================================================================================
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to________________
Commission file number: 0-26302
VIDEOLAN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-93086
(State of incorporation) (I.R.S. Employer Identification No.)
100 Mallard Creek Road, Suite 250, Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
502-895-4858
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Shares Outstanding at June 30, 1996
- ---------------------- --------------------------------------
Common stock, $.01 par value per share 13,935,498
This document contains 15 pages.
================================================================================
<PAGE>
INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements
Unaudited Condensed Balance Sheet as of June 30, 1996 3
Unaudited Condensed Statements of Operations for the
three months ended June 30, 1995 and 1996, the six months
ended June 30, 1995 and 1996, and for the period from May
11, 1994(Inception) to June 30, 1996. 4
Unaudited Condensed Statement of Stockholders' Equity for
the Six Months ended June 30, 1996. 5
Unaudited Condensed Statements of Cash Flows for the
three months ended June 30, 1995 and 1996, the six months
ended June 30, 1995 and 1996, and for the period from May
11, 1994(Inception) to June 30, 1996. 6
Notes to Unaudited Condensed Financial Statements 7
ITEM 2. Management's Discussion and Analysis or Plan of Operations 11
PART II. Other Information 13
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information 14
ITEM 6. Exhibits and Reports
SIGNATURES 15
2 of 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED BALANCE SHEET
June 30, 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,532,417
Accounts receivable 24,588
Inventories 1,437,610
Prepaid expenses and other current assets 197,975
------------
Total Current Assets $ 4,192,590
Property and equipment, net 519,975
Other assets:
Patents pending or issued 88,715
Notes receivable 33,800
Other assets 27,749
Security deposits 122,759
------------
273,023
------------
$ 4,985,588
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 399,508
Capital lease obligations-current 143,588
------------
Total Current Liabilities $ 543,096
Long term liabilties:
Capital lease obligations-non current 31,853
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value 5,000,000
shares authorized, none issued
Common stock, $.01 par value; 20,000,000
shares authorized; 13,935,498 shares issued
and outstanding 139,355
Additional paid-in-capital 16,566,060
Deficit accumulated during the development stage (12,294,776)
------------
Total Stockholders' Equity 4,410,639
------------
$ 4,985,588
============
3 of 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
May 11, 1994
Three Months Ended Six Months Ended (Inception)
June 30, June 30, through
1995 1996 1995 1996 June 30, 1996
------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ -- $ -- $ -- $ 50,053
Cost of sales
-- -- -- -- 37,372
------------ ------------ ------------ ---------- -----------
Gross profit
-- -- -- -- 12,681
Selling, general and administrative expenses:
Salaries 93,433 491,288 201,821 980,273 1,744,944
Compensation expense 1,125,000 3,254,875
Payroll taxes 17,155 16,446 44,712 89,912 234,626
Consulting fees 135,866 281,422 1,152,535
Marketing cost 37,084 87,949 80,415 141,305 340,095
Professional fees 48,478 115,576 81,430 164,095 604,306
Travel and entertainment 103,540 150,118 167,884 225,020 693,934
Research and development 244,968 399,532 490,521 854,664 3,368,654
Equipment expense 26,759 174,554 49,903 222,977 378,921
Rent 14,401 38,896 28,455 72,826 191,744
Insurance 27,891 42,507 32,268 88,426 133,367
Office 83,427 50,483 112,939 90,191 265,160
Depreciation and amortization 6,239 26,237 8,310 44,182 77,571
Stock Administration Charges 27,837 37,898 37,898
Other 9,790 25,806 15,590 45,686 72,897
------------ ------------ ------------ ----------- -------------
Total expenses 713,165 1,783,095 2,439,248 3,338,877 12,551,527
Other income (expense)
Interest income 2,500 56,333 12,257 124,818 260,062
Interest expense (7,444) (9,800) (18,298)
Other Income 88 2,306 2,306
------------ ------------ ------------ ----------- -------------
2,500 48,977 12,257 117,324 244,070
Net loss $ (710,665) $ (1,734,118) $ (2,426,991) $(3,221,553) $ (12,294,776)
============ ============ ============ =========== =============
Loss per share $ (0.06) $ (0.12) $ (0.22) $ (0.23) $ (1.01)
============ ============ ============ =========== =============
Weighted average common
shares outstanding $ 10,968,498 $ 13,898,883 $ 10,968,498 $13,877,124 $ 12,172,717
============ ============ ============ =========== =============
</TABLE>
4 of 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Total
Preferred ---------------------------- Paid-In Development Stockholders'
Stock Shares Amount Capital Stage Equity
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 13,843,498 $ 138,435 $ 16,424,980 $ (9,073,223) $ 7,490,192
Warrants converted to Common Stock 5,000 50 34,950 35,000
Employee stock options exercised 87,000 870 106,130 107,000
Net loss (3,221,553) (3,221,553)
------------ ------------ ------------ ------------ ------------ ------------
Balances at June 30, 1996 $ 13,935,498 $ 139,355 $ 16,566,060 $(12,294,776) $ 4,410,639
============ ============ ============ ============ ============ ============
</TABLE>
5 of 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
<TABLE>
<CAPTION>
May 11, 1994
Three Months Ended Six Months Ended (Inception)
June 30, June 30, through
1995 1996 1995 1996 June 30, 1996
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating and development
stage activities:
Net loss $ (710,665) $ (1,734,118) $ (2,426,991) $ (3,221,553) $ (12,294,776)
Adjustments to net loss:
Issuances of common stock for services rendered 1,125,000 1,146,875
Issuances of common stock for consulting
services rendered 665,000
Issuances of common stock for purchased
research and development 709,125
Issuances of stock options to consultants 2,108,000
Depreciation and amortization 6,239 26,237 8,310 44,182 77,571
Gain on sale of assets (88) (88) (88)
(Increase)decrease in accounts receivable 77 77 (24,587)
Increase in interest receivable (2,500) (2,500)
Increase in inventories (163,816) (183,893) (387,043) (617,241) (1,437,610)
(Increase)decrease in prepaid expenses and
other current assets 2,352 16,478 (12,820) (39,494) (197,975)
Increase in security deposits (8,540) (93,540) (8,540) (97,098) (122,759)
Increase(decrease) in accounts payable and
accrued liabilities 230,155 (207,003) 220,433 54,665 399,508
-------------- -------------- -------------- -------------- --------------
Net cash used in operating and development
stage activities (646,775) (2,175,850) (1,484,151) (3,876,550) (8,971,717)
-------------- -------------- -------------- -------------- --------------
Cash flow from investing activities:
Acquisition of property and equipment (131,530) (73,429) (146,097) (116,133) (356,899)
Proceeds from sale of assets 500 500 500
Patent application costs (13,400) (4,452) (53,500) (88,715)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities: (131,530) (86,329) (150,549) (169,133) (445,114)
-------------- -------------- -------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock
in private placement 2,202,747 2,655,647
Offering costs (211,158) (499,861) (326,263)
Proceeds from the exercise of stock
options by employees 71,000 107,000 107,000
Proceeds from initial public offering 11,500,000
Underwriter's commissions and expense allowances (1,449,000)
Offering costs (27,749) (27,749) (473,719)
Proceeds from exercise of common stock warrants 35,000 35,000
Proceeds from notes payable 331,000
Repayment of notes payable (6,000) (331,000) (331,000)
Repayment of capital lease obligations (4,525) (34,436) (8,824) (45,148) (65,617)
Proceeds from bridge loans 450,000 900,000 900,000
Repayment of bridge loans (450,000) (900,000)
Loans to employees, net 35,311 (33,800)
Cash overdraft (31,003)
-------------- -------------- -------------- -------------- --------------
Net cash provided by financing activities: 228,317 8,815 1,817,370 69,103 11,949,248
-------------- -------------- -------------- -------------- --------------
Increase(decrease) in cash and cash
equivalents: (549,988) (2,253,364) 182,670 (3,976,580) 2,532,417
Cash and cash equivalents at beginning of
period 732,658 4,785,781 - 6,508,997 -
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of period $ 182,670 $ 2,532,417 $ 182,670 $ 2,532,417 $ 2,532,417
============== ============== ============== ============== ==============
</TABLE>
Supplemental disclosure of cash flow information: Capital lease obligations of
$130,398 were incurred when the Company entered into new leases for computer
equipment. Interest expense paid in cash was $2,356.
6 of 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
NOTE A-DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
VideoLan Technologies, Inc. (the "Company"), is a development stage
enterprise established to acquire certain technology and the rights to a pending
U.S. Patent application for an analog video distribution communications system
designed to provide real-time, interactive video, to and from a desktop personal
computer over local and wide area networks ("VideoLan Technology"). Since
inception the Company has primarily been engaged in research and development.
In the course of its development stage activities, the Company has incurred
significant losses which have been funded with resources from the Chairman,
bridge loan financing, proceeds from a private placement, and proceeds from an
initial pubic offering.
Unless income from sales of the VideoLan System is obtained, the timing,
sufficiency and receipt of which the Company cannot predict, future development
and commercialization of the Company's technology will depend upon arrangements
with third parties to finance research and development projects, or the
Company's ability to obtain other additional financing on terms satisfactory to
the Company. The Company presently has no formal binding commitments for
external financing. The Company's inability to obtain such financing could have
a material adverse effect on the Company`s operations.
NOTE B-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Research and Development Costs
Research and development costs are expensed as incurred.
2. Net Loss Per Share of Common Stock
The computation of loss per common share is based on the weighted average
number of outstanding shares. Stock options and warrants have not been included
in the calculation as their inclusion would be antidilutive.
3. Cash and Cash Equivalents
Cash equivalents consist of short-term government obligations. These
securities have original maturity dates not exceeding three months. Such
investments are carried at cost which approximates market, and are considered
cash equivalents for purposes of reporting cash flows.
4. Interim Financial Statements
The unaudited balance sheet as of June 30, 1996 and the unaudited
statements of operations and cash flows for the three months and the six months
ended June 30, 1996 and 1995 as well as the period May 11, 1994 (inception)
through June 30, 1996 and the statement of stockholders' equity for the six
months ended June 30, 1996 contain all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of the Company's management,
necessary to present the financial position of the Company as of June 30, 1996
and results of operations and the cash flows for the three months, and the six
months ended June 30, 1996 and 1995, and the period May 11, 1994 (inception)
through June 30, 1996.
7 of 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
5. Patents Pending or Issued
Patent pending applications consist of filing fees and certain legal costs
relating to the filing of domestic and international patent applications for the
VideoLan technology.
NOTE C-COMMITMENTS AND CONTINGENCIES
Employee Compensation
On January 17, 1996, Mr. John Haines' employment as CEO of the Company
ceased. As a result of his termination and release agreement with the Company,
Mr. Haines is to receive $15,625 per calendar month, prorated for partial
months, through September 24, 1996. The termination and release agreement allows
Mr. Haines to retain vested options to purchase 150,000 shares of common stock
at $3 per share granted to him under his consulting agreement. The termination
and release agreement also required the Company to register 50,000 of the
150,000 shares on June 20, 1996 and provides Mr. Haines certain piggyback
registration rights for the remaining 100,000 options. Upon entering the
termination and release agreement, Mr. Haines resigned as a director of the
Company.
Effective February 15, 1996, Richard Dean Jackson resigned as Executive
Vice President of the Company. As part of his severance and release agreement
with the Company, Mr. Jackson received $125,000 paid over a four month period,
commencing March 1996. Mr. Jackson concurrently signed a marketing
representative agreement to serve as a commissioned marketing representative of
the Company. Additionally, he was issued options to purchase 150,000 shares of
the Company's common stock at $12 per share.
New Facility
In May 1996, the Company leased a 9,778 square foot facility in Jeffersontown,
KY. The Company relocated the Product Engineering and the Research and
Development Departments from the Corporate Office to this new facility. The
minimum annual lease payments under this five year lease are as follows:
1996 $ 30,564
1997 61,128
1998 73,128
1999 77,128
2000 85,128
Thereafter 28,376
=========
$ 355,452
=========
8 OF 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
Patents Pending or Issued
The claims under VideoLan's U.S. Patent application for "bi-directional
transport of video bandwidth signals have been approved by the U.S. Patent and
Trademark Office. The U.S. Patent (No. 5537142) was issued July 16, 1996.
The Company's remaining pending international patent applications claim an
efficient network for the real time, simultaneous, bi-directional transmission
of voice, video, and data among a plurality of users connected to a plurality of
hubs.
Patents and patent applications involve complex legal and factual issues. A
number of companies have filed applications for, or have been issued, patents
relating to products or technology that is similar to some of the products or
technology being developed or used by the Company. There can be no assurance
that the Company's patent will afford protection against the development of
similar or related technology by competitors.
Although the Company believes that its VideoLan System and technology do
not and will not infringe on patents or proprietary rights of others, it is
possible that such infringement or violation has occurred or may occur or that
others may infringe on the Company's patents.
In the event that the Company's products or technologies infringe on
patents or other proprietary rights of others, the Company could be required to
discontinue the sale of its products, including the VideoLan System, and
redesign its product or obtain licenses. There can be no assurance that the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, or that the failure to do any of the foregoing would not
have a material adverse effect on the Company. If any of the Company's products
or technologies are deemed to infringe on patents or other proprietary rights of
others, the Company could, under certain circumstances, become liable for
damages, which could also have a material adverse effect on the Company.
In June 1996, Datapoint Corporation ("Datapoint") filed a lawsuit against
the Company in the United State District Court for the District of New Jersey
claiming patent infringement, contributory infringement and inducing
infringement. No claims are made in the lawsuit regarding the validity of the
Company's patent. Datapoint, which is currently experiencing financial
difficulties, has made similar claims in lawsuits filed against other
videoconferencing companies. However, to the Company's knowledge, Datapoint has
not obtained a final verdict of infringement against any of these companies. The
Company's independent outside patent counsel has reviewed Datapoints's claims
and determined that they are without merit. Accordingly, management does not
believe the lawsuit will have a material adverse effect on the Company's
results of operations or financial condition.
NOTE D-CAPITAL STOCK
At the Annual Meeting of Stockholders in June 1996, the Company's
stockholders approved a proposal to increase the Company's authorized shares of
common stock from 20,000,000 to 80,000,000. The proposal permitted the Company's
management to defer the effectiveness of the increase. Since the Company
presently has sufficient authorized shares for its currently planned needs, it
has no present intention to make the increase effective. Additionally, the
stockholders approved a proposal to increase the number of shares available
under the Company's 1995 Stock Option Plan from 1,000,000 to 2,000,000.
9 OF 15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
NOTE E-SUBSEQUENT EVENTS
Sales Agency Agreement
In July of 1996, the Company entered into a Sales Agency Agreement with
Quest Enterprises, Inc. ("QEI") QEI was appointed a nonexclusive authorized
sales agent of the Company to sell to approved accounts in the United States.
The Company will pay a sales commission equal to five percent of net sales to
QEI on these approved accounts. The Company also granted to QEI an option to
purchase 75,000 shares of common stock at an exercise price of $16 per share.
The option to purchase 25,000 of these shares is irrevocable and is exercisable
at any time prior to its expiration and is not be affected by the termination of
the Sales Agency Agreement. The option to purchase any or all of the remaining
shares will not be exercisable until and unless prior to the termination of the
Sales Agency Agreement (i) the Company has received net sales from approved
accounts of at least $5,000,000 or (ii) the Company obtains equity financing of
at least $5,000,000 through QEI on terms that are acceptable to the Company.
Software Development Consulting Agreement
In July of 1996 the Company signed a one year consulting agreement with
Video Network Service, Inc. ("VNS") to provide full time software supervision
and development. The consulting agreement calls for VNS to be paid $280,000 over
the term of the one year contract. Additionally, 40,000 stock options were
granted to VNS in specific increments once mutually agreed upon milestones are
met.
10 of 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Introduction
VideoLan Technologies, Inc. ("the Company"), is a development stage enterprise
incorporated in Delaware. The Company is engaged in the continuing development
of communications products which utilize the Company's proprietary technology to
transmit and receive real time, interactive video, voice and data signals over
unshielded twisted pair copper wire ("UTP"), as well as coaxial cable and fiber,
to and from desktop personal computers over local and wide area networks. On
July 16, 1996 the US Patent and Trademark office issued the Company a patent
(No. 5537142) for a bi-directional transmission of video banded signals,
including a switching matrix. There are several international patents still
pending.
