations in the future which could result in
significant costs which could materially adversely affect the Company's
financial condition.
TAX LIABILITY. The Company sells its products from its offices in Eden
Prairie, Minnesota and reports sales and income tax liability based on sales
occurring at that location. It is possible that one or more state or local
taxing authorities could determine that there have been taxable transactions
occurring within their jurisdiction and seek recovery of taxes for current
and/or past periods. In addition, it is possible that local, state or federal
taxing authorities will take issue with the reporting or determination of tax
liability and seek additional taxes for current and/or past periods. The
Company currently has a net operating loss ("NOL") carry forward that may be
used to offset future federal taxable income. However, there is no assurance
that the NOL will continue to be available as an offset against future federal
taxable income or that there will be sufficient taxable income to fully utilize
the NOL.
VOLATILITY OF STOCK PRICE. The trading price of the Company's common stock
is subject to wide fluctuations in response to variations in operating results,
changes in the laws or regulations to which the Company may be subject,
announcements of new products or technological innovations by the Company or its
competitors, overall economic conditions and indicators, market conditions
unrelated to Company performance, and general conditions in the industry.
Factors such as quarterly variation in actual or anticipated operating results,
changes in earnings estimates by analysts, and analysts' reactions to Company
statements and actions also contribute to stock price fluctuations. In
addition, the prices of securities of many high technology companies have
experienced significant volatility in recent years for reasons frequently
unrelated to the operating performance of the specific companies. These
fluctuations may materially affect the market price of the Company's common
stock.
One time in the past, following fluctuations in the market price of the
Company's stock, a securities action was commenced alleging that the Company and
certain insiders had knowledge of certain material, adverse information about
the Company prior to the time that such information allegedly caused a drop in
the market price of the stock. Because the Company's stock has historically
fluctuated significantly, it is possible that following a significant change in
the market price of the stock another securities action could be commenced
against the Company. Such action, whether commenced by one or more individuals,
or by a class of securities holders, could result in substantial costs and
diversion of management's attention and resources and thereby cause an adverse
effect on the business and financial performance of the Company.
BRAND AWARENESS. The Company is currently in the process of changing its
name to VirtualFund.com, Inc and has changed the name of its principal operating
subsidiary from LaserMaster Corporation to ColorSpan Corporation. The Company
has significant brand awareness associated with its LaserMaster trade names. If
the market is unable to accept or delays the acceptance of the name change, the
Company's financial performance and sales may be negatively impacted.
-11-
<PAGE>
VIRTUALFUND.COM, INC.
GENERAL
VirtualFund.com, Inc. (the "Company") designs, manufactures and markets
wide-format (up to 62" wide prints), high-resolution color inkjet printers,
chemical-free film imagers ("filmsetters"), and related image processing
equipment for professional printing applications through its operating
subsidiaries ColorSpan Corporation, ColorSpan Europe, Ltd. and ColorSpan
Asia/Pacific, Inc., respectively. In addition, the Company sells related
consumable products for its installed base of printers, consisting primarily of
ink, media (such as specialty papers, canvas, vinyl, etc.), film, toner
(ink-like powder) and process units (which facilitate transfer of toner to the
media surface). The Company's products combine advanced computer technology with
the Company's own sophisticated software, hardware and proprietary printers
("engines") to produce professional-quality printed output at an affordable
cost.
The Company's HiRes 8-Color DisplayMaker printer series (the newly
introduced DisplayMaker 4000, 5000 and 6000 and three additional iterations of
each of these printers) and the DesignWinder Pro, along with the DesignWinder
and the DisplayMaker Professional, and DisplayMaker Express Big Color-Registered
Trademark- wide-format, digital inkjet color printers, are designed to be
cost-effective solutions for the short-run digital computer printing of
photo-realistic, wide-format color posters, signs, and banners. The Company's
Halon-Registered Trademark- product allows users to print digital files to
various color laser copiers including those produced by Canon, Kodak and Xerox.
The PressMate-Registered Trademark--FS, a proprietary desktop chemical-free
FilmSetter-TM- , is capable of film output generated without the use of
chemicals (dry film) typically associated with developing film, with effective
resolution of 2400 dots per inch. The ColorMark-Registered Trademark- Pro 3000
Print Server is a raster image processor which is capable of supporting a
combination of DisplayMaker Professional, DesignWinder, DesignWinder Pro
DisplayMaker Express and DisplayMaker HiRes 8-Color series printers,
PressMate-FS Personal FilmSetters-TM-, and Halon color laser copier interfaces,
as well as offering time-saving features specifically designed for high-volume,
production environments. The RIPStation-TM- is an entry-level print server
(raster image processor).
The primary users of the Company's products are commercial printers,
reprographic service bureaus, photo labs, quick printers, exhibit builders,
in-house print shops, printers, publishers, government and educational
facilities, and corporate marketing departments. Applications include
point-of-purchase signs, trade show exhibit graphics, banners, billboards,
courtroom graphics, pre-press positional proofing (proofs or other quick output
to demonstrate concepts for advertising or graphics layouts), digital photo
imaging and backlit signage.
The products are sold through a network of domestic resellers and
international value-added distributors. In the U.S./Canada, the Company uses a
factory sales team to assist the resellers in closing business. The Company's
sales efforts are supported by a direct mail marketing program designed to
achieve frequent contact with its potential customers. The Company complements
its direct mail efforts by advertising in trade journals and by exhibiting
regularly at industry trade shows.
The Company's domestic offices are in Eden Prairie, Minnesota. The
Company's European sales subsidiary is headquartered in Hoofddorp, The
Netherlands, and the Company's Asia/Pacific sales and technical support facility
is located in San Jose, California.
RECENT DEVELOPMENTS
In July 1997, the Company entered into a Stipulation of Settlement
agreement (the "Settlement Agreement") which received final court approval in
October 1997 in relation to a class action lawsuit alleging violations of the
Securities and Exchange Act of 1934 by the Company and various affiliates and
directors of the Company. Under the Settlement Agreement, the Company is
obligated to
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<PAGE>
(i) contribute the number of shares of common stock of the Company equal to a
value of $636,000 on January 23, 1998 (141,333 shares) or (ii) contribute
$636,000 to the account of the plaintiff class. The Company has chosen to
contribute shares of common stock to settlement counsel for the plaintiffs, Jack
L. Chestnut, in accordance with the Settlement Agreement. Mr. Chestnut, as
settlement counsel, is authorized to sell the common stock once it becomes
freely transferable and deposit the proceeds from such sale into a depository
account established for the class plaintiffs. Pursuant to the Settlement
Agreement, the Company must use its best efforts to register the common stock to
permit free transferability. See "Selling Shareholder."
At the Company's Annual Meeting held April 2, 1998 the shareholders of the
Company approved an amendment to the Articles of Incorporation of the Company to
reflect a change in the name of the Company from "LaserMaster Technologies,
Inc." to "VirtualFund.com, Inc." The Company has effected such change with the
Secretary of State of the State of Minnesota and is currently in the process of
effecting the other necessary changes with Nasdaq and other regulatory
authorities.
SELLING SHAREHOLDER
The following table sets forth certain information as to the maximum number
of Shares that may be sold by the Selling Shareholder pursuant to this
Prospectus.
<TABLE>
<CAPTION>
Number of Number of Number of Percentage
Shares Shares Shares Owned
Owned Prior Offered Owned After After
Name to Offering Hereby Offering Offering
- ------------------------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Jack L. Chestnut . . . . 141,333 141,333 0 *
</TABLE>
- ---------
* Less than 1%.
Jack L. Chestnut is designated as settlement counsel in the Settlement
Agreement which the Company is a party to. Pursuant to the Settlement
Agreement, Mr. Chestnut possesses the authority to sell the Shares and deposit
proceeds from such sale into a depository account for the benefit of the class
of plaintiffs. See "Recent Developments."
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Shareholder for his own
account. The Company will not receive any proceeds from the sale of the Shares
pursuant to this Prospectus. The Company has agreed to pay the expenses of
registration of the Shares, including a certain amount of legal and accounting
fees.
The Selling Shareholder may offer and sell the Shares from time to time in
transactions on the Nasdaq National Market, in brokerage transactions at
prevailing market prices or in transactions at negotiated prices. Sales may be
made to or through brokers or dealers who may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholder or the
purchasers of Shares for whom such brokers or dealers may act as agent or to
whom they may sell as principal, or both. As of the date of this Prospectus,
the Company is not aware of any agreement, arrangement or understanding between
any broker or dealer and the Selling Shareholder.
The Selling Shareholder and any brokers or dealers acting in connection
with the sale of the Shares hereunder may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and any profit realized by them on the resale of Shares as principals
may be deemed underwriting compensation under the Securities Act.
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<PAGE>
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended June 30, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon for the
Company by Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402.
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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, the Selling Shareholder
or any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy to any person in any jurisdiction in which such
offer or solicitation would be unlawful or to any person to whom it is unlawful.
Neither the delivery of this Prospectus nor any offer or sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that the information contained herein is
correct as of any time subsequent to the date hereof.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents By Reference. . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
VirtualFund.com, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 13
Selling Shareholder. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 14
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
141,333 Shares
VIRTUALFUND.COM, INC.
