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http://pro.edgar-online.com/displayfilinginfo.aspx?FilingID=1184594-1007-103636&type=sect&TabIndex=2&companyid=76425&ppu=%252fprofile.aspx%253fCompanyID%253d76425
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
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VIRTUAL REALITY, INC.
(Name of Small Business Issuer in its Charter)
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Nevada 87-0393256
(State of Incorporation) (I.R.S. Employer Identification Number)
116 John Street - Suite 1300
New York, New York 10038
(Address of principal executive offices) (Zip Code)
(212) 619-3100
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered Name of each exchange on which each
class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $.015 PAR VALUE
(Title of class)
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Table of Contents
PART I.......................................................................... 1
Item 1. Description of Business........................................ 1
The Company................................................... 1
General ............................................ 1
Business ............................................ 2
General..................................... 2
Letter of Intent for Intellashop.com........ 2
Intellashop.com............................. 2
Intellashop's Business Strategy. .......... 6
Intellashop's Operations and Technology..... 8
Employees..................................................... 9
Competition................................................... 9
Item 2. Plan of Operation.............................................11
Cash Requirements.............................................11
Research and Development......................................12
Purchase of Equipment.........................................13
Employee Hiring Schedule......................................13
Item 3. Description of Properties......................................14
Item 4. Security Ownership of Certain Beneficial Owners and Management.14
Item 5. Directors, Executive Officers, Promoters and Control Persons...15
Item 6. Executive Compensation........................................16
Item 7. Certain Relationships and Related Transactions.................17
Item 8. Description of Securities......................................19
PART II .......................................................................21
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters...................21
Item 2. Legal Proceedings..............................................22
Item 3. Changes in and Disagreements with Accountants..................22
Item 4. Recent Sales of Unregistered Securities........................22
Item 5. Indemnification of Directors and Officers.....................25
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PART F/S .......................................................................27
Financial Statements...................................................27
PART III .......................................................................28
Item 1. Index to Exhibits..............................................28
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FORWARD LOOKING STATEMENTS
In this registration statement references to "Virtual Reality," "the Company," "Intellashop," "we," "us," and "our" refer to Virtual Reality, Inc. and assumes the acquisition of Intellashop, Inc. This Form 10-SB contains certain forward-looking statements. For this purpose any statements contained in this Form 10-SB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within Virtual Reality's control. These factors include but are not limited to economic conditions generally and in the industries in which Virtual Reality may participate; competition within Virtual Reality's chosen industry, including competition from much larger competitors; technological advances and failure by Virtual Reality to successfully develop business relationships.
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PART I
Item 1. Description of Business
THE COMPANY
General
Virtual Reality, Inc. (the "Company") was originally organized under the laws of the State of Utah on October 9, 1981 under the name Stepro, Inc. On September 25, 1991, shareholders of the Company approved a change of corporate domicile to the State of Nevada. Thereafter, on December 31, 1991, the Company acquired Technology Innovation Group, Inc. ("TIG"), and amended its Articles of Incorporation to change its name to "Virtual Reality, Inc."
At the time of its acquisition, TIG specialized in the development and manufacturing of new technology and systems for aerospace applications in technical disciplines such as electro- optical systems for space flight, helmet-mounted displays, artificial intelligence, holographic optical designs, and engineering and training simulation. Through this wholly owned subsidiary, the Company was able to develop proprietary designs for the military, NASA, and major aerospace firms. Its customers included the U.S. Air Force, U.S. Naval Ocean Systems Command, Martin-Marietta, United Technologies, Northrop, and CAE. In 1992, the Company was listed for quotation on the OTC-Bulletin Board, under the symbol, "VIRT." At this time, management decided to pursue the objective of applying its high technology to the development and production of commercial virtual reality equipment and systems and transferred all of the technology and assets of TIG to the Company.
Since the Company was dependent primarily on doing business with the Federal government, pursuing commercial acceptance proved to be very difficult and expensive. In 1996, the present management of the Company acquired control and attempted to compete in an industry characterized by rapid obsolescence of technology and filled with large competitors with substantial resources. By late 1997, it became clear that the Company was unable to continue on such a course without the infusion of significant capital. Despite exploring a number of financing opportunities and potential strategic alliances or acquisition targets with complimentary businesses and services, in the opinion of management, no opportunity was available on terms acceptable to the Company. Without sufficient capital, the Company's technology became increasingly obsolete and in 1997, the Company's patent protecting its technology expired.