During the second half of 1996, the Company plans to introduce and market a
stand-alone video, voice and data communications network solution (the "VideoLan
System"), its first product, through the establishment of distribution channels
and direct sales in certain niche markets. The Company will also continue to
develop its technology to enable local telephone exchange carriers, regional
bell operating companies ("RBOC's") and cable companies to provide immediate
access in the home to programming selected by customers from a remote library
("Video Services").
In August 1995, the Company concluded its initial public offering ("IPO") of
2,875,000 units, each unit consisting of one share of common stock and one
redeemable common stock purchase warrant exercisable for one share of common
stock at a price of $7.00 subject to certain adjustments based upon
anti-dilution provisions, at any time until August 10, 2000. The net proceeds of
the offering to the Company, after payment of underwriters discounts and
commissions, and other expenses of the offering were approximately $9,600,000.
The Company anticipates that the remaining proceeds from the offering should be
sufficient to fund operations through the end of 1996.
Management believes that approximately $750,000 of the proceeds of the offering
was originally budgeted to accomplish the Company's marketing strategy for the
VideoLan System through December 31, 1996 ($236,144 used as of June 30, 1996),
reflecting the Company's plan to rely in part on the marketing organizations of
the original equipment manufacturers ("OEM's"), value added resellers
("VARS's"), systems integrators and distributors through which it intends to
sell the VideoLan System. The Company plans to minimize operating expenses by
subcontracting manufacturing, installation and field maintenance services.
Additionally, approximately $3,000,000 of the proceeds of the offering was
allocated to the purchase of inventory through December 31, 1996 ($993,884 used
as of June 30, 1996), and approximately $1,500,000 will be used during the next
twelve months to was allocated to enhancements of the VideoLan System and
development of the Company's technology for Video Services ($1,781,934 used as
of June 30, 1996). Thereafter, the Company anticipated that cash flow from the
sales of the VideoLan System and/or development contracts with RBOC's, cable
companies or other third parties would be required to finance the integration of
the Company's technology into existing RBOC or cable company infrastructures for
video services. The balance of the IPO proceeds was allocated for general
corporate working capital.
Originally, the Company budgeted $1,500,000 for research and development to
enhance the VideoLan System and develop the Company's technology for Video on
Demand. The Company has exceeded the original budgeted amount by $281,934. The
company is currently achieving its original goals for the technology and has
expanded its expectations. The Company is therefore devoting more of its
resources to developing new applications for the technology as well as
additional features for the current applications.
11 of 15
<PAGE>
There can be no assurance that the Company will establish satisfactory
distribution channels for the VideoLan System or that the VideoLan System will
be accepted in the marketplace. There can also be no assurance that the Company
will enter into satisfactory development contracts for Video Services and or
that it can complete development before other technologies are selected by Video
Services providers.
Results of Operations
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues. The Company had no revenues for the six months ended June 30,
1996 or 1995. The Company has engaged in limited marketing of the VideoLan
System and is currently beginning to implement its marketing strategy.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the six months ended June 30, 1996 were $3,338,877
as compared with $2,439,248 in the comparable period of the prior year.
Salaries, consulting fees and related payroll taxes increased by $1,105,074 to
$1,351,607 in the first half of the fiscal 1996 compared to $246,533 in the
first half of fiscal 1995. Research and development expenses for the first half
of 1996 were $854,664 as compared with $490,521 for the same period in 1995, and
marketing costs were $141,305 in 1996 as compared with $80,415 for the same
period in 1995.
Net Loss. The net loss of the Company for the six months ended June 30,
1996 was $3,221,553 ($0.23) as compared with $2,426,991 ($0.22) for the six
months ended June 30, 1995. The Company expects to incur continuing losses until
significant quantities of the VideoLan System are sold.
Liquidity and Capital Resources
Through June 30, 1996, an aggregate of $8,971,717 has been expended in the
operating and development stage activities of the Company, principally for
research and development, salaries and professional fees. An additional $445,114
has been used to prepare the Company's patent applications and purchase certain
equipment. Additional funds will be necessary to pay for additional engineers,
technical personnel and increased marketing costs in connection with the sale of
the Company's products.
As of June 30, 1996, the Company has financed its operations primarily through
investments by its Chairman and individual investors, a private placement of the
Company's Common Stock completed in February of 1995, which raised net proceeds
of approximately $1,900,000, and from the IPO which was completed in August 1995
and generated net proceeds of $9,600,000. The Company expects that the IPO
proceeds will be sufficient to meet the Company's working capital, marketing,
research and development, engineering and inventory requirements for the balance
of 1996. Thereafter, the Company anticipates that sales of the VideoLan System
and/or from research and development contracts will be the primary source of
working capital.
The Company will need to obtain financing to fund its activities in 1997 until
such time as the Company generates sufficient sales of the VideoLan System. The
Company is currently in discussions to obtain such financing but presently has
no formal binding commitments from any financing source.
The Company believes that, during the past year, inflation has not had a
significant impact on the Company's operating results.
12 of 15
<PAGE>
VideoLan Technologies, Inc.
(A Development Stage Enterprise)
Part II: Other Information
ITEM 1. Legal Proceedings
In June 1996, Datapoint Corporation ("Datapoint") filed a lawsuit
against the Company in the United State District Court for the
District of New Jersey claiming patent infringement, contributory
infringement and inducing infringement. No claims are made in the
lawsuit regarding the validity of the Company's patent. Datapoint,
which is currently experiencing financial difficulties, has made
similar claims in lawsuits filed against other videoconferencing
companies. However, to the Company's knowledge, Datapoint has not
obtained a final verdict of infringement against any of these
companies. The Company's independent outside patent counsel has
reviewed Datapoint's claims and determined that they are without
merit. Accordingly, management does not believe the lawsuit will
have a material adverse effect on the Company's results of
operations or financial condition.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
(A) The annual meeting of Stockholders of VideoLan Technologies, Inc.
was held on June 20, 1996.
(B) All director nominees were elected.
(C) Certain matters voted upon at the meeting and the votes cast with
respect to such matters are as follows:
(1) ELECTION OF DIRECTORS For Withheld
---------------------------------- --------------- ---------------
Ted Ralston 8,526,742 1,548,615
Vernon L. Jackson 10,047,842 27,515
Steven B. Rothenberg 10,047,842 27,515
John R. Glankler 8,526,742 1,548,615
Jacques O. de Labry 10,047,842 27,515
13 of 15
<PAGE>
VideoLan Technologies, Inc.
(A Development Stage Enterprise)
Part II: Other Information
Broker
For Against Abstain Non Votes
-------------------------------- --------- -------- ------- ---------
(2) Proposal for amendment
to the Company's certificate
of incorporation. 9,155,374 841,127 44,150 34,706
(3) Proposal for amendments to
and retatement of the Company's
1995 Stock Option Plan. 6,420,235 881,898 81,260 2,691,964
(4) Proposal to ratify the
appointment of Grant Thornton
LLP as independent accountants
for the Company for the year
ending December 31, 1996. 9,289,797 762,450 23,110 0
ITEM 5. Other Information
None
ITEM 6 Exhibits and Reports:
(a) Exhibits
10.1 Amended and Restated 1995 Stock Option Plan
10.2 Termination and Release Agreement between the Company and John
E. Haines
10.3 Option Agreement between the Company and John E. Haines
10.4 Registration Rights Agreement between the Company and John E.
Haines
10.5 Sales Agency Agreement between the Company and Quest
Enterprises, Inc.
10.6 Option Agreement between the Company and Quest Enterprises, Inc.
10.7 Consulting Agreement between the Company and Video Network
Services, Inc.
10.8 Option agreement between the Company and Video Network Services,
Inc.
27.0 Financial Data Schedule
(b) Reports
None
14 of 15
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VideoLan Technologies, Inc.
Date: August 9, 1996 /s/ Ted Ralston
--------------------------------------
Chairman of the Board
Date: August 9, 1996 /s/ Steven B. Rothenberg
--------------------------------------
Chief Financial and Accounting Officer
15 of 15
EXHIBIT 10.1
<PAGE>
ANNEX A
1995 STOCK OPTION PLAN OF
VIDEOLAN TECHNOLOGIES, INC.
(Amended and Restated as of May 15, 1996)
1. Definitions
"Board of Directors" shall mean the Board of Directors of the Corporation
as constituted from time to time or a committee of the Board of Directors to
which responsibility for the administration of the Plan has been delegated.
"Cancellation Notice" shall mean the notice given by the Corporation to an
Optionee pursuant to Section 15B hereof notifying him of the cancellation of his
Option.
"Cash Payment Election" shall mean the right described in Section 8 hereof
of an Optionee to elect to receive cash upon exercise of an Option.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean shares of common stock of the Corporation.
"Corporation" shall mean VideoLan Technologies, Inc. and its subsidiaries,
if any.
"Exercise Price per Share" with respect to an Option shall mean the price,
as set forth in the Optionee's Option Agreement and as determined by the Board
of Directors, at which the Optionee may exercise such Option; provided, however,
that the Exercise Price per Share shall not be less then 100% of the Fair Market
Value Per Share at the time such Option is granted (110% of Fair Market Value
<PAGE>
per Share in the case of an Incentive Stock Option described in Section 16B
hereof).
"Fair Market Value per Share" of the Corporation's Common Stock on a
Trading Day shall mean the last reported sale price for Common Stock (regular
way) or, in case no such reported sale takes place on such Trading Day, the
average of the closing bid and asked prices (regular way ) for the Common Stock
for such Trading Day, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national securities
exchange, but is traded in the over-the-counter market, the closing sale price
of the Common Stock or, if no sale is publicly reported, the average of the
closing bid and asked quotations for the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
or any comparable system or, if the Common Stock is not listed on NASDAQ or a
comparable system, the closing sale price of the Common Stock or, if no sale is
publicly reported, the average of the closing bid and asked prices, as furnished
by two members of the National Association of Securities Dealers, Inc. who make
a market in the Common Stock selected from time to time by the Corporation for
that purpose, or, if the Fair Market Value per Share cannot be determined under
the preceding clauses of this sentence, it shall be determined in good faith by
the Board of Directors. In addition, for purposes of this definition, a "Trading
Day" shall mean, if the Common Stock is listed on any
2
<PAGE>
national securities exchange, a business day during which such exchange was open
for trading and at least one trade of Common Stock was affected on such exchange
on such business day, or, if the Common Stock is not listed on any national
securities exchange but is traded in the over-the-counter market, a business day
during which the over-the-counter market was open for trading and at least one
"eligible dealer" quoted both a bid and asked price for the Common Stock. An
"eligible dealer" for any day shall include any broker-dealer who quoted both a
bid and asked price for such day, but shall not include any broker-dealer who
quoted only a bid or only an asked price for such day.
"Incentive Stock Option" shall mean an Option which will qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code or any
applicable successor provision of the Code.
"Option" shall mean a stock option granted to an Optionee pursuant to the
Plan. An Option may be either an Incentive Stock Option or one which does not
qualify as an Incentive Stock Option.
"Option Agreement" shall mean the agreement between the Corporation and an
Optionee evidencing the award of an Option pursuant to the Plan and setting
forth the terms and conditions of the Option.
"Optionee" shall mean a person to whom an Option is granted pursuant to the
Plan. Unless otherwise provided herein, the term "Optionee" shall include
Director Participants as defined in Section 6A of the Plan.
3
<PAGE>
"Plan" shall mean this 1995 Stock Option Plan of the Corporation.
"Shares" shall mean the shares of Common Stock which may be issued pursuant
to the Plan.
2. Purpose of the Plan. The purpose of the Plan is to secure for the
Corporation and its shareholders the benefits arising from capital stock
ownership by officers, directors, consultants and other key employees of the
Corporation who are expected to contribute to the Corporation's future growth
and success.
3. Administration. The Plan shall be administered by the Board of Directors
or a Stock Option Committee designated by the Board of Directors to act on its
behalf. Subject to the express provisions of the Plan, the Board of Directors
shall have plenary authority, in its discretion, to determine the individuals to
whom, and the time or times at which Options and Cash Payment Elections shall be
granted and the number of shares to be subject to each Option and Cash Payment
Election. In making such determinations, the Board of Directors may take into
account the nature of the services rendered by the respective individuals, their
present and potential contributions to the Corporation's success and such other
factors as the Board of Directors, in its discretion, shall deem relevant.
Subject to the express provisions of the Plan, the Board of Directors shall also
have plenary authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to it, to determine the terms and provisions of
the
4
<PAGE>
respective Option Agreements (which need not be identical) and to make all other
determinations necessary or advisable for the administration of the Plan.
4. Number of Shares. The aggregate number of Shares in respect to which
Options may be granted under the Plan is 2,000,000 Shares, subject to adjustment
in accordance with Section 12 hereof. Shares covered by the unexercised portions
of any terminated or cancelled Options shall be available to become subject to
Options granted thereafter. Shares subject to the portions of Options which are
surrendered in connection with the exercise by Optionees of Cash Payment
Elections shall not be available to become subject to Options granted
thereafter. Upon any exercise of an Option, the number of Shares with respect to
which the Option may thereafter be exercised by the Optionee shall no longer
include the sum of the Shares purchased upon exercise plus the Shares, if any,
covered by a Cash Payment Election upon such exercise.
5. Grant of Options to Officers, Consultants and Key Employees. The Board
of Directors may, at any time prior to February 28, 2005, grant Options to such
officers, consultants and employees of the Corporation as the Board of Directors
may select. Such Options shall cover such number of Shares as the Board of
Directors shall designate, subject to the other provisions of the Plan.
6. Grants of Options to Directors.
A. General Provisions. At any time prior to February 28, 2005 and
subject to the terms and conditions of this Section 6,
5
<PAGE>
commencing on the effective date (the "Effective Date") of a registration
statement of the Corporation an Form SB-2 or other appropriate form, which may
be filed with the Securities and Exchange Commission, pursuant to which the
Common Stock of the Corporation will be registered for sale in an underwritten
public offering (the "Offering"), and continuing annually thereafter with the
Annual Meeting of stockholders of the Corporation held in the year following the
Effective Date, each person who is serving as a director of the Corporation on
the date of grant and who is not a common law employee of the Corporation
(hereinafter referred to as a "Director Participant") shall automatically be
granted Option(s) to purchase ten thousand (10,000) shares of Common Stock,
subject to availability under the Plan. The date of each such grant following
the initial grant of Options on the Effective Date shall be annually, on the
third trading date following the later of (i) the date on which the Annual
Meeting of the Corporation's stockholders, or any adjournment thereof, is held
in each calendar year, or (ii) the date on which the Corporation's earnings for
the fiscal quarter immediately preceding such Annual Meeting date are released
to the public. In addition, an initial grant of an Option to purchase ten
thousand (10,000) shares of Common Stock shall automatically be granted to each
individual who is first elected as a director of the Corporation (and who is not
a common law employee of the Corporation) after the "date of grant" specified in
the immediately preceding sentence. Such initial grant shall be made on the
third trading date following the effective date of such
6
<PAGE>
election. The form of the Options granted pursuant to this Section 6 shall be
non-qualified stock options. The Exercise Price per Share with respect to
Options granted pursuant to this Section 6 shall be the Fair Market Value per
Share at the date of the grant. Notwithstanding anything to the contrary
contained in the immediately preceding sentence, the Exercise Price per Share
with respect to Options granted on the Effective Date pursuant to this Section 6
shall be the initial public offering price per share of the Common Stock of the
Corporation to be sold in the Offering. Notwithstanding anything to the contrary
contained in this Section 6A, no Director Participant shall be granted in the
aggregate Option(s) to purchase in excess of thirty thousand (30,000) shares of
Common Stock.
B. Exercisability of Options. Each Option granted under this Section 6
by its terms shall be exercisable for ten years from the date of the grant. An
Option granted pursuant to this Section shall become exercisable with respect to
one hundred percent (100%) of the shares covered immediately on the date of
grant.