Common Stock
------------
PROSPECTUS
------------
April __, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . $178.87
Accounting Fees and Expenses . . . . . . . . . . . 2,000.00
Legal Fees and Expenses. . . . . . . . . . . . . . 7,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . 1,821.13
----------
Total. . . . . . . . . . . . . . . . . . . $11,000.00
----------
----------
</TABLE>
All fees and expenses other than the SEC registration fee are estimated.
The expenses listed above will be paid by the Company.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best interests
of the corporation in the case of acts or omissions in such person's official
capacity for the corporation or reasonably believed that the conduct was not
opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated organizations.
Article IX of the Bylaws of VFC provides that VFC shall indemnify officers and
directors to the extent permitted by Section 302A.521 as now enacted or
hereafter amended.
VFC also maintains an insurance policy or policies to assist in funding
indemnification of directors and officers for certain liabilities.
ITEM 16. LIST OF EXHIBITS
<TABLE>
<S> <C>
3.1 Amendment to Articles of Incorporation of Company.
10.1 Stipulation of Settlement dated July 11, 1997 between Lockridge
Grindal Nauen & Holstein P.L.L.P., Chestnut & Brooks, P.A.,
Hinshaw & Culbertson and Faegre & Benson, LLP.
10.2 Common Stock Purchase Agreement dated September 16, 1996 between
LaserMaster Technologies, Inc. and Sihl-Zurich Paper Mill on Sihl
AG, and a business group consisting of Melvin L. Masters,
TimeMasters, Inc., Grandchildren's Realty Alternative Management
Program I Limited Partnership and Grandchildren's Realty
Alternative Management Program I #2 Limited Partnership.
(incorporated by reference to Exhibit 10.1 to Registrant's Form
10-K for the year ended June 30, 1996, File No. 000-18114).
5 Opinion of Dorsey & Whitney LLP regarding legality.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5 to this
Registration Statement).
24 Power of Attorney (included on signature page).
</TABLE>
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change to such information in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) under the Securities Act if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change in the information set forth in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer
II-2
<PAGE>
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on
April 10, 1998.
VIRTUALFUND.COM, INC.
By /s/ Melvin L. Masters
------------------------------
MELVIN L. MASTERS
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Melvin L.
Masters and Robert Wenzel, and each of them, as his or her true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his or
her behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto, and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his or her substitutes,
shall do or cause to be done by virtue hereof.
Signatures Title Date
---------- ----- ----
/s/ Melvin L. Masters Chairman, President, April 10, 1998
- ------------------------- Chief Executive
Melvin L. Masters Officer and Director
(PRINCIPAL EXECUTIVE OFFICER)
/s/ James Horstmann Chief Financial Officer April 10, 1998
- -------------------------
James Horstmann
/s/ Ralph D. Rolen Director April 10, 1998
- -------------------------
Ralph D. Rolen
/s/ Jean-Louis Gassee Director April 10, 1998
- -------------------------
Jean-Louis Gassee
/s/ George E. Kline Director April 10, 1998
- -------------------------
George E. Kline
/s/ Rohan Champion Director April 10, 1998
- -------------------------
Rohan Champion
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
No. ------------ ----
- -------
<S> <C> <C>
3.1 Amendment to Articles of Incorporation of Company ..............
10.1 Stipulation of Settlement dated July 11, 1997 between Lockridge
Grindal Nauen & Holstein P.L.L.P., Chestnut & Brooks, P.A.,
Hinshaw & Culbertson and Faegre & Benson, LLP...................
10.2 Common Stock Purchase Agreement dated September 16, 1996
between LaserMaster Technologies, Inc. and Sihl-Zurich Paper
Mill on Sihl AG, and a business group consisting of Melvin
L. Masters, TimeMasters, Inc., Grandchildren's Realty
Alternative Management Program I Limited Partnership and
Grandchildren's Realty Alternative Management Program I #2
Limited Partnership. (incorporated by reference to Exhibit
10.1 to Registrant's Form 10-K for the year ended June 30,
1996, File No. 000-18114).......................................
5 Opinion of Dorsey & Whitney LLP regarding legality .............
23.1 Consent of Deloitte & Touche LLP ...............................
</TABLE>
<PAGE>
EXHIBIT 3.1
LASERMASTER TECHNOLOGIES, INC.
MINUTES OF SHAREHOLDER MEETING
The undersigned, Chief Executive Officer of LaserMaster Technologies, Inc.,
a Minnesota corporation organized pursuant to the provisions of Minnesota
Statute Chapter 302A, certifies that in a meeting of the shareholders of the
corporation duly called and held on April 2, 1998, that the majority powers of
the authorized and outstanding shares of common stock par value .01 per share,
such shares being the class of the common stock of the corporation outstanding,
duly adopted the following resolution:
RESOLVED, that Article I of the Articles of the Incorporation is hereby
amended to read as follows:
ARTICLE I
The name of the corporation shall be VirtualFund.com, Inc.
FURTHER RESOLVED, that the Chief Executive Officer of the corporation or
any other designated officer is authorized to file an Amendment of Articles of
Incorporation to effect the amendment authorized herein and to undertake such
other filings that may be necessary to change the name of the corporation.
IN WITNESS WHEREOF, I have set my hand this 3rd day of April, 1998.
/s/ Melvin Masters
--------------------------
Melvin Masters
Chief Executive Officer
<PAGE>
EXHIBIT 5
[Dorsey & Whitney LLP Letterhead]
VirtualFund.com, Inc.
7090 Shady Oak Road
Eden Prairie, Minnesota 55334
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to VirtualFund.com, Inc., a Minnesota
corporation (the "Company"), in connection with a Registration Statement on Form
S-3 (the "Registration Statement") to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the sale of
up to 141,333 shares of common stock of the Company, par value $.01 per share
("Common Stock"), of which all such shares will be sold from time to time by the
Selling Shareholder named in the Registration Statement, on the Nasdaq National
Market or otherwise, directly or through underwriters, brokers or dealers.
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering our opinions set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of all
documents submitted to us as copies. We have also assumed the legal capacity
for all purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
that such parties had the requisite power and authority (corporate or otherwise)
to execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials.
Based on the foregoing, we are of the opinion that the shares of
Common Stock to be sold by the Selling Shareholder pursuant to the Registration
Statement have been duly authorized by all requisite corporate action and, are
validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: April 10, 1998
Very truly yours,
Dorsey & Whitney LLP
TOM
<PAGE>
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
- -----------------------------------
IN RE LASERMASTER TECHNOLOGIES, CIVIL FILE NO. 4-95-631
INC. SECURITIES LITIGATION
- -----------------------------------
STIPULATION OF SETTLEMENT
<PAGE>
TABLE OF CONTENTS
PAGE
----
I. DEFINITIONS.......................................... 1
II. DESCRIPTION OF THE LITIGATION........................ 5
III. BENEFITS OF SETTLEMENT TO THE CLASS
PLAINTIFFS........................................... 6
IV. THE SETTLING DEFENDANTS' REASONS FOR SETTLEMENT...... 7
V. NO ADMISSION OF LIABILITY............................ 7
VI. INTENT OF THE PARTIES TO THIS SETTLEMENT............. 8
VII. TERMS OF THE AGREEMENT AND STIPULATION............... 9
A. FINANCIAL TERMS................................. 9
B. RELEASE TERMS................................... 11
VIII. THE COURT'S ORDER PRELIMINARILY APPROVING
THE SETTLEMENT....................................... 12
IX. JUDGMENT TO BE ENTERED BY THE COURT
APPROVING THE SETTLEMENT............................. 13
X. DEPOSITORY AGREEMENT................................. 14
XI. SUPERVISION AND DISTRIBUTION OF THE
CLASS SETTLEMENT FUND................................ 14
XII. CONDITIONS OF SETTLEMENT; EFFECT OF
DISAPPROVAL; CANCELLATION AND TERMINATION............ 15
XIII. MISCELLANEOUS PROVISIONS............................. 16
i
<PAGE>
STIPULATION OF SETTLEMENT
THIS STIPULATION OF SETTLEMENT (the "Stipulation") is made as of July
11, 1997, by and among the following parties: (1) the Class Plaintiffs (as
hereinafter defined), by and through all of their attorneys in the Litigation
(as hereinafter defined), (2) the Individual Defendants (as hereinafter
defined), by and through their attorneys in the Litigation; (3) LaserMaster
Technologies, Inc. ("LaserMaster"); and (4) Virginia Surety Company, Inc.
("Virginia Surety").
I. DEFINITIONS.
A. The "Class" or "Class Plaintiffs" means the class of persons
defined by the Court in its Order of December 5, 1996, as follows:
All persons or other entities who purchased LaserMaster
Common Stock on the open market during the period December
2, 1993, through December 8, 1994, inclusive, and who
suffered damage thereby. Excluded from the Class are the
defendants herein, members of the immediate family of each
of the Individual Defendants, any person, firm, trust,
corporation, officer, director or other individual or entity
in which defendants have a controlling interest or which is
related to or affiliated with either the Individual
Defendants or LaserMaster, and the legal
1
<PAGE>
representatives, heirs, successors-in-interest or assigns of
any such excluded party.