By 1999, the Company decided to suspend its business plan incorporating its virtual reality technology and placed much of its prototypes and designs in storage. The Company then began investigating opportunities to utilize and exploit the Company's goodwill, as well as the contacts and experience of its management in the area of high technology, by exploring potential strategic alliances or acquisition candidates involved with the Internet. As a result, in February
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2000, the Company entered into a letter of intent, confirming the parties' understandings of January 7, 2000, for the acquisition of Intellashop, Inc., a corporation organized under the laws of Anguilla ("Intellashop" or "Intellashop.com"), and an advanced technology real-time personal shopping agent with its "Intellashop.com" Web site.
Business
General. In 1991, the Company entered the high technology industry with the acquisition of TIG, as a wholly owned subsidiary. Through this subsidiary, the Company was able to create and manufacture unique virtual display systems for advanced aerospace applications such as electro-optical systems for space flight, helmet-mounted displays, holographic optical designs, artificial intelligence, and training simulation. Purchasers included: the Air Force, Naval Ocean Systems Command, Martin-Marietta, United Technologies, Northrop, and CAE.
In an attempt to exploit the potential commercial markets such as the fields of medicine, entertainment, education, training, and communication, all of the technology and assets of TIG was transferred to the Company. Subsequently, the Company made an attempt to advance the development of a new generation of Head Mounted Displays ("HMD's"), utilizing its electro- optical technology, for commercial applications. However, faced with rapidly evolving technology, increased competition, and the lack of financing, the Company was not able to successfully enter the commercial market. Confronted with older technology, an expired patent and the unavailability of adequate financing, in 1999, the Company began exploring opportunities to utilize its management's contacts and relationships, as well as its goodwill in connection with high technology, in order to enter into the world of Internet technology. As a result, in February 2000, the Company entered into a Letter of Intent for the acquisition of Intellashop, Inc. ("Intellashop"), as a wholly owned subsidiary of the Company.
Letter of Intent for Intellashop.com. On January 7, 2000, the Company reached an agreement, in principle, with Zorro Systems Inc., a Barbadian corporation ("Zorro Systems") and a leader in developing sophisticated real-time search technologies, for the acquisition of a one hundred percent (100%) interest in its subsidiary Intellashop.com (the "Acquisition"). As a result, on February 23, 2000, the Company and Zorro Systems executed a Letter of Intent contemplating, in part, that the Company issue 200,000,000 shares of its common stock to Zorro Systems, for the acquisition of Intellashop.com. The Acquisition is subject to the satisfactory due diligence of both the Company and Zorro, the successful amendment of the Company's Articles of Incorporation in order to increase the amount of shares authorized to be issued by the Company, as well as the successful negotiations and execution of a definitive agreement. See "Item
7. Certain Relationships and Related Transactions."
Intellashop.com. Klein Valuation Services, Inc., of Toronto, Canada and a respected member in good standing of the Canadian Institute of Business Valuators, determined that
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Intellashop had a fair market value of between US $21,000,000 and US $24,000,000, as of January 15, 2000. Intellashop is an advanced technology real-time personal shopping agent. Management of Intellashop believes it will become one of the world's leading consumer and business shopping portals because of the use of high technology which facilitates finding the best deals for consumers in an unbiased manner. Intellashop is based upon Zorro's technology, a real-time search process previously unavailable to the market. Through its Intellashop.com site, Intellashop intends to facilitate quick, easy to use, real-time, and reliable comparisons of products, prices, availability, and vendors from around the world, in order to become a primary shopping source for all Internet shoppers.
International Data Corporation estimates that annual worldwide e-commerce over the Internet will grow from $32 billion in 1998 to approximately $425 billion by 2002. It is also estimated that Internet users will increase from 97 million in 1998 to over 319 million by the end of 2002.
As the number of online merchants continues to grow, the consumer's ability to search for a specific product across multiple merchant sites becomes a time consuming task. A consumer can spend an average of ten minutes on each site locating price and shipping quotations. There are currently over 100 online book vendors and one can only imagine how long it might take to conduct a thorough search for a specific book. Thus, the need for a central location to source products, compare prices, and evaluate merchants continues to grow in importance. Many new e-commerce merchant sites are launched on the Internet everyday offering millions of products and services. Finding a specific product has become a daunting task, which is increasing in difficulty everyday as product selection continues to grow.