C. Ineligibility for Other Grants. Any Director Participant who
receives an Option granted pursuant to this Section 6 shall be ineligible to
receive any other grant or award under any other Section of this Plan and the
provisions of Section 5 hereof shall not apply to such Director Participant.
D. The Board of Directors. The provisions of this Section 6 shall be
administrated by the Board of Directors solely
7
<PAGE>
in accordance with the terms hereof; provided, however, that the Board of
Directors shall maintain the authority to interpret this Section of the Plan and
to make all determinations permitted by this Section 6 or deemed necessary for
its administration.
E. Amendment. The provisions of this Section 6 shall not be amended
more than one time in any six-month period, other than to comport with changes
in the Code, the Employee Retirement Income Security Act of 1974, as amended,
the Securities Exchange Act of 1934, as amended, or any rules or regulations
promulgated thereunder.
7. Option Agreements. Each award of an Option pursuant to the Plan shall be
evidenced by an Option Agreement between the Optionee and the Corporation. Each
Option Agreement shall specify the number of Shares covered by such Option and
the Exercise Price per Share and shall contain such terms and conditions not
inconsistent with the Plan as the Board of Directors in its sole discretion
shall deem appropriate (which terms and conditions need not be the same in each
Option Agreement and may be changed from time to time). Each Option Agreement
may require as conditions of exercise that the Optionee provide such investment
representations with respect to, and enter into such agreements concerning the
sale and transfer of, the Shares receivable by the Optionee upon exercise, as
the Board of Directors shall deem appropriate. Each Option Agreement for an
Option which is not an Incentive Stock Option shall provide for the withholding
of income taxes and
8
<PAGE>
employment taxes that the Corporation determines it is required to withhold upon
the exercise of an Option.
8. Cash Payment Election.
A. In connection with any Option granted under the Plan which is not
an Incentive Stock Option, the Board of Directors may grant Cash Payment
Elections to such Optionees as the Board of Directors may select, either at the
time such Option is granted or thereafter at any time prior to the exercise or
termination of such Option. The terms and conditions regarding each Cash Payment
Election shall be evidenced in the Option Agreement, or an amendment thereto if
granted subsequent to issuance of an Option.
B. A Cash Payment Election shall entitle the Optionee, simultaneously
with a purchase of Shares upon exercise of a portion of an Option, to surrender
for cash an additional unexercised (but then exercisable) portion of the Option
covering, at the Optionee's election, a number of Shares no greater than the
number of Shares being purchased upon such exercise. In exchange for the
unexercised portion of the Option so surrendered, the Corporation shall pay to
the Optionee a cash amount equal to the product of (i) the excess of (A) the
Fair Market Value per Share on the date the Option is exercised over (B) the
Exercise Price per Share, times (ii) the number of Shares with respect to which
the Cash Payment Election is made.
9. Term of Option. Each Option Agreement shall specify the date or dates on
which the Option granted thereunder may be exercised. Except as provided in
Section 6B hereof with respect to
9
<PAGE>
Options granted to Director Participants, each Option Agreement may provide for
exercise of the Option in installments on such terms and conditions as the Board
of Directors may determine. The period of each Option shall be fixed by the
Board of Directors but shall in no case exceed ten years from the date of grant
of such Option.
10. Non-Transferability of Option Rights. Options shall not be transferable
except by will or the laws of descent and distribution. During the lifetime of
an Optionee, such Optionee's Option shall be exercisable only by the Optionee.
11. Effect of Termination of Employment or Death.
A. Upon the termination of employment of any Optionee or, in the case
of an Optionee who is a Director Participant, termination of his services as a
director (for any reason other than death), all rights under any Options hold by
such Optionee shall cease; provided, however, that the Option Agreement may
provide that (1) the rights which were immediately exercisable by the Optionee
at the date of such termination of employment or services as a director may be
exercised by the Optionee subject to such conditions, provisions or limitations
as may be set forth in the Option Agreement, during a period not exceeding five
years after the date of such termination, but in no case after ten years from
the date of grant of the Option or (2) if the Optionee enters into a consulting
agreement with the Company upon termination of employment, the rights which were
not immediately exercisable by the Optionee at the date of such termination of
employment will
10
<PAGE>
remain in effect subject to such conditions, provisions or limitations as may be
set forth in the Option Agreement.
B. Upon the termination of employment of any Optionee or, in the case
of an Optionee who is a Director Participant, termination of his services as a
director, by reason of his death, or on the death of any Optionee within three
months following the termination of his employment or services as a director, if
during such period the Optionee was entitled pursuant to the express terms of an
Option Agreement to exercise his rights under such Option Agreement, all rights
under any Options held by such Optionee shall cease; provided, however, that the
Option Agreement may provide that the rights which were immediately exercisable
by the Optionee at the date of his death may be exercised by legal
representatives or beneficiaries of the Optionee during a period specified in
the Option Agreement, not exceeding three years after the date of the Optionee's
death, but in no case after ten years from the date of grant of the Option.
12. Stock Dividend, Merger, Consolidation, Etc.
A. In the event there is any change in the Common Stock of the
Corporation by reason of any reorganization, recapitalization, stock split,
stock dividend or otherwise, there shall be substituted for or added to each
share of Common Stock theretofore appropriated or thereafter subject, or which
may become subject to any option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be
11
<PAGE>
exchanged, or to which each such share be entitled, as the case may be, and the
per share price thereof also shall be appropriately adjusted. Notwithstanding
the foregoing, (i) each such adjustment with respect to an Incentive Stock
Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no
event shall any adjustment be made which would render any Incentive Stock Option
granted hereunder other than an "incentive stock option" for purposes of Section
422 of the Code or any applicable successor provision of the Code.
B. Upon (i) the merger or consolidation of the Corporation with or
into another corporation, if the agreement of merger or consolidation does not
provide for (x) the continuance of the options granted hereunder, or (y) the
substitution of new options granted hereunder, or for the assumption for such
options by the surviving corporation, or (ii) the dissolution, liquidation, or
sale of substantially all the assets, of the Corporation, the holder of any such
option theretofore granted and still outstanding (and not otherwise expired)
shall have the right immediately prior to the effective date of such merger,
consolidation, dissolution, liquidation or sale of assets to exercise such
option(s) in whole or in part without regard to any installment provision that
may have been made part of the terms and conditions of such option(s); provided
that any conditions precedent to the exercise of such options, other then the
passage of time, have occurred. The Corporation, to the extent practicable,
shall give advance notice to affected Optionees of such merger, consolidation,
dissolution,
12
<PAGE>
liquidation or sale of assets. All such options which are not so exercised shall
be forfeited as of the effective time of such merger, consolidation,
dissolution, liquidation or sale of assets.
13. Rights as a Stockholder. An Optionee shall have no rights as a
stockholder with respect to any Shares covered by an Option until such Optionee
shall have become the holder of record of any such Shares.
14. Determinations. Each determination, interpretation or other action made
or taken pursuant to the provisions of the Plan by the Board of Directors, and
each determination of Fair Market Value per Share shall be final and conclusive
for all purposes and shall be binding upon all persons, including, without
limitation, the Corporation and all Optionees, and their respective successors
and assigns.
15. Amendment, Termination and Modification of the Plan and Agreements.
A. The Board of Directors may at any time or from time to time
terminate, suspend or amend the Plan in whole or in part (including amendments
deemed necessary or desirable to conform to any change in the law or regulations
applicable hereto); provided, however, that without approval of the stockholders
of the Corporation, no such action may increase the number of Shares with
respect to which Options may be granted; provided, further, that except as set
forth in paragraphs 15B and 15C below, no such amendment or termination shall
affect any Options theretofore granted without the consent of the Optionee of
such Option.
13
<PAGE>
B. Notwithstanding the foregoing provisions or this Section 15, each
Option Agreement may provide that the Corporation shall have the right to
terminate the rights of any Optionee to exercise any Options, effective 30 days
after receipt by the Optionee of a Cancellation Notice from the Corporation. The
Corporation may issue a Cancellation Notice only in connection with (i) the sale
of substantially all of the Corporation's assets, or (ii) a merger,
consolidation or other corporate transaction in which the Corporation would not
be the surviving entity. The Cancellation Notice shall afford the Optionees the
right to exercise all Options held by such Optionee with respect to all Shares
covered thereby (even if they would not otherwise have become exercisable with
respect to all such Shares at that time) during the period prior to the
effective date of the termination.
C. Notwithstanding the foregoing provisions of this Section 15, each
Option Agreement may contain the consent of the Optionees to any amendment to
the Plan and Option Agreement which the Board of Directors, in its sole
discretion and upon advice of legal counsel, may deem necessary or advisable to
enable the exercise of Options to comply with any applicable rules and
regulations of the Securities and Exchange Commission, including, without
intending any limitation, any amendment which would exempt such exercise from
the operation of Section 16 of the Securities Exchange Act of 1934, as amended.
16. Incentive Stock Options. Options granted under the Plan which are
intended to be Incentive Stock Options shall be
14
<PAGE>
specifically designated as Incentive Stock Options and shall be subject to the
following additional terms and conditions:
A. Dollar Limitations. The aggregate fair market value (determined as
of the date of the option grant and consistent with Section 422(c)(7) of the
Code or any applicable successor provision of the Code) of the Common Stock with
respect to which Incentive Stock Options granted under the Plan (and under any
other incentive stock option plans of the Corporation) are exercisable for the
first time by any employee in any one calendar year shall not exceed $100,000,
except as set forth in Section 15B hereof.
B. 10% Stockholder. If any Optionee to whom an Incentive Stock Option
is to be granted under the Plan is at the time of the grant of such Option the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Corporation, then the following special provisions
shall be applicable to the Incentive Stock Option granted to such Optionee:
(1) The Exercise Price per Share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value per
Share at the time of grant; and
(2) The Option exercise period shall not exceed five years from the
date of grant.
Except as modified by the preceding provisions of this Section 16B, all the
provisions of the Plan shall be applicable to Incentive Stock Options granted
hereunder.
17. No Special Employment Rights. Nothing contained in the Plan or in any
Option granted under the Plan shall confer upon any
15
<PAGE>
Optionee any right with respect to the continuation of such Optionee's
employment by the Corporation or interfere in any way with the right of the
Corporation, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Optionee from the rate in existence at the time of the
grant of such Option.
18. Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, any Incentive
Stock Options previously granted under the Plan shall terminate, and no further
Incentive Stock Options shall be granted. Subject to this limitation, Options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
19. Governing Law. The Plan and all determinations made and actions taken
pursuant thereto shall be governed by the internal laws of the State of Delaware
and construed in accordance therewith without giving effect to the principles of
conflict of laws thereof.
16
EXHIBIT 10.2
<PAGE>
TERMINATION AND RELEASE AGREEMENT
This termination and full and final release of all claims agreement (this
"Agreement") is by and between VIDEOLAN TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and JOHN E. HAINES, and individual ("Haines").
In consideration of the mutual promises contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows, subject to all of the terms,
provisions and conditions of this Agreement:
1. Termination & Compensation.
(a) Haines acknowledges and agrees that he ceased to be an officer of
the Company on January 17, 1996 (the "Effective Date"). Haines hereby resigns as
a director of the Company effective the date hereof.
(b) Haines hereby acknowledges receipt of payment to him of his salary
for all pay periods ending on or before the Effective Date.
(c) Concurrently herewith, Haines and the Company shall enter into an
Option Agreement in the form of Exhibit A hereto (the "Option Agreement") to
amend and restate the option (the "Option") to purchase 150,000 of the shares of
the Company's common stock, $.01 par value ("Shares") granted pursuant to that
certain Consulting Agreement dated June 1, 1995 between the Company and Haines,
as amended by that certain Addendum dated August 18, 1995 between the Company
and Haines (collectively, the "Consulting Agreement") and to cancel the Option
with respect to the remaining 100,000 shares.
(d) Concurrently herewith, Haines and the Company shall enter into a
Registration Rights Agreement in the form of Exhibit B hereto (the "Registration
Rights Agreement") relating to the registration of the shares to be acquired by
Haines pursuant to the Option Agreement.
(e) From the Effective Date of this Agreement, Haines shall receive
from the Company monthly severance in the amount of $15,625 per calendar month
(prorated for partial months), paid in the usual manner compensation is paid by
the Company to its then current employees, from which amounts the Company shall
make appropriate withholding for federal, state and local taxes ("Termination
Payment"). Termination Payments shall cease on the latter of August 31, 1996 or
90 days subsequent to the first date on which Haines shall sell Shares acquired
by Haines pursuant to the Option Agreement.
(f) The Company agrees that, through the period ending May 31, 1996,
it shall be responsible for furniture rental in the amount of $274.57 and
appliance rental in the amount of $152.56 per month, and that the Company shall
in addition to the payment of current rent in the amount of $1,300 per month, be
responsible for an early termination expense not to exceed $1,300.
<PAGE>
(g) In settlement of various miscellaneous claims between Haines and
the Company not otherwise addressed herein, it is agreed that, within two
business days of the execution of this Agreement the Company shall pay to
Haines, in immediately available funds, the amount of $40,000.00.
(h) Haines agrees not to file any claims for unemployment benefits
resulting from the termination of his employment with the Company.
(i) Concurrently herewith, Haines agrees to return to the Company all
physical property of the Company currently in his possession.
2. Relocation Expenses.
(a) The Company agrees and acknowledges that, as part of its
inducement to Haines to join the Company, he was provided with a relocation
expense account in the amount of up to $40,000, which amounts would be paid to
Haines upon the submission of appropriate invoices and other appropriate
evidence of payment. Haines acknowledges that the amount of $2,797.15 has been
paid to him under this account despite the fact that appropriate invoices and
documentation has not been submitted. Until such time as appropriate
documentation for the advanced amount of $2,797.15 is submitted, reimbursement
of relocation expenses shall, in said amount, be delayed and counted as a credit
against this advance. The Company acknowledges its continuing obligation to
provide Haines with up to $40,000 in relocation expenses of the type summarized
in Exhibit A hereto. All invoices to be submitted against this account shall be
forwarded to the Company by October 1, 1996. All reimbursement of Haines for
invoices submitted shall take place within thirty days of submission, the
Company having the right to contest the sufficiency of any submission within the
fifteen calendar days after submission. Haines and the Company agree to
cooperate in continuing efforts to resolve any matters arising under the
relocation expense account. Within not more than five business days of the
execution of this Agreement, the Company will prepare an accounting of the
invoices and other documentation already presented as well as the action taken
(paid, not paid and disputed, etc.). Not later than five days after the date of
execution of this Agreement, Haines will submit to the Company a statement of
the expected costs for which reimbursement will be sought and a good faith
estimate of the amount of those anticipated claims, it being agreed and
acknowledged that Haines shall be in no way bound by those good faith estimates.
Further, it is expressly acknowledged that, upon the submission of appropriate
documentation, the current overdraw in the amount of $2,797.15 be accepted by
the Company.
(b) Haines acknowledges that he has in his possession and, with the
approval of the Company has retained, a color ink jet printer, the agreed fair
market value of which is $500.00, and the value of which shall be credited to
Haines against the relocation expense account.
3. Release.
(a) Haines on behalf of himself and any representatives, heirs,
successors, devisees, assigns, and agents, acknowledges and agrees that his
employment by the Company
2
<PAGE>
terminated as of January 17, 1996 and that he has no further rights pursuant to
the Consulting Agreement or the Employment Agreement by and between him and the
Company dated September 1, 1995 (the "Employment Agreement") except as evidenced
by the Option Agreement, the Registration Rights Agreement and this Agreement
and gives up, releases and settles any and all claims against the Company,
including but not limited to any and all claims in any way connected with his
business relationship with the Company, whether such relationship was as an
employee, shareholder, option holder, consultant, officer, director, agent,
independent contractor, or otherwise, or by or pursuant to one or more verbal or
written contracts, agreements, or otherwise, and the termination of such
relationship(s), together with all other claims, lawsuits or demands, known or
unknown, accrued or unaccrued, of any kind which he has made or could make now
or in the future based upon events and circumstances which occurred or existed
on or prior to the actual date of execution of this Agreement, against the
Company (including any predecessor, successor, affiliated and related companies)
or against its and their officers, directors, shareholders, warrant holders,
option holders, employees, consultants, attorneys, accountants, transfer agents
or agents, in their individual and corporate capacities (the "Company's
Representatives"), including but not limited to claims of tort, breach of
contract or otherwise, or for attorney's fees.