B. "Class Action Complaint" or "Class Complaint" means the
Consolidated and Amended Class Action Complaint filed with the Court, which
consolidated the following actions: JOHN D. BECKER, ET AL V. LASERMASTER
TECHNOLOGIES, INC., Civil No. 4-95-631, ALVIN E. MCQUINN V. LASERMASTER
TECHNOLOGIES, INC., Civil No. 4-95-904, and JOSEPH A. NIELSON V. LASERMASTER
TECHNOLOGIES, INC., Civil No. 4-96-94.
C. "Class Member" means a member of the Class.
D. "Class Period" means the period from December 2, 1993, to
December 8, 1994, inclusive.
E. "Class Representative" means each of the following: John D.
Becker, Jerome P. Florczak, Georgia L. Sushoreba, Alvin E. McQuinn and Joseph A.
Nielson.
F. "Class Settlement Fund" means the Virginia Surety Contribution
and the LaserMaster Contribution together with any interest earned and to be
earned thereon.
G. "Depository" means Norwest Bank Minnesota, N.A., which bank or
institution shall perform its duties as set forth in this Stipulation and in the
Depository Agreement, attached hereto as Exhibit A.
2
<PAGE>
H. "Effective Date" means the day after the date on which the
Court's judgment approving this Stipulation becomes Final. As used in this
Stipulation, "Final" means the date upon which the judgment in the litigation
becomes not subject to further appeal or review. Thus, "Final" means, without
limitation, the date of expiration of the time for the filing or noticing of any
appeal from the final judgment of the Court, without any appeal being filed
therein (i.e., 30 days); or, if an appeal is filed in the Litigation, the date
upon which the judgment in the Litigation is finally affirmed on appeal, or the
appeal is finally dismissed, without any request for further discretionary
review of such appellate decision being sought; or, if further discretionary
review of such appellate decision is sought, the date upon which such
discretionary review is denied or, if granted, results in final affirmance of
the judgment in the Litigation. Any proceeding or order, or any appeal or
petition for a writ of certiorari pertaining solely to any application for or
award of attorneys' fees, costs or expenses, shall in no way delay or preclude
the judgment in the Litigation from becoming Final.
I. "Individual Defendants" means Melvin L. Masters, Robert J.
Wenzel, Lawrence J. Lukis and Ralph Rolen, individually
3
<PAGE>
and as a trustee of Masters Trust I, and Masters Trust I, all and each of
them, and all and each of their respective assigns, successors, agents,
representatives, attorneys, accountants, heirs, executors, administrators and
insurers. Mr. Rolen had originally been named as a defendant in the
Litigation but, on motion, all claims against Mr. Rolen were dismissed,
without prejudice. Mr. Rolen has been named as an Individual Defendant in
this Stipulation in order to effect a dismissal with prejudice of claims
against him and the parties stipulate that the effect of Mr. Rolen's
inclusion as an Individual Defendant is to amend the previous Order of
dismissal to dismiss, with prejudice, all claims against Mr. Rolen.
J. "Lead Counsel" for Class Plaintiffs in connection with this
Litigation and Stipulation is Richard A. Lockridge of the firm of Lockridge
Grindal Nauen & Holstein P.L.L.P.
K. The "Litigation" means the action known as IN RE LASERMASTER
TECHNOLOGIES, INC. SECURITIES LITIGATION, Civil File No. 4-95-631, including
actions consolidated thereunder.
L. "LaserMaster" means LaserMaster Technologies, Inc., a Minnesota
corporation, and all and each of its predecessors, successors, assigns, direct
and indirect subsidiaries, divisions, parents, affiliates and related
4
<PAGE>
corporations and entities, and all and each of its and their respective
predecessors, successors and assigns and all and each of its and their present
and former officers, directors, holders of LaserMaster common stock (other than
members of the Plaintiff Class), partners, principals, insurers, underwriters,
investment brokers, employees, auditors, attorneys and agents, and their
respective assigns, successors, agents, representatives, heirs, executors,
administrators and insurers.
M. "Settled Claims" means any and all claims, actions, causes of
action, rights or liabilities which exist or may in the future exist against the
Settling Defendants by reason of any matter, event, cause or thing whatsoever
arising out of, relating to or in any way connected with (1) the actual purchase
during the Class Period of any LaserMaster securities by a Class Member; (2) the
status of a Class Member as a shareholder of LaserMaster during the Class
Period; and (3) any of the facts, circumstances, transactions, events,
occurrences, acts, omissions or failures to act that are or could have been
brought in the Litigation, including, without limitation, LaserMaster's Form
10-K for fiscal year 1992 and Forms 10-K and 10-Q for fiscal years 1993 and 1994
and the periods within each year; LaserMaster's Annual Reports for 1992, 1993
and 1994,
5
<PAGE>
respectively; all public announcements by LaserMaster in 1993 and 1994; and
telephone, personal and other contacts made by personnel or other
representatives of LaserMaster, including, without limitation, one or more of
the Individual Defendants with stock market professionals, analysts, money
managers, and other members of the securities, investment and business
communities.
N. "Settling Defendants" means LaserMaster and the Individual
Defendants.
O. "Settlement Counsel" means Jack L. Chestnut of the law firm of
Chestnut & Brooks, P.A., 3700 Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402.
II. DESCRIPTION OF THE LITIGATION.
In October and December, 1995, three class action lawsuits were
commenced against LaserMaster and the Individual Defendants in the United States
District Court, District of Minnesota (the "Court"). The actions were
consolidated into Civil File No. 4-95-631 under the caption IN RE LASERMASTER
TECHNOLOGIES, INC. SECURITIES LITIGATION. The consolidated lawsuits were
brought pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, 15 U.S.C. SECTIONS 78j(b) AND 78t(a), and Rule 10b-5.
6
<PAGE>
By Order dated December 5, 1996, the Court certified the following
class of shareholders:
All persons or other entities who purchased LaserMaster
Common Stock on the open market during the period December
2, 1993, through December 8, 1994, inclusive, and who
suffered damage thereby. Excluded from the Class are the
defendants herein, members of the immediate family of each
of the Individual Defendants, any person, firm, trust,
corporation, officer, director or other individual or entity
in which defendants have a controlling interest or which is
related to or affiliated with either the Individual
Defendants or LaserMaster, and the legal representatives,
heirs, successors-in-interest or assigns of any such
excluded party.
Over the year and one-half that this Litigation was pending, various
motions were filed by the Defendants, resisted by the Class Plaintiffs, and were
heard by the Court. In addition, there were many negotiations between Class
Plaintiffs and the Defendants with respect to possible settlement. The last set
of negotiations resulted in a Memorandum of Understanding, reached on April 21,
1997, a true and correct copy of which is attached hereto as Exhibit B. Those
negotiations, held under the supervision of The Honorable Robert Schiefelbein
(Ret.), brought about this Stipulation to conclude amicably the Litigation.
III. BENEFITS OF SETTLEMENT TO THE CLASS PLAINTIFFS.
7
<PAGE>
Counsel for Class Plaintiffs have weighed carefully the benefits to
the Class of a settlement of the Litigation for the consideration being offered
by the Settling Defendants against the significant cost, risk and delay that
continued prosecution of the Litigation would involve. Counsel for Class
Plaintiffs also have taken into account the anticipated difficulty of proving
both liability and the amount of damages.
IV. THE SETTLING DEFENDANTS' REASONS FOR SETTLEMENT.
The Settling Defendants have concluded that the further conduct of the
Litigation against them would be protracted and expensive for all parties.
Substantial amounts of time, energy and resources of the Settling Defendants
have been and, unless this settlement is made, will continue to be devoted to
the defense of the claims asserted by the Class Plaintiffs in the Litigation.
The Settling Defendants also recognize that there are risks attendant in any
litigation. The Settling Defendants have, therefore, determined that it is
desirable and beneficial that the Litigation be settled in the manner and upon
the terms and conditions set forth in this Stipulation to eliminate the burden
and expense of further protracted litigation, which is in the best interest of
LaserMaster and its shareholders.
V. NO ADMISSION OF LIABILITY.
8
<PAGE>
The Settling Defendants have denied and continue to deny each and all
of the claims and contentions alleged in the Litigation. The Settling
Defendants repeatedly have asserted, and continue to assert, many defenses
thereto, and have expressly denied and continue to deny any wrongdoing or legal
liability arising out of any of the conduct alleged in the Litigation. The
Settling Defendants have also denied and continue to deny, INTER ALIA, the
allegations that the Class Plaintiffs have suffered any damage and that the
prices of LaserMaster stock were artificially inflated.
Neither this Stipulation, nor any exhibit hereto nor any document
referred to herein, nor any action taken to carry out this Stipulation, is, may
be construed as, or may be used as an admission by or against the Defendants of
any fault, wrongdoing or liability whatsoever. Pursuant to Rule 408, Fed. R.
Evid., the fact of entering into or carrying out this Stipulation, the exhibits
hereto or documents referred to herein and any negotiations and proceedings
related thereto, shall in no event be construed as, or deemed to be evidence
against, an admission or concession of liability by or an estoppel against any
of the undersigned parties, nor a waiver of any applicable statute of
limitations or repose, and shall not be offered or
9
<PAGE>
received into evidence in any action or proceeding against any undersigned
party in any judicial, quasi-judicial, arbitral, administrative agency or
other tribunal or proceeding for any purpose whatsoever, other than to
enforce the provisions of this Stipulation or the provisions of any related
agreement or exhibit hereto.