There is a growing need for a centralized service to act as the consumer's dedicated shopper. A dedicated shopper or personal shopping agent will have to answer four basic questions when servicing users. Intellashop is designed to provide the answers to four primary questions for consumers:
o Where can I find X product?
o How much is the product?
o How long will it take to arrive and what are the shipping and delivery costs?
o How well can I trust the available online merchants?
Intellashop is a personal shopping agent, which will meet all of the consumer's shopping needs. By allowing consumers to personalize their shopping preferences, Intellashop provides the tools to source products and product information, check real-time availability, compare price and quality of merchants, and obtain price and availability alerts.
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Intellashop is designed to provide three primary services to consumers:
o Product Locator services allow consumers to identify products of interest by using keywords or selected category criteria.
o Order Optimization services organize and group products based on client criteria such as lowest price, quickest delivery or merchant service rating.
o Order Placement services allow consumers to add product selections to a "shopping cart" and be guided through a "checkout" process that standardizes and simplifies the interface to the numerous vendors available.
Initial product offerings through Intellashop are purposefully limited in order to provide for high quality managed growth of the business. Startup offerings include books, movies, DVD's, and music. New product categories will be added monthly based on market demand and vendor reliability. Intellashop.com intends to eventually service the following consumer product shopping categories:
Books Music / Video / Movies Computer Software Computer Hardware / Peripherals Consumer Electronics Toys / Collectibles Flowers / Gifts Travel Services Home and Garden Tools and Supplies Office Supplies Entertainment/Sports Ticketing Clothing / Apparel Fitness / Sports Equipment Family / Health / Beauty Gourmet Foods / Groceries Hobby & Leisure Automotive
Intellashop hopes to fulfill these services through the following feature set:
o Product Location. A general search that allows consumers to search for products based on the following criteria: Title, Author/Producer/Manufacturer, Year, Format, Features, and/or Keywords. Users can refine search results by adding more variables to search strings or by sorting results by specific criterion.
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o Product Detail. By clicking on items within search results users can see additional details of the product. Product detail presents all information available for a specific product (i.e. Title, Author, Year, Format, Abstract, Image, Specifications).
o Merchant Compare. Intellashop.com does a real time search across vendor sites to present the consumer with the following details:
Merchant, Merchant Rating, Shipping Details, Shipping Timeframe, Shipping Cost, Merchant Price, Total Localized Price, and a clickthrough button which will take them to the vendor's site. The merchant rating is a measurement of the merchant's quality of service, policies, features, and ease of use. Ratings are presented out of five stars with a clickthrough button to take user to merchant report card. The total localized price converts all pricing information into the user's local currency.
o Price Availability Alert. Intellashop.com offers registered users the option to set an alert which will report back to the user when a specified product's price has come down to a predetermined level. Availability Alert will work in the same capacity. This feature will alert the user when a specified product becomes available. Intellashop.com's Price Availability Alert will evolve into a buying consortium model. Multiple users will set price expectations with credit card confirmation. Intellashop.com will then accumulate bids and proceed to make the purchase on the user's behalf.
o Domestic Currency Conversion. Within Merchant Comparison grid, Intellashop.com converts all available vendors pricing into the domestic currency of the user.
o Value Added Content. Intellashop.com will produce value added content to attract users on a frequent basis. Content will include product reviews, top 10 best sellers within a shopping category, weekly newsletters with online shopping tips and one click searches for popular products.
o Saved Searches. Intellashop.com has set up a process where users can save specific product searches for later viewing. A natural extension for saved searches is to give the user the ability to send the results to a "friend" via email.
o Rebate Program. Utilizing Affiliate fees and Merchant relationships, Intellashop.com can entice users with purchase rebates.
o Shopping Cart. The shopping cart feature allows consumers to source a variety of products from multiple categories to determine best deal or package. For example, a consumer can build a Christmas shopping list consisting of various books, computer software, toys, and flowers. This feature would then report the
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merchants that would deliver all of the above goods.
o Express Check Out. Express check out allows consumers to automatically fill out personal information, billing, and shipping profiles on merchant sites from Intellashop.com's database. Express Check Out will evolve into a "one click" check out, where the user clicks one button for Intellashop to process and make the requested purchase on the user's behalf.
Dedicated to helping consumers, Intellashop will aim to source and provide timely information and an evaluation and comparison of products and merchants available on the Internet. Intellashop's evaluation is based on important consumer-specific criteria such as price, delivery time-frame and quality of the merchant's service. In essence, Intellashop.com will offer consumers a singularly dedicated, unbiased one-stop, user-friendly shopping service with their best interest in mind, while facilitating instantaneous, easy, current and reliable comparisons of prices, products and vendors from around the world.