(b) The Company, on behalf of itself and its representatives,
successors, assigns and agents, including without limitation, any director or
executive officer of the Company, either currently serving or previously
serving, gives up, releases and settles any and all claims against Haines,
including but not limited to any and all claims in any way connected with his
business relationship with the Company, whether such relationship was as an
employee, shareholder, option, holder, consultant, officer, director, agent,
independent contractor, or otherwise or by or pursuant to one or more written
contracts, agreements, or otherwise, and the termination of such
relationship(s), together with all other claims, lawsuits or demands, known or
unknown, accrued or unaccrued, of any kind which it has may or could make now or
in the future based upon events and circumstances which occurred or existed on
or prior to the actual date of execution of this Agreement, against Haines,
including but not limited to claims of tort, breach of contract or otherwise, or
for attorney's fees.
(c) The Company agrees and acknowledges that Haines is and shall
remain, to the extent provided for by the Certificate of Incorporation, the
Bylaws, and/or any insurance or similar indemnification policies now or in the
future maintained by the Company, protected and indemnified against personal
liability for any loss, claim or damage, including attorney and other
professional fees, for any claim which may be made against Haines rising out of
or in connection with his service, in any capacity, to the Company.
4. Letter of Recommendation. The Company and Haines have agreed upon the
wording and content of the Letter of Recommendation in the form of Exhibit C
hereto (the "Letter of Recommendation"). It is agreed that the Company shall not
offer any comment, statement or recommendation with respect to Haines and his
service, in any capacity, with and to the Company, other than the Letter of
Recommendation.
3
<PAGE>
5. Nondisparagement.
(a) Haines agrees not to disparage, directly or indirectly, the
Company (including any predecessor, successor, affiliated and related
companies), or its officers, directors, employees, consultants, attorneys,
accountants, transfer agents, other agents, products or technology to third
parties or otherwise.
(b) The Company (including any predecessor, successor, affiliated and
related companies), and its officers, directors, employees, consultants,
attorneys, accountants, transfer agents and other agents agree not to disparage,
directly or indirectly, Haines to third parties or otherwise.
6. No Admission. This Agreement is not an admission by the Company of any
liability whatsoever or that the Company in any way has acted improperly or
unlawfully in the termination of Haines. This Agreement is not a declaration by
Haines that the Company properly terminated his service with the Company.
7. Non-Disclosure. "Proprietary Information" means information disclosed
to or otherwise made available to Haines or known by him as a consequence of or
through his business relationship and/or employment by the Company prior to the
effective date of this Agreement and related to any of the Company's
technologies, applications, patents, patent applications and/or claims,
products, processes, or services, including, without limitation, information
relating to patents, patent applications, research, development and inventions.
Haines recognizes and acknowledges that all information defined herein as
Proprietary Information, is valuable, special, and unique belonging solely to
the Company. Haines shall not, at any time, directly or indirectly, use or
disclose Proprietary Information whether or not specifically described above
except as permitted, in writing, by the Board of Directors of the Company. The
obligation of Haines to protect and not to disclose the Proprietary Information
disclosed to him shall not apply to information that is: generally available to
the public prior to its disclosure by the Company or that becomes generally
available to the public after disclosure by the Company through no fault of
Haines; obtained or acquired by Haines from a third party in possession of such
information who is not under obligation to the Company not to disclose the
information; or ordered by a court of competent jurisdiction or governmental
agency to be produced by Haines; provided, however, that upon the receipt of any
such order, Haines shall immediately notify the Company of such order so that an
appropriate protective agreement or order can be sought.
8. Non-Competition. Through the period up to and including December 31,
1996, Haines agrees that he will not, for any location in the United States of
America where the Company currently conducts business, engage or participate in
directly or indirectly, individually or as an agent, employee, officer,
director, shareholder (excluding being the holder of stock which represents not
more than 1% interest in a publicly held corporation), partner, financier,
consultant, independent contractor or any other capacity whatsoever or lend his
name to any business involved in the research, development, commercialization,
manufacture, assembly, sale, licensing, sublicensing, distribution, supplying or
marketing of desktop video conferencing products, video on demand
4
<PAGE>
products, and/or related products and other applications of the Company's
technology and/or products as currently exist. Notwithstanding anything to the
contrary in this Agreement, the Company acknowledges that Haines is a
shareholder and director of CMed Corporation, which engages in the sell,
distribution, supply and marketing of primarily telemedical applications of
desktop video conferencing products, which participation shall in no way be
deemed a violation of this Agreement.
9. Confidentiality.
(a) Haines will keep this Agreement and its terms confidential and
will not discuss the same or the details of negotiations preceding this
Agreement publicly, or disclose them in any manner inconsistent with full
confidentiality, at any time, or for any reason whatsoever, other than by
express court order or applicable federal securities laws, except to his
immediate family, and when necessary, to his attorney(s) accountant(s) and other
professional advisor(s). In any event, each of those persons shall be instructed
concerning the confidentiality of this Agreement and the need to maintain such
confidentiality.
(b) The Company will keep this Agreement and its terms confidential
and will not discuss the same or the details of negotiation preceding this
Agreement publicly, or, disclose them in any manner inconsistent with full
confidentiality at any time or for any reason, other than by express court order
or applicable federal securities laws.
(c) Haines and the Company agree that no disclosure of the terms of
this Agreement, the Option Agreement, the Registration Rights Agreement or any
exhibit thereto shall be made pursuant to the Federal securities laws except as
shall have been agreed by and between the parties in the form of Exhibit D
hereto (the "Agreed Disclosure").
10. Complete Agreement. This Agreement, together with the Option
Agreement and the Registration Right Agreement, contain the complete
understanding between the Company and Haines and supersede all other agreements,
written and oral, between the parties, and any predecessor, related or
affiliated entities and/or officers, directors, employees, consultants and
agents of the Company with respect to the subject matter hereof, including but
not limited to the Consulting Agreement and the Employment Agreement
(collectively, the "Prior Agreements"). The parties acknowledge and agree that,
other than as stated in this Agreement and the Option Agreement, Haines is not
entitled, now or in the future, to any compensation or benefits, including but
not limited to stock options, pursuant to the Prior Agreements or otherwise. In
signing this Agreement, the parties are not relying on any fact, statement or
assumption not set forth in this Agreement. Haines acknowledges and agrees that
the release contained in this Agreement is a general release and expressly
waives and assumes the risk of any and all claims or damages which exist as of
this date, but which Haines does not know of or suspect to exist, whether
through ignorance, oversight, error, negligence or otherwise, and which, if
known, would materially affect Haines's decision to enter into this Agreement.
Haines hereby further agrees that he has accepted the consideration specified
herein as a complete compromise of matters involving disputed issues of law and
fact and fully assumes the risks that the facts or the law may be otherwise than
believed or understood.
5
<PAGE>
11. Voluntary. Haines has entered into this Agreement voluntarily.
12. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Kentucky.
13. Further Acts.
(a) Haines shall perform such further acts and execute and deliver
such further documents as may be reasonably necessary to carry out the
provisions of this Agreement.
(b) The Company shall perform such further acts and execute and
deliver such further documents as may be reasonably necessary to carry out the
provisions of this Agreement, including but not limited to the proper and
complete execution of such documents as must be filed with federal and state
securities authorities to carry out the provision of the Registration Rights
Agreement.
14. Enforceability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision hereof.
15. Relief.
(a) In the event of a breach or threatened breach by Haines of the
provisions contained in Sections 5, 7, 8 or 9, the Company shall be entitled to
an injunction restraining Haines with respect to such prohibited conduct. In the
event that the Company should bring an action for such injunctive relief, the
parties hereto stipulate that the Company will be irreparably harmed and have no
adequate remedy at law. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the
Company from such breach or threatened breach against Haines, or any other
person or entity, including for the recovery of damages.
(b) In the event of a breach by the Company of any of its obligations
under this Agreement, the Option Agreement and/or the Registration Rights
Agreement, it is acknowledged by the Company, that, save to the extent that such
breach relates solely to the payment to make required monetary payments to
Haines, Haines will be irreparably harmed and will have no adequate remedy at
law, and that such action or inaction on behalf of the Company may seriously
jeopardize the ability of Haines to enjoy future gainful employment in his area
of expertise. As such, the Company stipulates that, in addition to monetary
relief, he will be entitled to injunctive and other equitable relief. Nothing
contained herein shall be construed as prohibiting Haines from pursuing any
other remedies available to Haines for such breach or threatened breach against
the Company, or any other person or entity, including for the recovery of
damages.
16. Counterparts. For the convenience of the parties, this Agreement may
be executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
6
<PAGE>
17. Rule of Construction. The language in all parts of this Agreement
shall in all cases be construed as a whole according to its fair meaning,
strictly neither for nor against any party hereto, and without implying a
presumption that the terms hereof shall be more strictly construed against one
party by reason of the rule of construction that a document is to be construed
more strictly against the person who himself or through his agent prepared the
same.
18. EACH PARTY HAS CAREFULLY READ THIS AGREEMENT, FULLY UNDERSTANDS THIS
AGREEMENT, AND SIGNS IT AS HIS OR ITS OWN FREE ACT.
IN WITNESS WHEREOF, the parties have signed this Agreement on the ____ day
of May, 1996, effective as of the Effective Date.
VIDEOLAN TECHNOLOGIES, INC.
(the "Company")
By: /s/ Steven Rothenberg
------------------------------
Title: Vice President Finance
/s/ John E. Haines
------------------------------
John E. Haines
("Haines")
7
EXHIBIT 10.3
<PAGE>
DRAFT
5/7/96
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is made as of the 14th day of May,
1996, by and between VIDEOLAN TECHNOLOGIES, INC., a Delaware corporation (the
"Company") and JOHN E. HAINES ("Haines").
WHEREAS, pursuant to that certain Consulting Agreement dated June 1, 1995
between the Company and Haines, as amended by that certain Addendum dated August
18, 1995 between the Company and Haines (the "Consulting Agreement"), Haines was
granted an option (the "Original Option") to purchase 250,000 shares of the
Company's common stock (the "Shares");
WHEREAS, simultaneously herewith, Haines and the Company have entered into
a Termination and Release Agreement of even date herewith (the "Termination
Agreement") providing, inter alia, for the amendment and restatement of the
terms of the Original Option;
WHEREAS, Haines and the Company desire to set forth the terms and
conditions of the Original Option, as so amended and restated (the "Option");
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt, mutuality and sufficiency of which is
acknowledged, the parties hereto agree as follows:
1. Continuance of Option. On the terms and subject to the conditions of
this Agreement, Haines shall continue to have the right to purchase up to
150,000 Shares, subject to adjustment in accordance with Section 6 of this
Agreement. The option to purchase the remaining 100,000 shares of the Company's
common stock granted under the Original Option is hereby canceled. All options
are fully vested and are not subject to forfeiture.
2. Option Exercise Price. The exercise price of the Option (the "Exercise
Price") shall be $3.00 per Share, subject to adjustment in accordance with
Section 7 of this Agreement.
3. Duration of Option. The Option shall expire five years from the date
hereof.
4. Exercise of Option.
(a) The Option to purchase the Shares shall be exercisable at any time
prior to its expiration. This Option may be exercised by delivery of written
notice to the Company at its executive offices, addressed to the attention of
Chief Financial Officer. Such notice: (i) shall be signed by Haines or his
legal representative; (ii) shall specify the number of full Shares then elected
to be purchased with respect to the Option; and (iii) shall be accompanied by
payment in full of the Exercise Price of the Shares to be purchased.
(b) The Exercise Price upon exercise of this Option shall be payable
to the Company in full either: (i) in cash or its equivalent; or (ii) by
tendering previously acquired shares
<PAGE>
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price (provided that the Shares which are tendered must have been held
by Haines for at least six months prior to their tender); (iii) a "cashless
exercise," as permitted under Federal Reserve Board's Regulation T, subject to
applicable securities law restrictions; or (iv) by a combination of (i), (ii)
and (iii).
(c) As promptly as practicable after the receipt of notice and payment
upon exercise, the Company shall cause to be delivered to Haines (or his legal
representative), as the case may be, certificates for the Shares so purchased.
The Share certificates shall be issued to Haines (or, jointly in the name of
Haines and his spouse). The Company or its agent shall maintain a record of all
information pertaining to Haines' rights under this Agreement. If the Option
shall have been exercised in full, this Agreement shall be returned to the
Company and canceled.
5. Registration of Shares.
(a) On or prior to May 27, 1996 (the "Registration Date"), the Company
shall register 50,000 Shares (the "Initial Shares") under the Securities Act of
1933 (the "Act") and under the securities laws of the states of Georgia,
Kentucky and one other state designated by Haines. The Company shall maintain
such registration until the earlier of (a) the sale of all of the Initial Shares
or (b) December 31, 1997.
(b) The Company and Haines shall enter into a Piggyback Registration
Rights Agreement in the form of Annex A hereto with respect to all Shares other
than the Initial Shares.
(c) In the event that Haines should acquire any Shares which, at the
time of acquisition, are not duly registered under the Act and, as necessary,
applicable state securities law, certificates evidencing the unregistered Shares
shall bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, AND WILL
NOT BE TRANSFERRED ON THE BOOKS AND RECORDS OF THE COMPANY, UNLESS (i)
THEY HAVE BEEN REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR (ii) REGISTRATION UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.
Upon the registration of any shares represented by a certificate bearing this
legend, the Company shall issue replacement certificates free of this legend.
6. Adjustments in Authorized Shares and the Option. In the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation,
2
<PAGE>
liquidation, share dividend, share split, reverse share split, share
combination, share exchange or other change in the capital structure of the
Company affecting the Shares, the Board of Directors of the Company may
substitute or adjust the total number and class of Shares or other securities
that may be issued hereunder, and the Exercise Price, as it determines to be
appropriate and equitable to prevent dilution or enlargement of the rights of
Haines and to preserve, without diluting or exceeding, the value of the Option,
provided, however, that such adjustments shall be equivalent to that imposed
equally upon all other option holders and/or shareholders in the Company.
7. Miscellaneous.
(a) Tax Withholding. The parties acknowledge and agree that any and
all compensation received by Haines pursuant to any exercise of the Option will
be self-employment income, and that Haines shall bear the sole responsibility
with respect to withholding and estimated tax payments on such compensation.
(b) Amendment. This Agreement may not be changed or terminated except
by written instrument signed by the parties.
(c) Successors; Binding Agreement. The Company agrees that:
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Haines, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had taken place; and
(ii) This Agreement and all rights of Haines hereunder shall
inure to the benefit of and be enforceable by Haines' personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
(d) Severability. In the event any provision of this Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of this Agreement, and this Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
(e) Entire Agreement. This Agreement (including Annex A hereto)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersedes all prior agreements, arrangements or
understandings with respect to its subject matter.
(f) Governing Law. This Agreement, and the application or
interpretation thereof, shall be governed by the laws of the Commonwealth of
Kentucky.
3
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
VIDEOLAN TECHNOLOGIES, INC.
(the "Company")
Steven Rothenberg
By:_________________________________________
V.P Finance
Title:______________________________________
/s/ John E. Haines
____________________________________________
John E. Haines
("Haines")
4
EXHIBIT 10.4
<PAGE>
DRAFT
5/7/96
PIGGYBACK REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of May ___, 1996 is entered into by and among
VIDEOLAN TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and JOHN E.
HAINES ("Haines").
WHEREAS, the Company and Haines have entered into an Option Agreement of
even date herewith (the "Option Agreement") pursuant to which Haines has the
right to acquire capital stock of the Company; and
WHEREAS, the Company and Haines desire to provide for certain arrangements
with respect to the registration of such shares of capital stock of the Company
under the Securities Act of 1933 ;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
I. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per share, of the
Company.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation); with equivalent state filings.
"Registration Expenses" means the expenses described in Section 4.