VI. INTENT OF THE PARTIES TO THIS SETTLEMENT.
The parties to this Stipulation intend, through this Stipulation, to
achieve a total peace between and among the Class and LaserMaster and the
Individual Defendants with respect to any claims asserted, or which could have
been asserted, against LaserMaster and/or the Individual Defendants in this
action.
VII. TERMS OF THE AGREEMENT AND STIPULATION.
NOW, THEREFORE, it is hereby stipulated and agreed, by and among the
undersigned parties, that the Litigation shall be settled, compromised and
dismissed, with prejudice, subject to the approval of the Court pursuant to Rule
23(e) of the Federal Rules of Civil Procedure on terms and conditions as
hereinafter set forth.
A. FINANCIAL TERMS
1. Within three (3) business days of entry of the Order
for Preliminary Approval of Settlement,
10
<PAGE>
Virginia Surety shall transmit, in accordance with the terms of the
Depository Agreement, the sum of $2,464,000.00 to Norwest Bank Minnesota,
N.A. for the account of Plaintiff Class ("Virginia Surety Contribution").
All expenses incurred by the Plaintiff Class and Plaintiff's counsel in
connection with the administration of this settlement shall be
deducted from the Virginia Surety Contribution.
2. LaserMaster, in its sole and reasonable discretion, shall
have the option of (i) contributing common stock valued at $636,000.00, the
number of shares determined by the bid price at the close of business on
January 23, 1998; or (ii) contributing cash, in the amount of $636,000.00,
thirty (30) days after January 23, 1998. On January 26, 1998, counsel for
LaserMaster shall advise Settlement Counsel which option LaserMaster has
elected. This contribution shall be known as the LaserMaster Contribution.
If LaserMaster elects, at its sole option, to contribute common stock, it
shall file, at its expense, a Registration Statement with the Securities
Exchange Commission ("SEC") within sixty (60) days after its election, and
then use its best efforts to register the common stock with the SEC to
permit the free transferability
11
<PAGE>
and sale of the common stock which is the LaserMaster Contribution.
LaserMaster cannot advise the Plaintiff Class whether the SEC will declare
the Registration Statement effective, whether the common stock will become
freely transferable, or, if the Registration Statement becomes effective,
when the Registration Statement will be declared effective. Settlement
Counsel is authorized to sell the common stock as soon as it becomes
freely transferrable. The proceeds from said sale shall be deposited with
the Depository pursuant to the Depository Agreement.
Upon the earlier of the date the Registration Statement
becomes effective or six (6) months from the date of filing the
Registration Statement, the stock will be issued to the Plaintiff Class.
The issuance of the stock, whether registered or not, shall fully satisfy
the LaserMaster Contribution.
The rights and obligations of LaserMaster under the terms of
this Stipulation with respect to the LaserMaster Contribution, including
registration rights of the stock, are assignable to and assumable by a
third party, in whole or in part, at any time prior to the date of issuance
of the stock, without prior notice to the Court,
12
<PAGE>
the Plaintiff Class or Plaintiffs' counsel. In the event an assignment
or assumption is made, Plaintiffs' Settlement Counsel and Plaintiffs'
Lead Counsel shall be immediately notified. Notwithstanding the
election to contribute stock, LaserMaster may assign its obligations and
substitute payment of cash in the amount of $636,000.00 at any time
prior to the issuance of the stock to the Plaintiff Class.
3. The Individual Defendants, and each of them, do not have any
obligation to contribute to the Class Settlement Fund, the Virginia Surety
Contribution, or the LaserMaster Contribution.
B. RELEASE TERMS.
After notice, hearing and final approval of this Stipulation by
the Court, the Settling Defendants will be released under the following terms:
1. All claims and causes of action which were or could have
been brought individually or on a class basis in the Litigation including,
but not limited to, claims which relate directly or indirectly to any of
the facts, transactions, events, occurrences, acts or omissions mentioned
or referred to in the Class Action Complaint and all Settled Claims (the
"Released Claims") against the
13
<PAGE>
Settling Defendants (the "Released Parties"), will be dismissed with
prejudice and on the merits, without costs to any party. The Class
Plaintiffs will release and forever discharge the Released Parties from
any and all of the Released Claims. In accordance with this
Stipulation, each Class Representative will execute a separate release
on behalf of themselves individually and, in their representative
capacity, on behalf of the members of the Plaintiff Class.
2. The Class Plaintiffs will be forever barred and enjoined
from commencing, instituting or prosecuting any action or other proceeding
in any court of law or equity, arbitration tribunal or administrative
forum, directly, representatively or derivatively, asserting against the
Released Parties any claims that relate to or constitute any of the
Released Claims.
3. LaserMaster acknowledges that the Individual Defendants,
through their Insurer, are making a contribution to this settlement. In
consideration of their contribution, LaserMaster releases any claims it may
have against the Individual Defendants relating to this Litigation or the
Settled Claims.
14
<PAGE>
VIII. THE COURT'S ORDER PRELIMINARILY APPROVING
THE SETTLEMENT.
After execution of this Stipulation, counsel for the undersigned
parties shall apply jointly to the Court for an Order in form and substance
substantially identical to the proposed Order attached hereto as Exhibit C
("Order Preliminarily Approving Settlement"), which shall specifically include
provisions which:
A. preliminarily approve the settlement as embodied in this
Stipulation;
B. provide for notice to the class;
C. provide a date for a hearing in respect to final approval.
D. are necessary to implement the terms of the Stipulation of
Settlement.
IX. JUDGMENT TO BE ENTERED BY THE COURT
APPROVING THE SETTLEMENT.
If, after notice to the Class and a hearing, the Court gives final
approval to this settlement, then a judgment shall be entered in this action
which shall specifically incorporate provisions which accomplish the following:
A. approving finally this settlement and its terms as being fair,
reasonable and adequate settlement of this action
15
<PAGE>
within the meaning of Rule 23 of the Federal Rules of Civil Procedure
and directing its consummation pursuant to its terms;
B. directing that the Litigation be dismissed without costs and upon
the merits and with prejudice and in full and final discharge of any and all
claims asserted or which could have been asserted in the Class Action Complaint;
C. incorporating the release and injunctive provisions set forth in
Section VII above;
D. reserving jurisdiction over this action, including all further
proceedings concerning finalization of this settlement, resolving disputes that
may arise and such other matters as may come to the Court's attention; and
E. containing such other and further provisions consistent with the
terms of this settlement as the Court may deem advisable.
X. DEPOSITORY AGREEMENT.
A. It is agreed that all of the parties to this Stipulation will be
bound by all the terms and conditions of a Depository Agreement in substantially
the form attached hereto as Exhibit A.
B. Settlement Counsel may withdraw, on the basis of an appropriate
Order of the Court, up to $150,000.00 from the
16
<PAGE>
Class Settlement Fund prior to, INTER ALIA, (1) the tender of the
LaserMaster Contribution; (2) final approval for necessary costs of
administration, including giving individual and published notice to the
Class, identifying Class members and processing claims. Settlement
Counsel is also authorized to execute such transactions on behalf of the
Class Plaintiffs as are consistent with the terms of this Stipulation
and the Depository Agreement attached hereto as Exhibit A.
XI. SUPERVISION AND DISTRIBUTION OF THE
CLASS SETTLEMENT FUND.
The Settling Defendants shall have no responsibility of any kind with
respect to the distribution of the Court-approved Class notice or the processing
of claims against the Class Settlement Fund or otherwise with respect to the
administration of this settlement or the Class Settlement Fund nor shall the
Settling Defendants have any responsibility for allocation of the attorneys'
fees, costs or expenses, if any, which may be awarded by the Court.
XII. CONDITIONS OF SETTLEMENT; EFFECT OF
DISAPPROVAL; CANCELLATION AND TERMINATION.
A. This Stipulation shall be deemed terminated and canceled, and
shall have no further force and effect whatsoever, if:
17
<PAGE>
1. it is not presented to the Court;
2. there is no Effective Date;
3. the Court denies the motion to enter an Order
preliminarily approving the settlement;
4. the Court denies the motion to enter a final judgment as
provided in Paragraph IX hereto or, if such a final judgment is entered, it
later is reversed or materially modified, whether on appeal or otherwise;
5. should more than two percent (2%) of the members of the
Plaintiff Class, in terms of total damages allegedly suffered by the
Plaintiff Class, elect to opt out of participation in this Settlement, the
Settling Defendants may, at their option, withdraw from this Settlement and
declare the Settlement to be null and void.
B. In the event that this Stipulation fails to become effective for
any reason whatsoever, then within ten (10) days after written notice is sent by
any party to the Depository Agreement or any of the undersigned parties to this
Stipulation to all of the other parties to the Depository Agreement and all of
the other undersigned parties to this Stipulation, the Class Settlement Fund
shall be refunded to the persons who made the payments into such fund, plus all
interest earned thereon, less
18
<PAGE>
(1) reasonable Depository fees and expenses; (2) any amounts actually
disbursed, billed or incurred for tax liabilities on the Class
Settlement Fund or expenses incurred in preparation of necessary forms
and reports with respect thereto, if any; and (3) expenditures actually
disbursed, billed or incurred for administration as set forth in
Paragraph X(B) hereof as approved by the Court. In such event, the
undersigned parties shall be deemed to have reverted to their respective
status as of the date and time immediately prior to the execution of
this Stipulation, and they shall proceed in all respects as if this
Stipulation, its exhibits and any related agreements or Orders had never
been executed. Further, the undersigned parties jointly will seek
vacation of any Order entered or actions taken in connection herewith.