Intellashop is consumer driven, not merchant driven. Intellashop.com will dramatically simplify and enhance the online shopping experience. The dialogue created between Intellashop, consumers, and merchants will provide multiple channels in which to generate revenue. Revenue channels for Intellashop will continue to evolve as use of the Internet increases. As Intellashop's user base grows, revenue will be generated through advertising, data-mining, buy consortium, merchandising and rebate programs. Long term revenue generators include partnership programs, licensing of Intellashop.com, and additional service offerings.
Management feels that the primary advantage of Intellashop over its competitors is that the driving search engine technology is fast, efficient, and operates concurrently and instantaneously against vendor sites. Shoppers will be able to compare current prices for products among a wide variety of vendors with the confidence that the pricing they are receiving is accurate and current.
Both ALPHA and BETA tests of Intellashop.com and all related software was completed as of December 31, 1999. Final quality control measures, feature improvements and user interface improvements are currently being implemented and Intellashop is preparing for official launch in the Spring of 2000.
Intellashop's Business Strategy. Intellashop's business strategy includes the following key elements:
o Centralized Service. Intellashop.com will become a central service users will value for being a trustworthy and timesaving online shopping solution.
o Source and Compare. Intellashop will leverage the power of its real time search technology by giving users the ability to source products and compare available
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merchants in real time positions.
o Create Strong Brand Recognition. Intellashop believes that building brand recognition of Intellashop.com is critical to attracting and expanding its customer base. Intellashop intends to promote, advertise and increase its brand recognition through various marketing and advertising vehicles, heavy online promotion, and very strong public relations programs.
o Develop Strategic Alliances. Intellashop will continue to seek and establish strategic alliances with global media companies to attract additional shoppers and to increase the brand recognition of Intellashop.com. Intellashop will establish arrangements with major search portals, guides and online communities. Intellashop is looking to build strong ties with "product recommendation" sites and other sites that offer complimentary services to the consumer.
o Develop Customer Loyalty. Intellashop believes that satisfied customers will return to Intellashop.com and will contribute to increased traffic to the site through word-of-mouth referrals. Intellashop looks to provide its customers with an efficient and entertaining shopping experience by making Intellashop.com entertaining, convenient, and easy to use, by offering extensive selection of categories, an attractive presentation of product information, outstanding customer support, and compelling incentive programs.
o Multi-Channel Revenue Model. Revenue will be generated through multiple channels:
o Advertising - Advertising revenues are based on two streams. Sponsorship revenue is derived through the sponsorship of all out going media (i.e. weekly newsletters, price, and availability alerts). The second stream is through Advertising Banners. Intellashop will generate significant revenue through the hosting of Advertising Banners throughout the Intellashop.com site.
o Data Mining - Intellashop.com will derive revenue through the analysis of consumer buying behavior. Aggregate data reports can be marketed and sold to a broad audience. Intellashop will also set up a service for vendors, which will allow them, for a monthly subscription, to query Intellashop.com's database to analyze consumer buying trends, product preferences and hot shopping categories.
o Buying Consortium. The Buying Consortium is an evolution of Intellashop.com's Price/Availability Alert. This service will allow the consumer to secure a bid for
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a particular product via credit card. Based on demand for the product, if Intellashop.com can fulfill the request through the vendor partner's requested price point, Intellashop.com will broker the sale and receive a commission.
o Merchandising. Intellashop.com will be in a position to derive revenues through merchandising directly into its database of users. As Intellashop.com builds relationships with its valued consumer base, it will be able to leverage that relationship to sell different categories of products directly to the user.
o Rebate Program. Through merchant relationships and merchant affiliate programs, Intellashop.com will pass on an additional rebate to consumers who use Intellashop.com as a gateway to purchase products from Intellashop vendors. Intellashop.com will derive significant revenue by administering and managing the float of money being passed through. Intellashop.com also derives an additional percentage of sales as revenue.
Intellashop's Operations and Technology. Intellashop.com's service is supported by a state of the art systems platform, which was designed with an emphasis on scalability, performance and reliability. On command, Intellashop.com's proprietary agent sources consumer products through category specific merchants on the Internet. The software platform and architecture are built on server-side Java, Weblogic, Linux, and ISO standard SQL scripts integrated with an Oracle relational database system. This internal platform was designed to include open application protocol interfaces that can provide real-time connectivity to merchants in the range of shopping categories in which Intellashop.com operates. It also allows Intellashop.com to quickly modify or add new shopping categories with no server down time and very little technical changes to the system.