"Registrable Shares" means (i) the Shares and (ii) any other shares of
Common Stock issued in respect of the Shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that Shares which are Registrable Shares shall cease to be Registrable
Shares at such time that the Shares become eligible for resale pursuant to Rule
144(k) under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Shares" means the shares of Common Stock issued upon exercise of the
Option (as defined in the Option Agreement).
<PAGE>
2. Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement at
any time and from time to time, it will, prior to such filing, give written
notice to Haines of its intention to do so and, upon the written request of
Haines given within 20 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall use its best efforts to cause all Registrable Shares
which the Company has been requested by Haines to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of Haines; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 2
without obligation to Haines and provided further that the Company shall only be
required to register the Registrable Shares under the securities laws of the
states of Georgia, Kentucky and one other state designated by Haines.
(b) In connection with any registration under this Section 2 involving
an underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Agreement). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the offering
(a "Share Cutback"), then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the managing
underwriter believes should be included therein. If the number of Registrable
Shares to be included in the offering in accordance with the foregoing is less
than the total number of shares which Haines has requested to be included, then
Haines and other holders of securities entitled to include them in such
registration shall participate in the registration pro rata based upon their
total ownership of shares of Common Stock (giving effect to the conversion into
Common Stock of all securities convertible thereinto). Further, it is agreed
that, with respect to any shareholder who, as of the date of this Agreement, is
a director or executive officer of the Company, Haines shall have the right,
without expense, to take unto himself that portion of any registration rights
which may be granted such director or executive officer in any registration in
which Haines would otherwise be subject to Share Cutback. If any holder would
thus be entitled to include more securities than such holder requested to be
registered, the excess shall be allocated among other requesting holders pro
rata in the manner described in the preceding sentence.
(c) Upon the first registration of the Shares pursuant to this Section
2, Haines shall not be entitled to any further registration rights under this
Agreement, unless the number of Shares to be included in the offering made
pursuant to such registration is limited in accordance with Section 2(b) to a
number less than the total number of Registrable Shares which Haines has
requested to be included.
(d) If in connection with any registration under this Section 2,
Haines is not able to include all of the Registrable Shares in the offering
because of a Share Cutback, and the Registrable Shares not so registered (the
"Excluded Shares") are not subsequently registered under this Section 2 on or
before February 28, 1997, within thirty days thereafter, the Company
2
<PAGE>
shall register the Excluded Shares under the Securities Act and under the
securities laws of the states of Georgia, Kentucky and one other state
designated by Haines.
3. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective, in the case of a firm commitment underwritten
public offering, until each underwriter has completed the distribution of all
securities purchased by it and, in the case of any other offering, until the
earlier of the sale of all Registrable Shares covered thereby or 90 days after
the effective date thereof;
(c) as expeditiously as possible furnish to Haines such reasonable
numbers of copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as Haines may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares owned by Haines; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as Haines shall reasonably request,
and do any and all other acts and things that may be necessary or desirable to
enable Haines to consummate the public sale or other disposition in such states
of the Registrable Shares owned by Haines; provided, however, that the Company
shall not be required in connection with this paragraph (d) to qualify as a
foreign corporation or execute a consent to service of process, other than a
consent to service limited to claims or matters arising out of or in connection
with the offering of securities in connection with the Registration Statement,
in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to Haines
and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify Haines
and, if requested, Haines shall immediately cease making offers of Registrable
Shares and return all prospectuses to the Company. The Company shall promptly
provide Haines with revised prospectuses and, following receipt of the revised
prospectuses, Haines shall be free to resume making offers of the Registrable
Shares.
4. Allocation of Expenses. The Company will pay all Registration Expenses
of all registrations under this Agreement. For purposes of this Section 4, the
term "Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and expenses of
counsel for the Company, state Blue Sky fees and expenses, and the expense of
any special audits incident to or required by any such registration, but
excluding
4
<PAGE>
underwriting fees, discounts and selling commissions attributable to the sale of
Registrable Shares and the fees and expenses of counsel retained by Haines.
5. Information from Haines. Haines shall furnish to the Company such
information regarding Haines and the distribution proposed by Haines as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
6. Mergers, Etc. The Company shall not, directly or indirectly, enter into
any merger, consolidation or reorganization in which the Company shall not be
the surviving corporation unless the proposed surviving corporation shall, prior
to such merger, consolidation or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Shares" shall be deemed to be references to the
securities which Haines would be entitled to receive in exchange for Registrable
Shares under any such merger, consolidation or reorganization; provided,
however, that the provisions of this Section 6 shall not apply in the event of
any merger, consolidation or reorganization in which the Company is not the
surviving corporation if Haines is entitled to receive in exchange for his
Registrable Shares consideration consisting solely of (i) cash, (ii) securities
of the acquiring corporation which may be immediately sold to the public without
registration under the Securities Act, or (iii) securities of the acquiring
corporation which the acquiring corporation has agreed to register within 90
days of completion of the transaction for resale to the public pursuant to the
Securities Act. Furthermore, and notwithstanding any other provision of this
Section 6, in the event that the Company should, either directly or indirectly,
enter into any merger, consolidation or reorganization in which the net capital
of the Company should increase or decrease by more than 25% from that
immediately before such transaction, all rights of Haines hereunder shall be and
become immediately exercisable, and the Company shall be obligated to
immediately perform its obligations hereunder.
7. Termination. All of the Company's obligations to register Registrable
Shares under this Agreement shall terminate five years from the date of this
Agreement.
8. General.
(a) Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If to the Company, at 100 Mallard Creek Road, Suite 250, Louisville,
Kentucky 40207, Attention: President, or at such other address or addresses as
may have been furnished in writing by the Company to Haines, with a copy to Hirn
Doheny & Harper, 2000 Meidinger Tower, Louisville, Kentucky, 40202, Attention:
William G. Strench; or
If to Haines, at 211 Club Oak Court, Louisville, Kentucky, 40223, or at
such other address or addresses as may have been furnished to the Company in
writing by Haines, with a copy to Ogden Newell & Welch, 1200 One Riverfront
Plaza, Louisville, Kentucky, 40202, Attention: Thomas E. Rutledge.
5
<PAGE>
Notices provided in accordance with this Section 8(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
(c) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and Haines. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky.
Executed as of the date first written above.
VIDEOLAN TECHNOLOGIES, INC.
(the "Company")
Steven Rothenberg
By:_________________________________________
V.P Finance
Title:______________________________________
/s/ John E. Haines
____________________________________________
John E. Haines
("Haines")
5
EXHIBIT 10.5
<PAGE>
SALES AGENCY AGREEMENT
BETWEEN
VIDEOLAN TECHNOLOGIES, INC.
AND
QUEST ENTERPRISES, INC.
EFFECTIVE: JUNE 14, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE NO. PAGE NO.
--------
ARTICLE 1 -- DEFINITIONS ............................................ 1
1.1 Affiliate ................................................. 1
1.2 Area ...................................................... 1
1.3 Control or Controlling Interest ........................... 1
1.4 Equipment ................................................. 1
1.5 Marks ..................................................... 1
1.6 Net Sales ................................................. 1
1.7 Person .................................................... 1
1.8 Purchaser ................................................. 2
1.9 QEI ....................................................... 2
1.10 QEI Accounts .............................................. 2
ARTICLE II - APPOINTMENT OF SALES AGENT ............................. 2
ARTICLE III - GENERAL OBLIGATIONS AND REPRESENTATIONS ............... 2
3.1 General ................................................... 2
3.2 Acceptance of Terms of Agreement .......................... 2
3.3 Lost Profits .............................................. 2
3.4 Best Efforts
ARTICLE IV -- COMMISSIONS; COMPENSATIONS ............................ 3
4.1 Sales Commission .......................................... 3
4.2 Travel Expenses ........................................... 3
4.3 Options ................................................... 3
ARTICLE V --
MARKS .................................................. 3
5.1 List of Marks ............................................. 3
5.2 Right to Use Marks; Value of Marks ........................ 3
5.3 Use of Marks by Agent ..................................... 3
5.4 Modification of Marks ..................................... 4
ARTICLE VI -- RULES AND PROCEDURES .................................. 4
(i)
<PAGE>
ARTICLE VII - COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES .......... 4
7.1 Compliance with Laws .......................................... 4
7.2 Foreign Corrupt Practices Act ................................. 5
7.3 Standards of Conduct .......................................... 5
ARTICLE VIII - RELATIONSHIP OF VIDEOLAN AND SALES AGENT ................ 5
ARTCLE IX - QEI'S PERSONNEL AND RESELLER NOT DEEMED
VIDEOLAN'S EMPLOYEES OR AGENTS ......................................... 6
ARTICLE X -- ASSIGNMENT ................................................ 6
ARTICLE XI -- TERM AND EXTENSION OF AGENCY RELATIONSHIP ................ 6
ARTICLE XII -- TERMINATION OF AGREEMENT ................................ 7
12.1 Termination by QEI ............................................ 7
12.2 Termination for Cause ......................................... 7
12.3 Termination by Either Party ................................... 7
12.4 Mutual Agreement .............................................. 7
ARTICLE XIII -- OBLIGATIONS OF AGENT UPON TERMINATION
OR EXPIRATION ........................................................ 8
ARTICLE XIV -- SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS ....... 8
ARTICLE XV -- WAIVER OF OBLIGATIONS .................................... 8
ARTICLE XVI -- RIGHTS OF PARTIES ARE CUMULATIVE ........................ 9
ARTICLE XVII -- CONFIDENTIAL INFORMATION ............................... 9
(ii)
<PAGE>
ARTICEL XVIII -- MISCELLANEOUS ......................................... 10
18.1 Governing Law ................................................ 10
18.2 Binding Effect ............................................... 10
18.3 Impossibility of Performance ................................. 10
18.4 Survival ..................................................... 10
18.5 Notices and Payments ......................................... 10
18.6 Publicity .................................................... 10
18.7 Headings ..................................................... 11
18.8 Entire Agreement ............................................. 11
(iii)
<PAGE>
SALES AGENCY AGREEMENT
BETWEEN
VIDEOLAN TECHNOLOGIES, INC.
AND
QUEST ENTERPRISES, INC.
THIS AGREEMENT IS ENTERED INTO BY VIDEOLAN TECHNOLOGIES, INC., a Delaware
corporation, having its principal place of business at 100 Mallard Creek Road,
Suite 250, Louisville, Kentucky 40207 ("Videolan") and QUEST ENTERPRISES, INC.,
a New York corporation, having its principal place of business at 135 Washington
Spring Rd., Palisades, New York 10964 ("QEI").
In consideration of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized words and phrases used in this Agreement shall have the
following meaning:
1.1 Affiliate. A Person is an affiliate of another person if it directly or
indirectly Controls, is Controlled by or is under common Control with the other
Person.
1.2 Area. The geographic area set forth on Exhibit A, within which VideoLan
grants QEI the authority to solicit and contract for sales, on behalf of
Videolan, with Purchasers.
1.3 Control or Controlling Interest. Ownership of more than fifty percent
(50%) of the voting power of all classes of voting stock of a corporation or
more than fifty percent (50%) of the beneficial interests in income and capital
of an entity other than a corporation.
1.4 Equipment. VideoLan videoconferencing system equipment and other
products sold by Videolan.
1.5 Marks. Trademarks, trade names, insignia, symbols, decorative designs,
or the like which VideoLan or its Affiliates own or are licensed or sublicensed
to use in connection with the Equipment, and which VideoLan, in its sole
discretion, determines that QEI is authorized to use.
1.6 Net Sales. The proceeds collected by Videolan on the sale, lease or
rental of Equipment to QEI Accounts, excluding freight or other shipping charges
and less any applicable discounts or returns and allowances granted by VideoLan.
1.7 Person. A person, association, partnership, corporation, limited
liability company, trust or other business entity.
<PAGE>
1.8 Purchaser. Any Person who purchases, rents or leases Equipment directly
or indirectly from VideoLan.
1.9 QEI. Quest Enterprises, Inc. and its Affiliates.
1.10 QEI Account. Each Person identified on Exhibit B as to whom QEI will
solicit sales of Equipment in the Area. QEI may include additional Persons on
Exhibit B provided that each proposed Additional Person is approved by VideoLan,
such approval to be not unreasonably withheld, if, at such time, such Person is
not a Purchaser or the subject of active solicitation to become a Purchaser.
ARTICLE II
APPOINTMENT OF SALES AGENT
VideoLan hereby appoints QEI, and QEI hereby accepts the appointment, as a
nonexclusive, authorized sales agent of VideoLan to sell to Purchasers in the
Area, subject to all of the terms and conditions hereof. QEI recognizes and
agrees that VideoLan has the right to and may appoint other authorized sales
agents and resellers with respect to the Equipment in the Area, and that
VideoLan has the right to and may directly offer and furnish Equipment to
Purchasers within the Area. All sales, leases or rentals of equipment by QEI to
Purchasers on behalf of VideoLan shall be at such prices and on such terms and
conditions as are approved by VideoLan in its sole discretion.
ARTICLE III
GENERAL OBLIGATIONS AND REPRESENTATIONS
3.1 General. VideoLan expressly disclaims the making of, and QEI
acknowledges that it has not received or relied upon, any guaranty, express or
implied, as to the amount of revenue that it may earn as a result of its
relationship with VideoLan.
3.2 Acceptance of Terms of Agreement. VideoLan and QEI each acknowledges
that it has read this Agreement and understands and accepts the terms,
conditions and covenants contained herein.
3.3 Lost Profits. QEI and VideoLan mutually agree that neither shall have
any liability to the other for any lost profits or consequential damages even if
advised of the possibility of such damages.
3.4 Best Efforts. QEI agrees that it will at all times faithfully, honestly
and diligently perform its obligations hereunder, and that QEI will exert its
best efforts to promote and enhance the sale of Equipment.
-2-
<PAGE>
ARTCLE IV
COMMISSIONS; COMPENSATION
4.1 Sales Commission. VideoLan will pay QEI a sales commission equal to
five percent of Net Sales to QEI Accounts. The sales commissions shall be
payable to QEI no later than 15 days after VideoLan has received payment from
the Purchaser with respect to such sales.
4.2 Travel Expenses. VideoLan will reimburse QEI for reasonable travel
expenses incurred by its employees in connection with their performance of sales
efforts on behalf if VideoLan pursuant to this Agreement. No travel expense
greater than $300 will be reimbursed unless approved by VideoLan in advance.
4.3 Options. VideoLan will grant QEI an option to purchase shares of
VideoLan's common stock pursuant to the Option Agreement attached as Exhibit C
(the "Option Agreement").
ARTICLE V
MARKS
5.1 List of Marks. VideoLan will publish a list of Marks that QEI is
authorized to use under this Agreement in conjunction with the sale of
Equipment. VideoLan will periodically update the list of Marks QEI is authorized
to use under this Agreement. The most current updated list will always supersede
any previously issued list. Such list will also be supplemented with rules and
regulations pertaining to the Marks, which QEI agrees to follow.
5.2 Right to Use Marks; Value of Marks. QEI acknowledges that its rights to
use the Marks is derived solely from this Agreement and is limited to the right
to identify QEI as an agent of VideoLan for the sale, rental or lease of
Equipment and to identify products and services bearing the Marks which may be
sold, rented or leased by QEI on behalf of VideoLan. QEI agrees to comply with
all rules and regulations pertaining to such Marks prescribed by VideoLan from
time to time during the term of this Agreement. QEI recognizes that great value
of the goodwill associated with the Marks, and acknowledges that is has no
interest in the Marks, that all rights therein and goodwill pertaining thereto
belong exclusively to VideoLan and its Affiliates, as the case may be, and that
this Agreement does not confer any goodwill or other interests in the Marks upon
QEI. Any unauthorized use of the Marks by QEI, or any use not in compliance
herewith, shall constitute an infringement of the rights of VideoLan in and to
the Marks. Use of the Marks by QEI, except to properly identify products bearing
the Marks which be sold by the QEI, shall constitute an infringement of the
rights of VideoLan in and to the Marks.