XIII. MISCELLANEOUS PROVISIONS.
A. All of the exhibits attached hereto are hereby incorporated by
this reference as though fully set forth herein.
B. This Stipulation may be amended or modified only by a written
instrument signed by all undersigned parties or their successors in interest.
C. This Stipulation and its exhibits constitute the entire agreement
among the undersigned parties and no
19
<PAGE>
representations, warranties or inducements have been made to any party
concerning this Stipulation or its exhibits other than the
representations, warranties and covenants contained and memorialized in
such documents.
D. Lead Counsel and/or Settlement Counsel, on behalf of the Class
Plaintiffs, is expressly authorized to take all appropriate action required or
permitted to be taken pursuant to this Stipulation to effectuate its terms and
also is expressly authorized to enter into, on behalf of the Class Plaintiffs,
any modifications or amendments to this Stipulation which Lead Counsel and/or
Settlement Counsel deems appropriate.
E. This Stipulation may be executed in one or more counterparts.
All executed counterparts and each of them shall be deemed to be one and the
same instrument, provided that counsel for the undersigned parties shall
exchange among themselves original signed counterparts, the original signature
pages are appended to the original Stipulation and the original Stipulation is
tendered to counsel for LaserMaster after the Stipulation has been executed.
F. This Stipulation shall be binding upon and inure to the benefit
of the successors and assigns of the undersigned parties.
20
<PAGE>
G. All terms of this Stipulation and the exhibits hereto shall be
governed by and interpreted according to the laws of the State of Minnesota.
H. All parties shall use their best efforts to perform all terms of
this Stipulation.
I. Should any of the provisions of this Stipulation conflict with
terms of the exhibits hereto, the terms of this Stipulation shall control except
for Orders of the Court.
J. The counsel who have executed this Stipulation represent that
they have been authorized by their respective clients to do so, and that their
respective clients have represented that all corporate authority necessary to
enter into and effectuate the terms of this Stipulation has been provided.
IN WITNESS WHEREOF, the parties hereto have caused this Stipulation to
be executed by their duly authorized representatives as of the dates indicated
below.
DATED: __________, 1997 LOCKRIDGE GRINDAL NAUEN &
HOLSTEIN P.L.L.P.
BY________________________________________
RICHARD A. LOCKRIDGE, #64117
PATRICIA A. BLOODGOOD, #157673
2200 Washington Square Building
100 Washington Avenue South
21
<PAGE>
Minneapolis, Minnesota 55401
(612) 339-6900
Plaintiffs' Lead Counsel
DATED: __________, 1997 CHESTNUT & BROOKS, P.A.
BY___________________________________
JACK L. CHESTNUT, #16378
KARL L. CAMBRONNE, #14321
3700 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
(612) 339-7300
Plaintiffs' Settlement Counsel
Vernon J. Vander Weide, #112173
HEAD, SEIFERT & VANDER WEIDE
One Financial Plaza, Suite 2400
120 South Sixth Street
Minneapolis, Minnesota 55402
(612) 339-1601
Herbert E. Milstein
COHEN, MILSTEIN, HAUSFELD & TOLL
1100 New York Avenue N.W.
West Tower, Suite 500
Washington, D.C. 20005-3934
(202) 408-4600
Mark Reinhardt, #90530
Gavin S. Wilkinson, #232464
REINHARDT AND ANDERSON
E-1000 First National Bank Building
332 Minnesota Street
St. Paul, Minnesota 55101
(612) 227-9990
Charles H. Johnson, #50696
22
<PAGE>
CHARLES H. JOHNSON & ASSOCIATES
2599 Mississippi Street
New Brighton, Minnesota 55112
(612) 633-5685
John A. Cochrane, #17577
COCHRANE & BRESNAHAN, P.A.
24 East Fourth Street
St. Paul, Minnesota 55101
(612) 297-1950
Counsel for Class Plaintiffs
DATED: __________, 1997 HINSHAW & CULBERTSON
BY_______________________________________
FRANK A. TAYLOR, #206155
3200 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
(612) 333-4800
Counsel for Defendant LaserMaster
Technologies, Inc. and Individual
Defendants Melvin L. Masters and
Robert J. Wenzel
DATED: __________, 1997 FAEGRE & BENSON, LLP
BY___________________________________
GORDON G. BUSDICKER, #13663
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
(612) 336-3000
Counsel for Individual Defendant
Lawrence J. Lukis and Ralph Rolen,
23
<PAGE>
individually and as Trustee
24
<PAGE>
EXHIBIT A
Depository Agreement
<PAGE>
DEPOSITORY AGREEMENT
THIS DEPOSITORY AGREEMENT (the "Depository Agreement") is entered into in
connection with the Stipulation of Settlement ("Stipulation") dated July 11,
1997, and filed with the United States District Court for the District of
Minnesota (the "Court") in the following action (the "Litigation"):
IN RE LASERMASTER TECHNOLOGIES, INC. SECURITIES LITIGATION
Civil File No. 4-95-631.
I. RECITALS
A. The parties to this Depository Agreement are as follows:
1. the Class Plaintiffs named in the Litigation, through their
Lead Counsel, Lockridge Grindal Nauen & Holstein P.L.L.P., and Settlement
Counsel, Chestnut & Brooks, P.A., as designated by the Court;
2. LaserMaster Technologies, Inc. ("LaserMaster"), through its
attorneys;
3. The Individual Defendants (as defined in Paragraph I(I) of
the Stipulation;
1
<PAGE>
4. Virginia Surety Company, Inc., insurer on behalf of the
Individual Defendants (the "Insurer"); and
5. Norwest Bank Minnesota, N.A., as depository for the Class
Settlement Fund (the "Depository").
B. The Class Plaintiffs, LaserMaster and the Individual Defendants
have entered into the Stipulation which provides for dismissal with prejudice of
the Settled Claims therein in favor of the Settling Defendants in consideration
of, among other things, the payment of the amount specified in the Stipulation.
C. The parties hereto have entered into this Depository Agreement in
order to carry out and effectuate the Settlement set forth in the Stipulation.
The provisions of the Stipulation, including the definitions of the terms used
therein, are hereby incorporated by reference as though fully set forth in this
Depository Agreement; provided, however, that the Depository's obligations are
as expressly stated in this Depository Agreement and the Depository is not bound
to any terms of the Stipulation not set forth with particularity herein. The
provisions of this Depository Agreement, which are incorporated by reference in
the Stipulation, are to be construed in
2
<PAGE>
accordance with the provisions of the Stipulation (except as herein provided
with regard to the Depository).
D. Now, therefore, in consideration of the foregoing and the mutual
covenants and considerations contained herein, the parties agree as follows:
II. DEPOSITS INTO ESCROW
A. Within three (3) business days after an Order granting
preliminary approval of the Settlement is entered by the U.S. District Court,
the Insurer, on behalf of the Settling Defendants (as defined in Paragraph I(N)
of the Stipulation), shall cause to be deposited with the Depository, by wire
transfer, the sum of $2.464 million, which amount, upon receipt by the
Depository, shall constitute a portion of the "Class Settlement Fund." The
balance of the fund will be contributed by LaserMaster. On January 26, 1998,
LaserMaster will advise Class Plaintiffs of its election to pay $636,000.00 in
cash within thirty (30) days of January 23, 1998, or pay in stock of
LaserMaster, the number of shares to be determined as of the closing bid price
on January 23, 1998, equal to $636,000.00 in value. If LaserMaster elects to
contribute stock, LaserMaster shall, within sixty (60) days of that date, file a
Registration
3
<PAGE>
Statement with the SEC. Upon the earlier of the date the Registration
Statement becomes effective or six (6) months from the date of filing the
Registration Statement, the stock will be issued to the Plaintiff Class. The
issuance of the stock, whether registered or not, shall fully satisfy the
LaserMaster Contribution and shall constitute a portion of the Class
Settlement Fund. The Class Settlement Fund shall be and is hereby deemed a
"qualified settlement fund" as that term is defined by Treasury Regulation
1.468B-1.
The rights and obligations of LaserMaster under the terms of the
Stipulation with respect to the LaserMaster Contribution, including registration
rights of the stock, are assignable to and assumable by a third party, in whole
or in part, at any time prior to the date of issuance of the stock, without
prior notice to the Court, the Plaintiff Class or Plaintiffs' counsel.
Notwithstanding the election to contribute stock, LaserMaster may assign its
obligations and substitute payment of cash in the amount of $636,000.00 at any
time prior to the issuance of the stock to the Plaintiff Class. In the event an
assignment or assumption is made, Plaintiffs' Settlement Counsel and Plaintiffs'
Lead Counsel shall be immediately
4
<PAGE>
notified and the cash payment shall be deposited within thirty (30) days or,
in any event, no later than the date the stock would have been issued.
B. The Class Settlement Fund shall be distributed only by further
order of the Court. The Depository shall be entitled to rely, as to
distributions and withdrawals of the Class Settlement Fund, on any order of the
Court, notwithstanding that any such order is subsequently reversed, vacated,
remanded, modified or stayed on appeal, except that the Depository is not
required to comply with any order subsequent to the time it receives actual
notice that such order is stayed for any reason; provided, however, that
Settlement Counsel may withdraw up to $150,000.00 from the Class Settlement Fund
prior to final approval for necessary costs of administration. After final
approval, Settlement Counsel may withdraw additional costs of administration as
may be approved by appropriate order of the Court.
III. INTEREST AND INVESTMENTS
A. Promptly upon receipt of the funds referred to in Paragraph II(A)
above, the Depository shall cause such funds to
5
<PAGE>
be invested and reinvested solely in financial instruments backed by the full
faith and credit of the United States.
B. All interest earned on the Class Settlement Fund shall be added
to the Class Settlement Fund and distributed pursuant to order of the Court.
IV. DEPOSITORY'S FEES AND EXPENSES
A. For its services in receiving, investing and reinvesting the
Class Settlement Fund, the Depository shall be entitled to withdraw from the
Class Settlement Fund a fee as follows:
1. its usual penalty, if any, for any early withdrawal from a
certificate of deposit, and
2. its usual charge for outgoing wire transfers.
For any additional services, the Depository shall be entitled to such
compensation as may be agreed to by Settlement Counsel and allowed by the Court.
B. The Depository shall be compensated solely as described in
Paragraph IV(A) above from the Class Settlement Fund and the Depository shall
not have any claim for compensation against the parties hereto.
V. TERMINATION OF STIPULATION
6
<PAGE>
In the event that the Stipulation is voided, terminated or
canceled, or fails to become effective for any reason whatsoever, then within
ten (10) business days after written notice is sent by counsel for any of the
parties hereto to the Depository and all other parties, the Class Settlement
Fund shall be refunded to the person(s) who made payments into such fund,
plus all interest earned thereon, less reasonable Depository fees and
expenses as described in Paragraph IV(A) above and any amounts actually
disbursed, billed or incurred for tax liabilities on income earned by the
Class Settlement Fund or expenses incurred in preparation of necessary forms
and reports with respect thereto, if any, and expenditures actually
disbursed, billed or incurred for administration as set forth in Paragraph
XII(B) of the Stipulation. In such event, the Insurer shall be entitled to
any tax refund owing to the Class Settlement Fund. At the Insurer's request,
the Depository shall apply for any such refund and pay the proceeds, less the
cost of obtaining the tax refund for the Insurer.
VI. MISCELLANEOUS PROVISIONS
A. At least quarterly, until the Effective Date as defined in
Paragraph I(H) of the Stipulation, the Depository
7
<PAGE>
shall file with Settlement Counsel, counsel for the Settling Defendants and
counsel for the Insurer a statement of receipts, disbursements and property
on hand pertaining to the Class Settlement Fund.
B. Should the Depository receive or become aware of any demands or
claims with respect to the Class Settlement Fund, other than those as
contemplated by the Stipulation, it shall have the right to apply to the Court,
on notice to the parties hereto, for appropriate instructions.
C. The Depository's acceptance and administration of the Class
Settlement Fund shall constitute the submission of the Depository to the
jurisdiction of the Court for the purpose of carrying out this Depository
Agreement.
D. This Depository Agreement may not be assigned by the Depository
without prior written approval of the parties hereto. The parties hereby
consent and agree that any consented-to appointment of a new depository and
substitution of a new depository agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns.
E. All funds held by the Depository shall be deemed and considered
to be held in the jurisdiction of the Court until
8
<PAGE>
such time as such funds shall be distributed or returned consistent with the
terms of the Stipulation and this Depository Agreement. The Settling
Defendants and the Insurer shall have no responsibility or liability for the
investment, administration or distribution of such funds or for the actions
of the Depository.
F. The parties hereby agree to treat the Class Settlement Fund as a
designated settlement fund within the meaning of Section 468B of the Internal
Revenue Code of 1986. The parties agree to elect to treat the Class Settlement
Fund as a "qualified settlement fund" under Section 1.468B-1 of the Regulations
and the Settling Defendants agree to cooperate as may be reasonably requested by
Settlement Counsel to make such filings as may be required to effect such
election.
G. The Depository shall pay the costs of administration of the Class
Settlement Fund only upon written direction provided by Settlement Counsel which
will then be subject to approval of the Court in the Order for Final Judgment.
Examples of such administrative costs are costs of mailing notices, costs of
printing and publishing the notices and expenses of the third-party settlement
administrator.
H. The Depository has been appointed in compliance with the
Stipulation and is subject to the orders of the Court.
9
<PAGE>
I. This Depository Agreement shall be governed and interpreted
according to the laws of the State of Minnesota.
J. The Depository may terminate the Depository Agreement at any time
upon 30 days' prior written notice to all parties, or upon such shorter notice
period as may be required by any regulatory agency or official having authority
over the Depository. Upon the expiration of said notice period, the Depository
may pay the balance of the Class Settlement Fund to a successor depository or an
escrow agent designated by mutual agreement of the other parties hereto or to
the Court if no successor depository or escrow agent is designated by the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Depository
Agreement through their respective attorneys as aforesaid and the Depository
also has executed this Depository Agreement, as of the date of execution of the
Stipulation, by its signature below.
DATED: __________, 1997 LOCKRIDGE GRINDAL NAUEN &
HOLSTEIN P.L.L.P.
BY___________________________________
RICHARD A. LOCKRIDGE, #64117
PATRICIA A. BLOODGOOD, #157673
2200 Washington Square Building
10
<PAGE>
100 Washington Avenue South
Minneapolis, Minnesota 55401
(612) 339-6900
Plaintiffs' Lead Counsel
DATED ___________, 1997 CHESTNUT & BROOKS, P.A.
BY___________________________________
JACK L. CHESTNUT, #16378
KARL L. CAMBRONNE, #14321
3700 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
(612) 339-7300
Plaintiffs' Settlement Counsel
11
<PAGE>
DATED: __________, 1997 HINSHAW & CULBERTSON
BY___________________________________
FRANK A. TAYLOR, #206155
32OO Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
(612) 333-4800
On Behalf of Defendant
LaserMaster Technologies, Inc.
and Individual Defendants Melvin
L. Masters and Robert J. Wenzel
DATED: __________, 1997 FAEGRE & BENSON, LLP
BY___________________________________
GORDON G. BUSDICKER, #13663
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
(612) 336-3000
On Behalf of Individual Defendant
Lawrence J. Lukis and Ralph Rolen,
individually and as Trustee
DATED: __________, 1997 WILSON, ELSER, MOSKOWITZ,
EDELMAN & DICKER
BY___________________________________
12
<PAGE>
JAMES THURSTON
120 North LaSalle Street
26th Floor
Chicago, Illinois 60602
(312) 704-0550
Counsel for Insurer
Virginia Surety Company, Inc.
DATED: _________, 1997 NORWEST BANK MINNESOTA, N.A.
BY___________________________________
LON P. LeCLAIR
Corporate Trust Services
Norwest Center
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
(612) 667-4803
13
<PAGE>
EXHIBIT B
Memorandum of Understanding
<PAGE>
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
__________________________
IN RE LASERMASTER
TECHNOLOGIES, INC.,
SECURITIES LITIGATION Master File No. 4-95-631
This document relates to:
All actions,
__________________________
The Memorandum of Understanding taken before Kelly L. Hemsath, RPR, a
Notary Public in and for the County of Hennepin, State of Minnesota, taken on
the 21st day of April, 1997, at 222 South Ninth Street, Minneapolis, Minnesota,
commencing at approximately 5:00 p.m.
KIRBY A. KENNEDY & ASSOCIATES
(612) 922-1955
<PAGE>
MR. TAYLOR: This is a Memorandum of Understanding with respect to the
settlement of In Re: Lasermaster Technologies, Inc., Securities Litigation,
pending in the United States District Court, District of Minnesota, Fourth
Division, docketed as Master File Number 4-95-631.
On April 21, 1997, and two days prior to that date, settlement
discussions were held before the Honorable Robert G. Schieffelbein (PRET).
Present during those discussions have been counsel for the Plaintiffs, who are.
MR. CAMBRONNE: Karl Cambronne, with the firm of Chestnut & Brooks,
and my partner Jack Chestnut.
MR. LOCKRIDGE: Richard Lockridge and Brent Jordon of the Lockridge,
Grindal Law Firm in Minneapolis.
MR. TAYLOR: Also present were representatives of Virginia Surety
Insurance Company who are.
MS. LEPPIN: Grace Leppin.
MR. THURSTON: James Thurston of the law firm of Wilson, Elser,
Moskowitz, Edelman & Dicker.
MR. TAYLOR: Representatives of the St. Paul Insurance Company were
also present during these discussions. They were.
<PAGE>
MR. SHARBONO: Randy Sharbono and Mark Krueger of the Meagher, Geer Law
Firm for the St. Paul Companies.
MR. TAYLOR: Representing Defendants Lasermaster Technologies, Mel
Masters and Robert Wenzel, was Frank Taylor, member of the firm Popham, Haik,
Schnobrich & Kaufman in the Minneapolis office. Representing Defendant Larry
Lukis was.