5.3 Use of Marks by QEI. QEI shall use the marks with such words qualifying
or identifying the relationship of VideoLan and QEI as VideoLan from time to
time reasonably prescribes. QEI shall not use the Marks as part of any corporate
or trade name or with any prefix, suffix or other modifying words, terms,
designs or symbols, or in any modified form,
-3-
<PAGE>
nor may QEI use the Marks in connection with the sale or lease of any
unauthorized product or service or in any other manner not expressly authorized
by this Agreement or separately in writing by VideoLan. QEI agrees to display
the Marks on stationery and other forms used in its business in the manner
prescribed by VideoLan, to give such notices of registration as VideoLan
specifies and to obtain such fictitious or assumed name registrations as may be
required under applicable law. Misuse of the Marks by QEI may result in
termination of this Agreement.
5.4 Modification of Marks. If it becomes advisable at any time in
VideoLan's sole discretion for QEI to modify or discontinue use of any Mark or
substitute one or more additional trade or service marks to identify its
relationship with VideoLan or any Equipment, QEI agrees to comply therewith
within a reasonable time after notice thereof by VideoLan and the sole
obligations of VideoLan in any such event shall be to reimburse QEI for the
out-of-pocket costs, if any, of complying with this obligation. In addition, QEI
shall replace obsolete identification material should VideoLan adopt new Marks
replacing one or more Marks identified by VideoLan in such list as hereinbefore
specified.
ARTICLE VI
RULES AND PROCEDURES
QEI agrees to comply with all procedures reasonably prescribed from time to
time by VideoLan relating to the sale, rental or lease of Equipment hereunder,
all of which shall constitute provisions of this Agreement as if fully set forth
herein. All references herein to this Agreement shall include all such rules and
procedures. VideoLan may, at its option, incorporate such rules and procedures
in one or more Operations Manuals or other written form. Except as to any
liabilities covered by QEI's insurance, VideoLan agrees to indemnify and hold
QEI harmless against liabilities from and costs of suits or claims arising out
of QEI's actions or inactions which are required by VideoLan in writing for
QEI's compliance with rules and procedures prescribed by VideoLan in accordance
with this paragraph. In no event shall VideoLan indemnify and hold QEI harmless
against liabilities from and costs of suits or claims arising out of QEI's
actions or inactions unless VideoLan has required in writing such actions or
inactions.
ARTICLE VII
COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES
7.1 Compliance with Laws. QEI shall secure and maintain in force all
licenses and permits required by QEI and its employees in the sale of Equipment.
QEI shall conduct its business in full compliance with all laws, ordinances and
regulations applicable to QEI's business. QEI shall not engage in any activity
which, in VideoLan's judgment, would cause QEI and/or VideoLan to be in
violation of any requirement, rule, decision, law, regulation, judgment or order
of any state or Federal governmental agency or court.
-4-
<PAGE>
7.2 Foreign Corrupt Practices Act. Nothing herein shall be interpreted as
requiring or sanctioning any act in violation of the laws or regulations of the
United States of America, or of any countries, or of any agencies or political
subdivisions thereof. Furthermore, QEI acknowledges that certain laws of the
United States of America, including without limitation the Foreign Corrupt
Practices Act, may result in the imposition of fines and/or penalties on
VideoLan, and/or its officers, employees, and/or stockholders in the event that
QEI, directly or indirectly, offers, promises to pay or makes payments to
governmental officials or others for the purpose of influencing decisions
favorable to VideoLan. QEI agrees, therefore, that in performing services under
this Agreement it shall comply at all times with all applicable laws,
regulations and orders of the government of the United States of America and all
countries in the Area and shall take no actions that would cause or result in a
violation of such laws, regulations or orders by VideoLan or any of its
Affiliates. QEI agrees to furnish to VideoLan by affidavit or other reasonable
means from time to time at VideoLan's request, and to the reasonable
satisfaction of VideoLan, assurances that the retention of QEI under this
Agreement. QEI's activities pursuant to this Agreement, and the payment to QEI
of any and all moneys or consideration contemplated hereunder are proper and
lawful under the laws, regulations and orders from time to time in force of the
government of the United States of America. QEI further represents that no
person employed or otherwise directly or indirectly related to QEI is an
official of any government, and/or state thereof, including agencies,
dependencies, instrumentalities, entities or subdivision thereof, and that no
part of any such moneys or consideration paid hereunder shall accrue for the
benefit of any such official, directly or indirectly.
7.3 Standards of Conduct. QEI agrees to refrain from any business or
advertising practice which may be injurious to the business of VideoLan and the
goodwill associated with the Marks.
ARTICLE VIII
RELATIONSHIP OF VIDEOLAN AND SALES AGENT
VideoLan and QEI acknowledge and agree that their relationship arising from
this Agreement does not constitute or create a general agency, joint venture,
partnership, employment relationship or franchise between them. In all dealings
with Purchasers and others, QEI shall conspicuously identify itself as an
independent business and shall place such notices of its independent ownership
of its business on such forms, stationery, advertising and other materials as
VideoLan may reasonably require from time to time. VideoLan has not authorized
or empowered QEI to use the Marks except as herein provided and QEI shall not
employ any Mark in signing any contract, lease, mortgage, purchase agreement,
negotiable instrument or other legal obligation, or in a manner that may result
in liability of VideoLan (or its Affiliates) for any indebtness or obligation of
QEI. Unless specifically authorized in writing, neither VideoLan nor QEI shall
make any express or implied agreements, guarantees or representations, or incur
any debt, in the name of or on behalf of the other, except as otherwise set
forth herein.
-5-
<PAGE>
Neither VideoLan nor QEI shall be obligated by or have any liability under
ant agreements or representations made by the other party that are not expressly
authorized hereunder, nor shall VideoLan be obligated for any damages to any
person or property directly or indirectly arising out of the sale, rental or
lease of Equipment by QEI pursuant hereto, whether caused by QEI's negligent or
willful action or failure to act, unless such damage is proximately caused by
VideoLan or arises out of QEI's compliance with the rules or procedures
prescribed in writing by VideoLan pursuant to this Agreement.
ARTICLE IX
OEI'S PERSONNEL NOT DEEMED
VIDEOLAN'S EMPLOYEES OR AGENTS
The parties agree that personnel employed by QEI to perform services under
this Agreement are not VideoLan employees and QEI assumes full responsibility
for their acts. Personnel employed by QEI shall be informed that they are not
entitled to the provisions of any of VideoLan's employee benefits. With respect
to such personnel, QEI shall have sole responsibility for supervision, daily
direction and control. QEI shall be responsible for worker's compensation,
disability benefits, unemployment insurance and withholding and remitting income
and social security taxes for said personnel, including contributions from them
as required by law.
QEI warrants that it has an appropriate agreement with all persons whose
services QEI may require sufficient to enable it to comply with all provisions
of this Agreement.
ARTICLE X
ASSIGNMENT
This Agreement is fully assignable by VideoLan to any entity which succeeds
to all or substantially all of VideoLan's assets be sale, merger or operation of
law. Any other assignment of this Agreement by VideoLan shall be subject to the
written approval of QEI which approval shall not be unreasonably withheld.
This Agreement may be voluntarily, involuntarily, directly or indirectly
assigned, or otherwise transferred without the written approval of VideoLan. Any
assignment or transfer without approval or which is not expressly subject to the
written approval of VideoLan shall constitute a breach hereof and convey no
rights or interests herein.
ARTICLE XI
TERM AND EXTENSION OF AGENCY RELATIONSHIP
Subject to sooner termination as set forth below, the term of this
Agreement shall commence on the date hereof and end on June 30, 1997. On July 1
of each 1997, 1998 and 1999, this Agreement shall automatically renew for an
additional one-year term if Net Sales for the immediately preceding 12-month
period are at least $500,000.00; provided, however,
-6-
<PAGE>
VideoLan may terminate this Agreement effective June 30, 1998 by giving notice
to QEI on or before April 30, 1998.
ARTICLE XII
TERMINATION OF AGREEMENT
12.1 Termination by QEI. If QEI is in substantial compliance with this
Agreement and VideoLan materially breaches this Agreement and fails to cure such
breach within thirty (30) days after written notice thereof is delivered to
VideoLan, QEI may terminate this Agreement effective thirty (30) days after
delivery to VideoLan of written notice.
12.2 Termination for Cause. In addition to other rights of termination set
forth in this Agreement, VideoLan shall have the right to terminate this
Agreement for cause effective upon delivery of notice of termination to QEI, if
QEI (or one or more of its owners and Affiliates):
(a) makes an unauthorized assignment of this Agreement or makes an
assignment of this Agreement that is not expressly subject to the written
approval of VideoLan;
(b) fails to comply with any material provision of this Agreement and
does not correct such failure within thirty (30) days after written notice of
such failure to comply is delivered to QEI; or
(c) fails on two or more separate occasions within any period of six
(6) consecutive months to comply with any material provision of this Agreement,
whether or not such failures to comply are corrected after notice thereof is
delivered to QEI.
12.3 Termination by Either Party. Either party shall have the right to
terminate this Agreement effective upon written notice if:
(a) the other party makes an assignment for the benefit of creditors;
(b) an order for relief under Title 11 of the United States Code is
entered by any United States Court against the other party; or
(c) a trustee or receiver of any substantial part of the other party's
assets is appointed by any Court.
12.4 Mutual Agreement. This Agreement may be terminated at any time by
mutual written agreement of the parties.
-7-
<PAGE>
ARTICLE XIII
OBLIGATIONS OF AGENT UPON TERMINATION OR EXPIRATION
QEI agrees that upon the expiration or termination of this Agreement, QEI
and its owner (s) and Affiliates will: 1) not thereafter use any actual or
similar Marks, or any actual or similar trade name, service mark, trademark,
logo, insignia, symbols or decorative designs the use of which was authorized by
this Agreement or in any manner identify itself or any business as associated
with VideoLan or its Affiliates; and (2) return to VideoLan all advertising and
marketing materials, forms, signage, and other materials containing any Mark or
otherwise identifying or relating to VideoLan's business in the Area.
ARTICLE XIV
SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS
Except as expressly provided to the contrary herein, each term and
condition of this Agreement, and any portion thereof, shall be considered
severable and if, for any reason, any such provision hereof is held to be
invalid, contrary to, or in conflict with any applicable present or future law,
regulation or public policy in a final, unappeable ruling issued by any court,
agency or tribunal with competent jurisdiction in a proceeding to which VideoLan
is a party, that ruling shall not impair the operation of, or have any other
effect upon, such other portions of this Agreement as may remain otherwise
enforceable which shall continue to be given full force and effect and bind the
Parties hereto, although any portion held to be invalid shall be deemed not to
be a part of this Agreement from the date the time for appeal expires, if QEI is
a party thereto, otherwise upon Lei's receipt of a notice of nonenforcement
thereof from VideoLan.
ARTICLE XV
WAIVER OF OBLIGATIONS
VideoLan or QEI may be written instrument unilaterally waive or reduce any
obligation of or restriction upon the other under this Agreement, effective upon
delivery of written notice thereof to the other and such other effective date
stated in the notice of waiver.
Whenever this Agreement requires the consent of either party to the
Agreement, the request shall be in writing. All consents or withholding of
consent with reasons therefor shall be in writing. Neither party to this
Agreement makes any guarantees upon which the other may rely, and assumes no
liability or obligations to the other, by granting any waiver, approval or
consent to the other, or by reason of any neglect, delay or denial of any
request therefor. Any waiver granted by either party shall be without prejudice
to any other right that party may have, will be subject to continuing review,
and may be revoked, at the waiving party's sole discretion, at any time and for
any reason, effective upon delivery to the other of ten (10) days' prior written
notice.
Neither VideoLan nor QEI shall not be deemed to have waived or impaired any
right, power or option reserved by this Agreement (including, without
limitation, the right to demand
-8-
<PAGE>
exact compliance with every term, condition and covenant herein, or to declare
any breach hereof to be a default and to terminate this Agreement prior to the
expiration of its term) by virtue of any custom or practice of either of them at
variance with the terms hereof or any failure, refusal or neglect of VideoLan or
QEI to exercise any right under this Agreement or to insist upon exact
compliance by the other with its obligations hereunder, including, without
limitation, any rule or procedure, or any waiver, forbearance, delay, failure or
omission by VideoLan to exercise any right, power or option, whether of the
same, similar or different nature, with respect to one or more other authorized
sales agents.
ARTICLE XVI
RIGHTS OF PARTIES ARE CUMULATIVE
The rights of VideoLan and QEI hereunder are cumulative and no exercise or
enforcement by VideoLan or QEI of any right or remedy hereunder shall preclude
the exercise or enforcement by VideoLan or QEI of any other right or remedy
hereunder of which VideoLan or QEI is entitled by law to enforce.
ARTICLE XVII
CONFIDENTIAL INFORMATION
Any specifications, drawings, sketches, models, samples, data, computer
programs or documentation, or technical or business information ("Information")
furnished or disclosed by VideoLan to QEI hereunder shall be deemed the
exclusive property of VideoLan including title to copyright in all copyrightable
material, and when in tangible form shall be returned to VideoLan upon
completion or termination or authorized work.
Unless any confidential information was previously known to QEI free of any
obligation to keep it confidential, or has been or its subsequently made public
by VideoLan or a third party, it shall be held in confidence by QEI, shall be
used only for the purposes hereunder, and may be used for other purposes only
upon such terms and conditions as may be mutually agreed upon in writing.
If QEI is served with process to obtain Information, QEI shall immediately
notify VideoLan which shall, in addition to QEI's efforts, if any, have the
right to seek quash such process.
Unless marked "proprietary", any Information furnished or disclosed by QEI
to VideoLan shall not obligate VideoLan to hold such information in confidence.
-9-
<PAGE>
ARTICLE XVIII
MISCELLANEOUS
18.1 Governing Law. Except to the extent governed by United States law that
preempts state law, this Agreement shall be interpreted under and governed by
the laws of the Commonwealth of Kentucky.
18.2 Binding Effect. This Agreement, including the preambles and Exhibits
(as amended), is binding upon the parties hereto, their respective executors,
administrators, heirs, assigns and successors in interest.
18.3 Impossibility of Performance. Neither VideoLan nor QEI shall be liable
for loss or damage or deemed to be in breach of this Agreement if its failure to
perform its obligations results from: (1) compliance with any law, ruling,
order, regulation, requirement or instruction of any federal state or municipal
government or any department or agency thereof or court of competent
jurisdiction; (2) acts of God; (3) acts or omissions of the other party; or (4)
fires, strikes, embargoes, war, insurrection or riot. Any delay resulting from
any of said causes shall extend performance accordingly or excuse performance,
in whole or in part, as may be reasonable.
18.4 Survival. The terms, provisions, obligations, representations, and
warranties contained in this Agreement that by their sense and context are
intended to survive the performance thereof by either or both parties hereunder
shall so survive the completion of performances and termination of this
Agreement, including the making of any and all payments due hereunder.
18.5 Notices and Payments. All payments due QEI shall be made to such
address or bank as QEI from time to time designates. All notices, consents and
reports required to be delivered by the provisions of this Agreement shall be
deemed so delivered: (1) when delivered personally; or (2) seventy-two (72)
hours after being mailed, registered or certified mail, return receipt
requested, postage prepaid, to the most current principal business address of
which the notifying party has been notified ("Business Address"); or (3) one
business day after being delivered to a reputable overnight courier service,
prepaid, marked for the next day after receipt, if delivered by facsimile
transmission to the FAX number (if any) of the receiving party, if receipt is
confirmed by the addressee either orally or in writing. All reports, financial
records and other information required by this Agreement shall be directed to
such other persons and places as VideoLan may direct from time to time.
18.6 Publicity. QEI agrees not to initiate any public relations activities
related to the Equipment, including but not limited to news releases, news
conferences, news briefings or any other type of function involving reporters,
editors or news directors of any news organizations, without first consulting
VideoLan.
-10-
<PAGE>
18.7 Headings. The headings in this Agreement are for convenience only and
shall not be construed to define or limit any of the terms herein.