MR. BUSDICKER: Gordon Busdicker of the firm of Faegre & Benson.
MR. TAYLOR: The remainder of this instrument embodies the agreement
reached today in principle between the parties and the insurance company.
PARAGRAPH I
Settlement of this matter is subject to (interalia) negotiations and
execution by the parties of a definitive settlement agreement; (II), preliminary
approval of the settlement by the Court; (III), final entry of the final
judgment approving the settlement by the Court; and (IV) --
MR. TAYLOR: Let's go off the record for a second.
(Whereupon, a discussion was held
off the record.)
Paragraph II
Should more than 2 percent of the members of the class in terms of
total damages allegedly
<PAGE>
suffered by the class, elect to opt out of participation in this settlement,
the Lasermaster Defendants may, at their option, withdraw from this
settlement.
Paragraph III
This settlement shall remain confidential between the parties until
presented to the Court for preliminary approval.
Paragraph IV
The Virginia Surety Company, Inc. has agreed to contribute cash in
hand paid in the amount of $2,464,000 for settlement of this matter. Upon
preliminary approval of the settlement by the Court, the Virginia Surety
Company, Inc. shall cause the $2,464,000 to be wire transferred to an interest-
bearing escrow account. The parties shall negotiate, draft and execute the
appropriate Escrow Agreement for this sum.
PARAGRAPH V
Upon final approval of the settlement, the $2,464,000 contributed by
the Virginia Surety Company, Inc. shall be distributed to the members of the
class, together with any interest accrued on that sum less costs paid to the
escrow agent.
PARAGRAPH VI
The Lasermaster Defendants agree to contribute common stock having a
value of $636,000.
<PAGE>
Regardless of the date for the hearing on final approval of the settlement,
the value to be assigned to the common stock contributed to the settlement by
the Lasermaster Defendants assigned as of January 23, 1998. This value shall
be as of the close of market on that date. Lasermaster agrees that it shall
file a registration statement with the Securities Exchange Commission within
60 days of January 23, 1998. Lasermaster and its sole option may substitute
cash for the common stock to satisfy its obligations under this agreement.
PARAGRAPH VII
In consideration of the settlement sums previously described, the
class representatives shall release, discharge and satisfy any and all claims,
demands, causes of action which were asserted or could have been asserted in
this litigation against Lasermaster, its control persons, as that term is
defined in the Securities Act of 1933, its an attorneys, its assigns and the
individual Defendants and insurers.
PARAGRAPH VIII
Also, in consideration of the payment of the settlement sums
previously described, the class representatives on behalf of the class release,
discharge and satisfy any and all claims, demands and causes of action which
were or could have been
<PAGE>
brought in this litigation against the individual Defendants Melvin Masters,
Larry Lukis, Robert Wenzel and each of them together with their assigns,
heirs, legatees, attorneys, agents, and insurers.
PARAGRAPH IX
Ralph Rolen was previously named as a Defendant in this action and was
dismissed without prejudice upon Motion by the Court. In consideration of the
settlement sums, the class representatives release, discharge and satisfy any
and all claims, demands and causes of action which were asserted or could have
been asserted in this litigation against Ralph Rolen both in his capacity as a
director of Lasermaster and in his capacity as the trustee for the Master's
Trust I, together with the Master's Trust I itself and Mr. Rolen's agents,
heirs, legatees, assigns, agents and attorneys, and insurers.
PARAGRAPH X
In addition to the releases previously identified, the class
representatives shall release any and all claims, demands, and causes of action
which could have been asserted by the members of the class, who, after December
8, 1994, purchased or sold Lasermaster securities through close of business on
May 20, 1996.
<PAGE>
PARAGRAPH XI
Under the terms of Lasermaster's insurance policy with the Virginia
Surety Company, Inc., Lasermaster is entitled to reimbursement of the attorney
fees and disbursements incurred in the defense of this action. In consideration
of the settlement sum paid by the Virginia Surety Company, Inc. Lasermaster
agrees to waive its claim for attorney fees and disbursements under the policy.
(Whereupon, a discussion was held off the
record.)
The following releases will be given to the Virginia Surety Company,
Inc.:
MR. THURSTON: On behalf of Mr. Masters, Mr. Lukis, Mr. Wenzel and Ms.
Faren, in exchange for the settlement payments discussed above, these
individuals agree to provide Virginia Surety Company, Inc. with a complete and
total policy release of any and all claims, presently known or unknown,
including, but not limited to, the present securities litigation and the list of
claims in the letter dated May 17, 1996, from Michael Knight of Lasermaster to
Mr. Mark Krueger of St. Paul Fire and Marine Insurance Company.
With respect to Lasermaster, it will provide, on behalf of Mr.
Masters, Mr. Lukis, Mr. Wenzel and Ms. Faren, a complete and total policy
<PAGE>
release of any and all claims, presently known or unknown, including, but not
limited to the present securities litigation and the list of claims in the
letter dated May 17, 1996, from Michael Knight of Lasermaster to Mr. Mark
Krueger of St. Paul Fire and Marine Insurance Company. Subject --
MR. TAYLOR: Now, so we are clear, that complete policy release, as
proposed by counsel, is only with respect to the policy issued by Virginia
Surety Company, Inc. It does not extend to the policy provided by the St. Paul.
And the specific policy number was issued by Virginia Surety Company, Inc.
policy number CDP 10181, renewal of CDP 10025.
MR. THURSTON: And continuing. Subject to board approval, a complete
and total policy release of any and all claims under Section 1B of the Virginia
Surety Company, Inc. policy, presently known or unknown, including, but not
limited to, the present securities litigation and the list of claims in the
letter dated May 17, 1996, from Michael Knight of Lasermaster to Mr. Mark
Krueger of St. Paul Fire and Marine Insurance Company.
MR. TAYLOR: The Lasermaster Defendants understand that the release of
policy by Lasermaster is a condition precedent for the Virginia Surety Company,
Inc. to consummate this settlement agreement. If the Board of Directors of
Lasermaster
<PAGE>
does not approve this policy release, this settlement agreement, according to
what we have been told by Mr. Thurston, will not be effective. Lasermaster
will use its best efforts to secure Board approval by --
MR. TAYLOR: Off the record.
(Whereupon, a discussion was held off the record.)
MR. TAYLOR: Lasermaster will use its best efforts to secure the
Board's position on this policy release on or before close of business on May
12, 1997. Mr. Taylor will advise Mr. Lockridge and Mr. Thurston and Mr. Sharbono
of the Board's position.
(Whereupon, a discussion was held off the record.)
MR. TAYLOR: The Court shall determine the attorney fees, if any, to be
awarded to counsel for the Plaintiff class, together with any disbursements to
be repaid by counsel that were advanced on behalf of the Plaintiff's class.
Costs of administration, such as publication costs, mailing of notice costs and
other such incidental costs, and costs of the escrow agent shall also be paid
out of the settlement sums. All such costs and fees must be approved by the
court.
PARAGRAPH XII
Lasermaster cannot advise the parties as to when the registration
statement will be declared
<PAGE>
effective by the Securities Exchange Commission. It is anticipated that after
the registration statement is declared effective the common stock shall be
freely transferrable.
PARAGRAPH XIII
Lasermaster shall exercise its option to tender stock or cash on
January 23, 1998, and shall advise Mr. Lockridge, counsel for the Plaintiff's
class, of its election by close of business on January 26, 1998. Should the
Lasermaster Defendants elect to tender cash, they will do so by close of
business on February 23, 1998.
PARAGRAPH XIV
The class period itself shall be defined by the Court.
There are a couple of other items to be placed on the record. Counsel
for the St. Paul has advised us that the St. Paul wishes to reserves its rights
under the policy, and naturally the Lasermaster Defendants also reserve their
rights over and against the St. Paul. We should also note, to be clear, that
the cash to be paid by Virginia Surety was $2,464,000.
Also, the number of shares of common stock, if any, to be contributed
to the settlement by the Lasermaster Defendants, shall be determined as of
January 23, 1998. The number of shares is, of
<PAGE>
course, dependent upon the value or the market price of Lasermaster common
stock as ascertained by close of the market on that date.
MR. THURSTON: I'd like to add one thing just with respect to
Defendants Rolen, Masters, Lukis and Wenzel, that it's been represented that
they have been indemnified fully for their defense expenses and costs relating
to the securities litigation.
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
Be it known that I took the Memorandum of Understanding on the 21st
day of April, 1997 at Minneapolis, Minnesota;
That I was then and there a Notary Public in and for the County of
Hennepin, State of Minnesota, and that by virtue thereof, I was duly authorized
to administer an oath;
That the witness before testifying was by me first duly sworn to
testify the whole truth and nothing but the truth relative to said cause;
That the testimony of said witness was recorded in Stenotype by myself
and transcribed into typewriting under my direction, and that the deposition is
a true record of the testimony given by the witness to the best of my ability;
That I am not related to any of the parties hereto nor interested in
the outcome of the action;
That the reading and signing of the deposition by the witness and
Notice of Filing were waived;
WITNESS MY HAND AND SEAL THIS _ day of 1997.