18.8 Entire Agreement. This Agreement, including the preambles and
exhibits, together with the Option Agreement, sets forth the entire agreement
between the parties as to the subject matter hereof and merges all prior
discussions between them, and neither of the parties shall be bound by and
conditions, definitions, understandings, or representations with respect to such
subject matter other than as expressly provided herein and in the Option
Agreement, or as duly set forth subsequent to the effective date hereof in
writing and signed by the duly authorized representatives of both parties.
Without limiting the generality of the foregoing, that certain Memorandum dated
March 7, 1996 from Ted Ralston to Tuvia Barak shall be and is null, void and of
no further force and effect.
IN WITNESS WHEREOF the parties hereto have executed, sealed and delivered
this Agreement in two counterparts on the day and year first above written.
VIDEOLAN TECHNOLOGIES, INC. QUEST ENTERPRISES, INC.
By: /s/ Ted Ralston By: /s/ Tuvia Barak
------------------------ ---------------------------
Ted Ralston, Tuvia Barak, President
Chief Executive Officer
-11-
<PAGE>
EXHIBIT A
United States
<PAGE>
EXHIBIT B
US Air Force
EDS
CLAL
GDE
RDC
Radvision
Mapinfo
I-SIGHT
EXHIBIT 10.6
<PAGE>
EXHIBIT C
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is made as of the 14th day of June
1996, by and between VIDEOLAN TECHNOLOGIES, INC., a Delaware corporation (the
"Company") and QUEST ENTERPRISES, INC., a New York corporation ("QEI").
WHEREAS, pursuant to that certain Sales Agency Agreement dated June 14,
1996 between the Company and QEI (the "Sales Agency Agreement"), QEI was granted
an option (the "Option") to purchase 75,000 shares of the Company's common stock
(the "Shares");
WHEREAS, QEI and the Company desire to set forth the terms and conditions
of the Option;
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, the receipt, mutuality and sufficiency of which is
acknowledged, the parties hereto agree as follows:
1. Option. On the terms and subject to the conditions of this Agreement,
QEI shall have the right to purchase up to 75,000 Shares, subject to adjustment
in accordance with Section 6 of this Agreement and subject to the exercise
requirements set forth in Section 4(a) and (b) of this Agreement.
2. Option Exercise Price. The exercise price of the Option (the "Exercise
Price") shall be $16.00 per Share, subject to adjustment in accordance with
Section 6 of this Agreement.
3. Duration of Option. The Option shall expire five years from the date
hereof.
4. Exercise of Option.
(a) The Option to purchase up to 25,000 of the Shares shall be
irrevocable and shall be exercisable at any time prior to its expiration and
shall not be affected by the termination of the Sales Agency Agreement.
(b) The Option to purchase any or all of the additional 50,000 Shares
will not be exercisable until and unless prior to the termination of the Sales
Agency Agreement (i) the Company has received Net Sales (as defined in the Sales
Agency Agreement) of at least $5,000,000 or (ii) the Company obtains equity
financing of at least $5,000,000 through QEI on terms that are acceptable to the
Company.
(c) This Option may be exercised by delivery of written notice to the
Company at its executive offices, addressed to the attention of the Chief
Financial Officer. Such notice: (i) shall be accompanied by all necessary
corporate authorization and signed by the president of QEI or its legal
representatives; (ii) shall specify the number of full Shares then elected to be
purchased with respect to the Option; and (iii) shall be accompanied by payment
in full of the Exercise Price of the Shares to be purchased.
<PAGE>
(d) The Exercise Price upon exercise of this Option shall be payable
to the Company in cash or its equivalent.
(e) As promptly as practicable after the receipt of notice and payment
upon exercise, the Company shall cause to be delivered to QEI certificates for
the Shares so purchased. If the Option shall have been exercised in full, this
Agreement shall be returned to the Company and canceled.
5. Registration of Shares.
(a) The Shares shall be registered under the Securities Act of 1933,
as amended on or before October 23, 1996. In the event that QEI should acquire
any Shares which, at the time of acquisition, are not duly registered under the
Act and, as necessary, applicable state securities law, certificates evidencing
the unregistered Shares shall bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, AND WILL
NOT BE TRANSFERRED ON THE BOOKS AND RECORDS OF THE COMPANY, UNLESS (i)
THEY HAVE BEEN REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR (ii) REGISTRATION UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.
Upon the registration of any shares represented by a certificate bearing this
legend, the Company shall issue replacement certificates free of this legend.
(b) No more than 10,000 Shares may be sold in any one calendar month
and no more than 2,000 Shares may be sold in any one day. The certificates
evidencing the Shares shall bear a legend referring to such restriction.
6. Adjustments in Authorized Shares and the Option. In the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, share dividend, share split,
reverse share split, share combination, share exchange or other change in the
capital structure of the Company affecting the Shares, the Board of Directors of
the Company may substitute or adjust the total number and class of Shares or
other securities that may be issued hereunder, and the Exercise Price, as it
determines to be appropriate and equitable to prevent dilution or enlargement of
the rights of QEI and to preserve, without diluting or exceeding, the value of
the Option, provided, however, that such adjustments shall be equivalent to that
imposed equally upon all other option holders and/or shareholders in the
Company.
(2)
<PAGE>
7. Miscellaneous.
(a) Tax Withholding. The parties acknowledge and agree that any and
all compensation received by QEI pursuant to any exercise of the Option will be
self-employment income, and that QEI shall bear the sole responsibility with
respect to withholding and estimated tax payments on such compensation.
(b) Amendment. This Agreement may not be changed or terminated except
by written instrument signed by the parties.
(c) Successors; Binding Agreement. The Company agrees that:
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to QEI, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no succession had taken place; and
(ii) This Agreement and all rights of QEI hereunder shall inure
to the benefit of and be enforceable by QEI or its successors or assignees.
(d) Severability. In the event any provision of this Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of this Agreement, and this Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
(e) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and thereof and
supersedes all prior agreements, arrangements or understandings with respect to
its subject matter. Without limiting the generality of the foregoing, that
certain Memorandum dated March 7, 1996 from Ted Ralston to Tuvia Barak shall be
and is null, void and of no further force and effect.
(f) Governing Law. This Agreement, and the application or
interpretation thereof, shall be governed by the laws of the Commonwealth of
Kentucky.
(3)
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
VIDEOLAN TECHNOLOGIES, INC.
(the "Company")
By: /s/ Ted Ralston
---------------------------------------
Title: Chief Executive Officer
QUEST ENTERPRISES, INC.
("QEI")
By: /s/ Tuvia Barak
---------------------------------------
Title: President
EXHIBIT 10.7
<PAGE>
CONSULTING AGREEMENT
This is a Consulting Agreement ("Consulting Agreement") dated as of July
1, 1996, between Video Network Services, Inc. ("Video Network"), a New York
corporation, and VideoLan Technologies, Inc. ("VideoLan"), a Delaware
corporation.
Recitals
A. Video Network has experience in supervising the development of computer
software programs.
B. VideoLan desires to develop computer software for the VideoLan VL2000
System (the "Software") and desires to employ Video Network as a consultant in
connection with the supervision over the development of the Software.
NOW, THEREFORE, the parties agree as follows:
1. Consulting Services.
(a) VideoLan hereby employs Video Network to provide consulting
services to VideoLan in connection with the development of the Software.
(b) In performing such services, Video Network shall be under the
direction of VideoLan's acting Vice President of Engineering or his designee as
determined by VideoLan's Chief Executive Officer.
(c) Video Network's consulting services will relate to the following:
(i) subject to VideoLan's approval, hiring the necessary personnel in order to
form a qualified and competent software team for VideoLan; (ii) supervise the
development of the Software; (iii) provide training to VideoLan 's personnel
with respect to the operation of the Software; and (iv) provide technical
assistance with respect to the Software.
2. Term. Subject to earlier termination pursuant to Section 8 hereof, the
term of this Consulting Agreement shall commence as of the date of this
Consulting Agreement and shall terminate on August 6, 1997, unless extended
and/or renewed upon the mutual agreement of Video Network and VideoLan .
<PAGE>
3. Video Network Personnel. VideoLan shall approve all personnel used by
Video Network (the "Video Network Personnel") in performing consulting services
under this Consulting Agreement. VideoLan shall provide Video Network with a
plan setting forth (1) the consulting services to be provided by the Video
Network Personnel, and (2) the number of Video Network Personnel (and estimated
hours) required and the time period during which such personnel will be
utilized.
4. Compensation.
(a) VideoLan shall compensate Video Network for its consulting
services under this Consulting Agreement in accordance with Exhibit A which is
based on the milestones ("Milestones") set forth on Exhibit B attached hereto.
Furthermore, provided that this Consulting Agreement is approved by the Board of
Directors of VideoLan, VideoLan will grant to Video Network options ("Options')
to purchase up to 40,000 in shares of VideoLan's Common Stock in accordance with
the form of Option Agreement attached hereto as Exhibit C. 14,000 of these
Options will be granted upon the execution of this Consulting Agreement with the
remaining 26,000 Options to be granted upon Video Network's request within
twelve months after the Company has notified Video Network that it has
determined that Video Network has achieved the First Milestone (as defined on
Exhibit B attached hereto).
(b) VideoLan shall pay Video Network for those pre-approved reasonable
interim resource costs listed on Exhibit D attached hereto which are required
for Video Network to expeditiously reach the Milestones.
(c) Pursuant to this Consulting Agreement entered into in connection
herewith between VideoLan and Video Network, VideoLan shall pay the reasonable
out-of-pocket expenses incurred by Video Network and its personnel in connection
with the providing of its consulting services. Reasonable out-of-pocket expenses
shall include travel expenses, including the cost of meals, lodging, related
telephone expenses, rental car, and parking and tolls, but shall not include
entertainment expenses. Video Network shall not incur out-of-pocket expenses in
excess of $2000 per month without the prior written approval of VideoLan.
5. Video Network Representations and Warranties; Disclaimers.
(a) Video Network represents and warrants that the Video Network
Personnel used in the performance of its consulting services shall perform such
services in a professional and workmanlike manner.
(b) Except for a claim by VideoLan arising out of a breach of Video
Network's representations and warranties in this Consulting Agreement and for
damages incurred by VideoLan arising out of Video Network's gross negligence or
willful misconduct with respect to the performance of Video Network's consulting
services under this Consulting Agreement, neither Video Network nor its
affiliates, officers, attorneys, agents, employees or directors shall be liable
-2-
<PAGE>
to VideoLan or any party claiming through VideoLan for, and VideoLan hereby
releases Video Network and its affiliates, agents, employees, officers,
attorneys and directors with respect to, any direct damages, or indirect,
special or consequential damages, including lost profits, allegedly incurred in
connection with or arising out of the performance of Video Network's consulting
services under this Consulting Agreement.
(c) VideoLan agrees to indemnify, defend, and hold Video Network, and
its affiliates, employees, directors, officers, agents and attorneys, harmless
from and against any claim arising out of or with respect to the performance of
Video Network's consulting services under this Consulting Agreement unless such
claim arises out of Video Network's gross negligence or willful misconduct with
respect to the performance of Video Network's consulting services under this
Consulting Agreement.
(d) Video Network agrees to indemnify, defend, and hold VideoLan, and
its affiliates, employees, directors, officers, agents and attorneys, harmless
from and against any claim arising out of or with respect to the damages arising
out of Video Network's gross negligence or willful misconduct with respect to
the performance of Video Network's consulting services under this Consulting
Agreement
6. Confidentiality.
(a) Video Network acknowledges that as a consequence of the
performance of its consulting services under this Consulting Agreement, and
otherwise through the relationship between VideoLan and Video Network
established by this Consulting Agreement, certain trade secrets and information
of a proprietary or confidential nature will be disclosed to Video Network and
its personnel, relating to the VideoLan VL2000 System, which is of commercial
value to VideoLan and is not known generally or publicly outside of VideoLan's
business (collectively, the "Confidential Information").
(b) Video Network acknowledges that the Confidential Information is of
considerable importance to VideoLan and the result of the incurrence by VideoLan
and its affiliates of substantial costs and expenses and the expenditure of
substantial development time and agrees that its relationship to VideoLan with
respect to such Confidential Information shall be fiduciary in nature. Video
Network agrees to hold in confidence and not disclose and not make use of
Confidential Information.
7. Technological Developments. Video Network and VideoLan agree that any
invention, formula, method, pattern, device, apparatus, product, product
enhancement or application, material, design, drawing, know-how or service
developed by Video Network Personnel while performing their consulting services
for VideoLan shall belong to VideoLan.
-3-
<PAGE>
8. Termination. The term of this Consulting Agreement shall be terminated:
(a) By Video Network, upon at least sixty (60) days prior notice;
(b) By VideoLan at any time after May 1, 1997, upon at least sixty
(60) days prior notice; and
(c) By VideoLan at any time "for cause," such termination to take
effect immediately upon written notice from VideoLan to Video Network.
The following actions, failures or events by or affecting any Video
Network Personnel shall constitute "cause" for termination within the meaning of
the foregoing paragraph: (1) conviction of having committed a felony, (2) acts
of dishonesty or moral turpitude that are materially detrimental to VideoLan,
(3) acts or omissions which any Video Network Personnel knew or should have
reasonably known were likely to materially damage the business of VideoLan and
did in fact materially damage VideoLan, (4) failure by any Video Network
Personnel to obey the reasonable and lawful directions of VideoLan's Board of
Directors, Chief Executive Officer, or Vice President of Engineering (or his
designee), (5) gross negligence by any Video Network Personnel in the
performance of his or her obligations hereunder, or continuing failure by any
Video Network Personnel to perform his or her obligations hereunder more than 30
days after the particular Video Network Personnel has been provided with written
notice of his or her failure to perform such obligations, or (6) any Video
Network Personnel's willful breach of any material agreement or covenant of this
Consulting Agreement or any fiduciary duty owed to VideoLan.
9. Data. Upon termination of this Consulting Agreement for any reason,
Video Network and all Video Network Personnel shall promptly deliver to VideoLan
all books, memoranda, plans, records, information and written data, and all
copies of same, of every kind relating to the business and affairs of the
Company which are then in their possession.
10. Notices. All notices, approvals, consents and demands required or
permitted under this Consulting Agreement shall be in writing and sent by hand
delivery, facsimile, overnight mail, certified mail or registered mail, postage
prepaid, to the parties at their addresses set forth below, and shall be deemed
given when delivered by hand delivery, transmitted by facsimile or mailed by
overnight, certified or registered mail. Any party may specify a different
address by notifying the other party in writing of the different address.
If to Video Network: Video Network Services, Inc.
99 Wheeler Road
Hollis, NH 03049
Attention: Edward E. Weston, President
Telecopy No. (603) 465-9350
-4-
<PAGE>
If to VideoLan : VideoLan Technologies, Inc.
100 Mallard Creek Road, Suite 250
Louisville, KY 40207
Attention: Steven B. Rothenberg
Telecopy No. (502) 895-9073
With a copy to: William G. Strench, Esq.
Brown, Todd & Heyburn PLLC
3200 Providian Center
Louisville, KY 40202
Telecopy No. (502) 581-1087
11. Governing Law. This Consulting Agreement and the rights of the parties
hereto shall be governed by and interpreted in accordance with the laws of the
Commonwealth of Kentucky.
12. Benefit and Binding Effect. Except as otherwise specifically provided
herein, this Consulting Agreement shall be binding upon and shall inure to the
benefit of the parties and their successors and permitted assigns.
13. Headings. The headings contained in this Consulting Agreement are
inserted only as a matter of convenience, and in no way define, limit or extend
the scope or intent of this Consulting Agreement or any provision hereof.
14. Partial Enforceability. If any provision of this Consulting Agreement,
or the application of any provision to any Person or circumstance shall be held
invalid, illegal or unenforceable, then the remainder of this Consulting
Agreement, or the application of that provision to persons or circumstances
other than those with respect to which it is held invalid, illegal or
unenforceable, shall not be affected thereby.
15. Entire Agreement. This Agreement, including the preambles and exhibits,
together with the Option Agreement, sets forth the entire agreement between the
parties as to the subject matter hereof and merges all prior discussions between
them, and neither of the parties shall be bound by any conditions, definitions,
understandings, or representations with respect to such subject matter other
than as expressly provided herein and in the Option Agreement, or as duly set
forth subsequent to the effective date hereof in writing and signed by the duly
authorized representatives of both parties. Without limiting the generality of
the foregoing, that certain Letter of Intent dated June 7, 1996 between Video
Network and the Company shall be and is null, void and of no further force and
effect. This Consulting Agreement shall supersede all previous agreements of the
parties with respect to the matters to which this Consulting Agreement pertains.
-5-
<PAGE>
16. Enforcement. In the event of a breach or threatened breach by a party
of any of the provisions of this Consulting Agreement, the other party shall be
entitled to obtain a temporary restraining order and temporary and permanent
injunctive relief without the necessity of proving actual damages by reason of
such breach or threatened breach, and to the extent permissible under the
applicable statutes and rules of procedure, a temporary injunction or
restraining order may be granted immediately upon the commencement of any such
suit and without notice. Nothing in this Consulting Agreement may be construed
as prohibiting a party from pursuing any other remedy or remedies, including
without limitation, the recovery of damages. A party who is successful in an
action against the other party with respect to this Consulting Agreement shall
be entitled to reasonable legal fees and expenses.
17. Scope. If any one or more of the provisions of this Consulting
Agreement shall for any reason be held to be excessively broad as to time,
duration, geographical scope, activity, or subject, each such provision shall be
construed, by limiting and reducing it, so as to be enforceable to the extent
compatible with applicable law then in force.
18. No Waiver. No waiver by any party hereto at any time of a breach by a
party of any provision of this Consulting Agreement to be performed by such
other party shall be deemed a waiver of any similar or dissimilar provisions
hereof at the same or any prior or subsequent time.
19. Amendments. Any amendments to this Consulting Agreement shall be in
writing and shall be executed by authorized representatives of each of the
parties.
20. Effect of Termination The termination of this Consulting Agreement for
any reason shall not extinguish those obligations of Video Network described in
Sections 6, 7 and 9, nor shall the same extinguish the right of either party to
bring an action, either in law or in equity, for breach of this Consulting
Agreement by the other party.
21. No Third Party Beneficiary. It is specifically agreed between the
parties executing this Consulting Agreement that it is not intended by any of
the provisions of any part of the Consulting Agreement to create the public or
any member thereof a third party beneficiary under the Consulting Agreement, or
to authorize anyone not a party to this Consulting Agreement to maintain a suit
for damages pursuant to the terms or provisions of this Consulting Agreement.
The duties, obligations, and responsibilities of the parties to this Consulting
Agreement with respect to third parties shall remain as imposed by law.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Consulting Agreement as
of the date first set forth above.
VIDEO NETWORK SERVICES, INC.
By: /s/ Edward E. Weston
-------------------------------------
Edward E. Weston, President
VIDEOLAN TECHNOLOGIES, INC.
By: /s/ Steven Rothenberg
-------------------------------------
Title: Vice President Finance
<PAGE>
EXHIBIT A
Consulting Fees
Consulting Fees. During the term of this Consulting Agreement, Video Network
shall receive the following fees for its consulting services provided under this
Consulting Agreement (prorated for partial periods):
(a) During the period beginning July 1, 1996 and ending September 30, 1996,
Video Network shall be paid $15,000 per calendar month, payable within fifteen
(15) days of the end of each month;
(b) During the period beginning October 1, 1996 and ending December 31,
1996, Video Network shall be paid $18,330 per calendar month, payable within
fifteen (15) days of the end of each month;
(c) During the period beginning January 1, 1997 and ending March 31, 1997,
Video Network shall be paid $30,000 per calendar month, payable within fifteen
(15) days of the end of each month; and
(d) During the period beginning April 1, 1997 and ending June 30, 1997,
Video Network shall be paid $30,000 per calendar month, payable within fifteen
(15) days of the end of each month.
-8-
<PAGE>
EXHIBIT B
Milestones
(a) First Milestone - Completion Date: August 31, 1996
o Software development organization functional: hired and/or
subcontracted resources, actively developing VL2000 software
product
o Intra-HUB communications capabilities integrated into current
Gateway application software; developed and tested
o Gateway software functional and ready for field installation;
including ISDN (1, 2 and 3 BRI), T1 and Intra-HUB trunking
o VL2000 Version 2.0 applications software GPF and "bug list"
tested and functionally operational (dependencies: Seven Lands
Software on-time delivery as per negotiated contract).
(b) Second Milestone - Completion Date: November 15, 1996
To be determined.
(c) Third Milestone - Completion Date: January 31, 1997
To be determined.
-9-
EXHIBIT 10.8
<PAGE>
EXHIBIT C
OPTION AGREEMENT
THIS OPTION AGREEMENT (this "Agreement") is made as of the 5th day of
August 1996, by and between VIDEOLAN TECHNOLOGIES, INC., a Delaware corporation
(the "Company") and VIDEO NETWORKS, INC., a New York corporation (the
"Optionee").
WHEREAS, pursuant to that certain Consulting Agreement dated August 5, 1996
between the Company and Optionee (the "Consulting Agreement"), Optionee was
granted options (the "Options") to purchase up to 40,000 shares of the Company's
common stock (the "Shares") over a certain period of time;
WHEREAS, Optionee and the Company desire to set forth the terms and
conditions of the Options;
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, the receipt, mutuality and sufficiency of which is
acknowledged, the parties hereto agree as follows:
1. Option. On the terms and subject to the conditions of this Agreement,
Optionee shall have the right to purchase up to 40,000 Shares, subject to
adjustment in accordance with Section 6 of this Agreement and subject to the
exercise requirements set forth in Sections 4(a), (b), (c) and (d) of this
Agreement.
2. Option Exercise Price. The exercise price of the Option (the "Exercise
Price") shall be $15.50 per Share, subject to adjustment in accordance with
Section 6 of this Agreement.
3. Duration of Option. The Option shall expire five years from the date
hereof.
4. Exercise of Option.
(a) Options with respect to 14,000 Shares shall vest and be
exercisable six months after the Company has notified the Optionee that it has
determined the Optionee has achieved the First Milestone (as defined on Exhibit
B of the Consulting Agreement);
(b) Options with respect to an additional 13,000 Shares shall vest and
be exercisable six months after the Company has notified the Optionee that it
has determined the Optionee has achieved the Second Milestone (as defined on
Exhibit B of the Consulting Agreement); and
-10-
<PAGE>
(c) Options with respect to the remaining 13,000 Shares shall vest and
be exercisable six months after the Company has notified the Optionee that it
has determined the Optionee has achieved the Third Milestone (as defined on
Exhibit B of the Consulting Agreement).
(d) Upon termination of this Agreement for any reason, all unvested
Options shall be canceled effective upon the date of such termination and all
vested Options shall terminate thirty (30) days after the date of such
termination.
(e) This Option may be exercised by delivery of written notice to the
Company at its executive offices, addressed to the attention of the Chief
Financial Officer. Such notice: (i) shall be accompanied by all necessary
corporate authorization and signed by the president of Optionee or its legal
representatives; (ii) shall specify the number of full Shares then elected to be
purchased with respect to the Option; and (iii) shall be accompanied by payment
in full of the Exercise Price of the Shares to be purchased.
(f) The Exercise Price upon exercise of this Option shall be payable
to the Company in cash or its equivalent.
(g) As promptly as practicable after the receipt of notice and payment
upon exercise, the Company shall cause to be delivered to Optionee certificates
for the Shares so purchased. If the Option shall have been exercised in full,
this Agreement shall be returned to the Company and canceled.
5. Registration of Shares. In the event that Optionee should acquire any
Shares which, at the time of acquisition, are not duly registered under the Act
and, as necessary, applicable state securities law, certificates evidencing the
unregistered Shares shall bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, AND WILL
NOT BE TRANSFERRED ON THE BOOKS AND RECORDS OF THE COMPANY, UNLESS (i)
THEY HAVE BEEN REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR (ii) REGISTRATION UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.
Upon the registration of any shares represented by a certificate bearing this
legend, the Company shall issue replacement certificates free of this legend.
-11-
<PAGE>
6. Adjustments in Authorized Shares and the Option. In the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, share dividend, share split,
reverse share split, share combination, share exchange or other change in the
capital structure of the Company affecting the Shares, the Board of Directors of
the Company may substitute or adjust the total number and class of Shares or
other securities that may be issued hereunder, and the Exercise Price, as it
determines to be appropriate and equitable to prevent dilution or enlargement of
the rights of Optionee and to preserve, without diluting or exceeding, the value
of the Option, provided, however, that such adjustments shall be equivalent to
that imposed equally upon all other option holders and/or shareholders in the
Company.
7. Miscellaneous.
(a) Tax Withholding. The parties acknowledge and agree that any and
all compensation received by Optionee pursuant to any exercise of the Option
will be self-employment income, and that Optionee shall bear the sole
responsibility with respect to withholding and estimated tax payments on such
compensation.
(b) Amendment. This Agreement may not be changed or terminated except
by written instrument signed by the parties.
(c) Successors; Binding Agreement. The Company agrees that:
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Optionee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had taken place; and
(ii) This Agreement and all rights of Optionee hereunder shall
inure to the benefit of and be enforceable by Optionee or its successors or
assignees.
(d) Severability. In the event any provision of this Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of this Agreement, and this Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
(e) Entire Agreement. This Agreement, including the preambles and
exhibits, together with the Consulting Agreement, sets forth the entire
agreement between the parties as to the subject matter hereof and merges all
prior discussions between them, and neither of the parties shall be bound by any
conditions, definitions, understandings, or representations with respect to such
subject matter other than as expressly provided herein and in the Consulting
Agreement, or as duly set forth subsequent to the effective date hereof in
writing and signed by the duly authorized representatives of both parties.
Without limiting the generality of the foregoing, that certain Letter
-12-
<PAGE>
of Intent dated June 7, 1996 between Video Network and the Company shall be and
is null, void and of no further force and effect.
(f) Governing Law. This Agreement, and the application or
interpretation thereof, shall be governed by the laws of the Commonwealth of
Kentucky.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.
VIDEOLAN TECHNOLOGIES, INC.
(the "Company")
By: /s/ Steven Rothenberg
-------------------------------------
Title: Vice President Finance
VIDEO NETWORK, INC.
("Optionee")
By: /s/ Edward Weston
-------------------------------------
Title: President
-13-
<PAGE>
EXHIBIT D
VideoLAN Technologies
Software Resource Requirements
prepared by: Ed Weston, VNS, Inc.
Requirements:
VideoLAN Technologies, Inc. has requested Video Network Services, Inc. to
manage, develop and enhance the current VL2000 videoconferencing application.
The immediate goal is to release the first version of VL2000 to the marketplace
with several enhancements within a very short time frame (target 30 day
release). In order to accomplish this goal, we have identified programming and
design expertise that is necessary and required immediately to support current
resources in this development effort.
Resources:
System design and programming resources are required for short term efforts as
well as for longer periods of time (12 months maximum).
o Gateway Communications
ImageLink API expertise
T1/ISDN experience
C++ programming
Visual Basic/Delphi development
1 Senior Software Engineer 6 Months Budget: $58K
o Communications Port Design
Data Channel Splitting
C++ programming
Senior Communications Port Designer
2 Senior Software Engineers 2 Months (each) Budget: $27K
o Tools and Administration
Setup Procedures
C++/Visual Basic
Systems Integration
T1/ISDN experience
Installation
Documentation
1 Senior Software Engineer 12 Months Budget: $60K
<PAGE>
o Graphical User Interface
GUI Design Front-ends
Videoconferencing experience
C++ programming
Visual Basic/Delphi experience
Gateway Integration into VL2000
1 Senior Software Engineer 6 Months Budget: $35K
Total Estimated Funding:
Total: Software Engineers (2.3 Person years) $180K
Management, Facilities & Equipment Costs** 27K
=====
Total Budget Requirements: $207K
** See attached Addendum
Recommendations:
It is recommended that Video Network Services, Inc. hire and/or subcontract the
above available resources for the short term efforts. These resources will be
supplied space and equipment in the Scarsdale, NY office to complete their
tasks, as well as having access to the Bluegrass and Milford facilities as
required above and ultimately replaced by VideoLAN with in-house talent as
required during the course of this development effort.
Approvals:
- ---------
VideoLAN Technologies, Inc. Video Network Services, Inc.
/s/ Steven Rothenberg /s/ Edward E. Weston Date: 7/15/96
- ------------------------- Date: / / 96 ----------------------
July 15, 1996
<PAGE>
Addendum
- --------
Management, Facilities & Equipment Costs Breakdown
Facilities Overhead: Office Space and Furniture $14,500
Utilities (Electric)
Administrative Support: General Accounting 6,000
Legal
Payroll
Clerical
Equipment: PC Development Class Machines 6,500
Quantity 3, configured as follows:
166 MHZ Pentium
32 MB RAM
X6 CD-ROM Drive
2 GB Hard Drive
17" Color Monitor
Network via Ethernet
28.8 Modem support
Total: $27,000
--------------
<PAGE>
Data Channel Communications Requirements
The following is a description of two (2) Data Channel Handlers required for the
Gateway and Standalone Desktop for the VideoLAN 2000 system. These products will
provide seamless, bi-directional communications for third-party applications
over an ISDN or T1 data channel.
The following has already been achieved and verified:
o Second party produced software (such as Proshare, Face2Face, terminal,
PC-Anywhere) require bidirectional communication over COM ports.
o The Videolan Hub allows communication over COM3 or COM4 between two
machines looped through the HUB.
o The ImageLink hardware allows sending of data packets across a connection
for specific Kernels.
o Video Network Service has written software to send and receive data packets
across the ImageLink hardware. The interface is a simple windows messaging
scheme.
VideoLAN requires the following two product capabilities:
1) On a VL Gateway the data channel handler needs the capability to do the
following two things:
o Read data off a COM port, packetize it and send it to the VNS software
controlling the ImageLink Software.
o Receive Data Packets from the VNS software, queue and Write it to the COM
port.
2) On a Standalone Desktop the data channel handler needs the capability to do
the following things:
o Create a virtual Comm Port driver to replace a COM port for 2nd Party
software to connect to.
o Read data sent to COM port driver, packetize it and send it to the VNS
software controlling the ImageLink Software.
o Receive Data Packets from the VNS software, queue and Write it to the COM
port driver for the 2nd Party Software to read.
The goal is to have a seamless bidirectional communications going on for the
following three scenarios:
o Two standalone machines with 2nd Party Applications talking back to back
over ISDN or T1 kernels
o A Desktop machine with 2nd Party Application talking to Gateway to
Standalone with a 2nd Party Application over ISDN or T1 kernels
o A Desktop machine with 2nd Party Application talking to Gateway to A
Gateway (over ISDN or T1 kernels) attached to Desktop machine with 2nd
Party Application.
The remaining list of requirements for the two products:
1) All configuration info will be maintained in an .INI file called
[Illegible] found in the windows directory.
2) The product can be brought up with (for debug purposes) or without a user
interface (including icon).
3) All activity can be recorded (configuration switch) to a log file, and/or
screen trace without running in a debugger.
4) Full installation write up (one page step-by-step of how-to setup)
5) Written for 16-bit windows without Win32s
6) The code will be commented with function and file headers
7) Written in one of the following 4 languages MS C, Visual C++, Delphi, or
Visual Basic
8) Product will run on Windows 3.x, 95 and NT 3.51.
9) One Header for external Interface or Constants.
10) No software which requires a distribution license may be used in final
products.
11) Software rights will belong to VNS and/or VideoLAN.
12) All source code, makes will be delivered and shown to compile on VNS
equipment.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 717,449
<SECURITIES> 1,814,968
<RECEIVABLES> 24,588
<ALLOWANCES> 0
<INVENTORY> 1,437,610
<CURRENT-ASSETS> 4,192,590
<PP&E> 597,432
<DEPRECIATION> 77,458
<TOTAL-ASSETS> 4,985,588
<CURRENT-LIABILITIES> 543,096
<BONDS> 0
0
0
<COMMON> 139,355
<OTHER-SE> 4,271,283
<TOTAL-LIABILITY-AND-EQUITY> 4,985,587
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,338,877
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,800
<INCOME-PRETAX> (3,221,553)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,221,553)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