____________________________
Kelly L. Hemsath, RPR
Court Reporter
<PAGE>
EXHIBIT C
Proposed Order for
Preliminary Approval
<PAGE>
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
FOURTH DIVISION
- -----------------------------------
IN RE LASERMASTER TECHNOLOGIES, CIVIL FILE NO. 4-95-631
INC. SECURITIES LITIGATION
- -----------------------------------
ORDER PRELIMINARILY
APPROVING SETTLEMENT
WHEREAS, LaserMaster Technologies, Inc. ("LaserMaster"), the Individual
Defendants (as defined in Paragraph I(I) of the Stipulation of Settlement
herein) and the Class Plaintiffs in this Litigation have applied for an Order
pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, preliminarily
approving a proposed settlement of the Class action in accordance with the
Stipulation of Settlement (the "Stipulation" or "Proposed Settlement") entered
into by the parties on July 11, 1997, a copy of which is attached to the Notice
of Motion and Motion as Exhibit A.
NOW, THEREFORE, pursuant to Rule 23(e) of the Federal Rules of Civil
Procedure, upon the agreement of the parties and after consideration of the
Stipulation and the exhibits annexed thereto,
1
<PAGE>
IT IS HEREBY ORDERED that:
1. The representations, agreements, terms and conditions of the
Stipulation dated July 11, 1997, and exhibits annexed thereto, are preliminarily
approved.
2. For purposes of the Proposed Settlement, Jack L. Chestnut of Chestnut
& Brooks, P.A., Minneapolis, Minnesota, is hereby appointed and designated as
Settlement Counsel to act on behalf of the Plaintiff Class and other Plaintiffs'
counsel with respect to all acts or consents permitted or required by the
Stipulation or such other acts as may be reasonably necessary to consummate the
Proposed Settlement.
3. Having reviewed the proposed form of Notice of Class Action Settlement
and of Hearing (the "Notice") submitted by the parties as Exhibit B to the
Notice of Motion and Motion and the Plan of Distribution contained therein, the
Court hereby approves such Notice and directs that Settlement Counsel shall mail
or cause to be mailed such Notice to all members of the Plaintiff Class
("Plaintiff Class Members") who can be identified through reasonable effort.
The mailing is to be made by first class United States mail, postage prepaid, at
least 55 days prior to the date of hearing on approval of the Proposed
Settlement.
2
<PAGE>
4. Having reviewed the proposed form of Summary Notice of Hearing on
Proposed Settlement of Class Action (the "Summary Notice") submitted by the
parties as Exhibit C to the Notice of Motion and Motion, the Court hereby
approves such Summary Notice and directs that Settlement Counsel shall cause
such Summary Notice to be published once in the Monday Legal Section of USA
TODAY at least 45 days prior to the hearing date for the approval of the
Proposed Settlement.
5. The Court finds and determines that mailing of the Notice and
publication of the Summary Notice constitutes the best notice to the Plaintiff
Class practicable under the circumstances, constitutes due and sufficient notice
of the matters set forth in said Notices to all persons entitled to receive
notice, and fully satisfies the requirements of due process and of Rule 23 of
the Federal Rules of Civil Procedure. The Court further authorizes Settlement
Counsel to expend, prior to the effective date without further Order of the
Court, up to $150,000.00 of the Class Settlement Fund (as defined in the
Stipulation) for costs of identifying Plaintiff Class Members, printing and
giving notice to the Plaintiff Class, processing claims and related
administration expenses of the Class Settlement Fund. Settlement Counsel will
provide the Court with
3
<PAGE>
an accounting of these expenditures from the Class Settlement Fund.
6. A hearing will be held in the United States District Court, District
of Minnesota, in Courtroom 15E, United States Courthouse, 300 South Fourth
Street, Minneapolis, Minnesota 55415, at 3:00 p.m. on October 6, 1997 (the
"Settlement Hearing"), to determine (a) whether the Proposed Settlement should
be approved as fair, reasonable, adequate and in the best interests of the
Plaintiff Class; (b) whether a final judgment should be entered against
Plaintiff Class Members in favor of the Settling Defendants as required by the
Stipulation; and (c) the Class Plaintiffs' application for an award of
attorneys' fees, experts' fees, costs and expenses (the "Fee Petition") and fees
to the Class representatives and further costs of administration and a reserve
for contingencies. The Settlement Hearing is subject to continuation or
adjournment by the Court without further notice.
7. Any Plaintiff Class Member who desires to object to the Proposed
Settlement, the distribution of Settlement proceeds or the Fee Petition, or to
appear at the Settlement Hearing and show cause, if any, why the same should not
be approved as fair, reasonable, adequate and in the best interests of the
Plaintiff
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Class or why a final judgment should not be entered thereon, must serve and
file a written notice of intention to appear and written objections in the
form and manner required by the Notice. Such notice of intention to appear
and objections must be directed to the Clerk of United States District Court
for the District of Minnesota. Written notice must be delivered on or before
September 18, 1997, c/o Norwest Bank Minnesota N.A., Corporate Trust
Services, Attention Lon P. LeClair, Norwest Center, 6th Street and Marquette
Avenue, Minneapolis, Minnesota 55479-0069 and must refer to the action IN RE
LASERMASTER TECHNOLOGIES, INC. SECURITIES LITIGATION, File No. 43-96-631.
Telphone notice may be provided by calling ________________ at (612) ___-____
on or before September 18, 1997. In either case, notice must be filed and
received by the Clerk of Court by September 18, 1997; must provide, with
respect to each transaction in the common stock of LaserMaster Technologies,
Inc. made by such person during the Class Period, a statement setting forth
the date, type of transaction, price and quantity (i.e., number of shares) of
common stock involved and state such person's specific objections to any
matter before the Court, the grounds therefor and the reasons for such
person's desiring to appear and be heard; and must include all documents and
other
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writings such person wishes the Court to consider. Copies of all materials
also must be served upon and received by the following counsel on or before
that same date:
Jack L. Chestnut, Esquire
CHESTNUT & BROOKS, P.A.
3700 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Plaintiffs' Settlement Counsel
Frank A. Taylor, Esquire
HINSHAW & CULBERTSON
3200 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Counsel for Defendant
LaserMaster Technologies, Inc.
and Individual Defendants
Melvin L. Masters and Robert J. Wenzel
8. Any person who wishes to object to the Proposed Settlement, to the
final judgment to be entered in the Litigation, to any award of attorneys' fees,
costs and expenses to Plaintiffs' counsel, to proposed fees to the Class
representatives, or otherwise be heard, shall serve and file a written notice of
intention to appear and written objections in the form and manner and by the
date required by the Notice or may appear at the designated time and place and
provide the same information. Any person who fails to object in the manner and
by
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the date required shall be deemed to have waived any objection and shall be
forever barred from raising such objections in this or any other action or
proceeding.
9. Having reviewed the proposed form of Proof of Claim and Release and
the Instructions for Proof of Claim and Release submitted by the parties as
Exhibits D and E to the Notice of Motion, the Court hereby approves such Proof
of Claim and Release and Instructions for Proof of Claim and Release and directs
that Settlement Counsel shall mail or cause to be mailed such Proof of Claim and
Release and Instructions for Proof of Claim and Release at the same time and in
the same manner and to the same persons as provided in Paragraph 3 hereof with
respect to the Notice.
10. In order to share in any proceeds resulting from the settlement of
the Litigation, Plaintiff Class Members must file a Proof of Claim and
Release ("Proof of Claim") in the manner provided therein no later than
October 30, 1997. A Proof of Claim filed by mail shall be deemed to have
been filed when postmarked, if mailed by first class mail, registered mail or
certified mail, postage prepaid, addressed in accordance with the
instructions given in the Proof of Claim, and all other Proofs of Claim shall
be deemed to have been filed at the time they are
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actually received by Settlement Counsel or their designated agent.
11. Upon the entry of the Order for Final Judgment in form and substance
substantially identical to the order submitted by the parties as Exhibit F to
the Notice of Motion and Motion, after the Settlement Hearing, all Plaintiff
Class Members, whether or not they have filed a Proof of Claim within the time
provided, shall be barred from asserting any claims against any of the Settling
Defendants arising from the Settled Claims, and all Plaintiff Class Members
shall be conclusively deemed to have released any and all such claims.
12. Upon the entry of the Order for Final Judgment after the Settlement
Hearing and upon the Effective Date of the final judgment contemplated by
Paragraph IX of the Stipulation, which will occur on the date upon which the
judgment in the Litigation becomes not subject to further appeal or review, only
persons who are Plaintiff Class Members shall have rights in the distribution of
the Class Settlement Fund created by the Proposed Settlement.
13. Pending final determination of whether the Settlement contained in the
Stipulation shall be approved, neither the Class Plaintiffs nor any other
Plaintiff Class Member, either directly,
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or in a representative capacity, or in any other capacity, shall continue,
commence or prosecute the Litigation.
14. The provisions of the Stipulation, including definitions of the terms
used therein, are hereby incorporated by reference as though fully set forth
herein.
DATED: __________, 1997 ___________________________________
The Honorable James M. Rosenbaum
United States District Judge
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EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement
of VirtualFund.com, Inc. on Form S-3 of our reports dated August 8, 1997,
appearing in the Annual Report on Form 10-K of VirtualFund.com (formerly
LaserMaster Technologies, Inc.), Inc. for the year ended June 30, 1997 and to
all reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
April 10, 1998