Intellashop.com's Internet servers utilize Verisign digital certificates to help it conduct secure communications and transactions.
Intellashop.com out-sources most of its call center and customer service functions to APS Marketing in Cape Town, South Africa ("APS"). Intellashop.com takes advantage of APS's 24- hour real-time interactive response system with transfer capabilities.
Intellashop.com has an exclusive license for its agent process system from Zorro Systems.
Zorro Systems' processes are much like a network of components rather than a single integrated system. This new technology allows scalability both up and down (application services) and side to side (operational size). In other words the technology can be easily adapted for rapid growth in number of applications or user volume without any redesign or re- programming required.
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Zorro Systems' technology has anticipated deployment in a number of diverse marketplace contexts and implementation in both friendly and unfriendly vendor environments. The technology is based on intelligent agents "data mining" vendor sites to facilitate information gathering and order processing.
Zorro Systems' technology is JAVA servlet based, with Oracle as the database environment, and can be deployed on either UNIX or LINUX, or a combination of both. JAVA servlets are JAVA programs that run on our servers instead of the client's PC. The JAVA servlet environment is particularly powerful since it provides all of the JAVA functionality without the overhead and security risks of deploying JAVA programs to the client's computer.
Intellashop.com's systems infrastructure, Web and database servers are hosted at Netsurf Inc. in Toronto, Ontario, which provides communication lines from multiple providers including UUNet and Sprint Worldwide, as well as 24-hour monitoring and engineering support. Netsurf Inc. has its own generator and multiple back-up systems in Toronto. Intellashop.com will also implement and maintain a non-interruptible power supply system and generator and redundant servers to provide service capability if failure may occur at the Netsurf Inc. center.
Employees
As of May 15, 2000, the Company employed only one full time employee, Martin F. Cardone. Mr. Cardone presently devotes 90% of his time to the current administration and management of the Company.
Competition
The market for Internet products and services is new, rapidly evolving and intensely competitive. The number of companies offering e-commerce and online direct marketing services, as well as shopping destination Web sites and merchant and product Web site directories and search services is large and increasing at a rapid rate. These companies compete with Intellashop.com for e-commerce merchants, shoppers, e-commerce transactions, advertisers and other sources of online revenue.
Intellashop.com also competes with Web development firms, systems integrators, Internet service providers and traditional media companies that may offer alternatives to one or more components of Intellashop's e-commerce and direct marketing solutions. The Company expects competition to intensify in the future. Barriers to entry in its market are not significant, and current and new competitors may be able to launch new Web sites at a relatively low cost. Accordingly, the Company believes that its success will depend heavily upon achieving
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significant market acceptance before competitors and potential competitors introduce competing services. The Company shall compete directly for e-commerce merchants, shoppers, advertisers and other affiliates with numerous Internet and non-Internet businesses, including:
o providers of e-commerce and online direct marketing services, such as Go2Net, Xoom and DoubleClick;
o providers of e-commerce outsourcing services, such as Digital River, US Web and CyberSource;
o providers of Web directories and search and information services, all of whom offer online shopping, including America Online, Microsoft, Yahoo!, Excite, Lycos and Infoseek;
o online shopping destination Web sites, such as iMall and Shopping.com;
o Internet service providers, Web development firms and systems integrators, as well as companies offering products that address specific aspects of e-commerce, such as payment and transaction processing and security; and,
o e-commerce and conventional merchants that provide goods and services similar to those available through links on our Web site.
The Company expects that other companies, including media companies and traditional retailers, will offer directly competing services in the future. Many of these potential competitors are likely to enjoy substantial competitive advantages, including:
o the ability to offer a wider array of e-commerce and direct marketing services;
o larger customer or user bases;
o greater name recognition and larger marketing budgets and resources;
o substantially greater financial, technical and other resources;
o the ability to offer additional content and other personalization features; and,
o larger production and technical staffs.
In addition, as the use of the Internet and other online services increases, larger, well- established and well-financed entities may continue to acquire, invest in or form joint ventures with providers of e-commerce and direct marketing solutions, and existing providers of e- commerce and direct marketing solutions may continue to consolidate. Providers of Internet
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browsers and other Internet products and services who are affiliated with providers of Web directories and information services that compete with the Company's Web site may more tightly integrate these affiliated offerings into their browsers or other products or services. Any of these trends would increase the competition the Company faces and could adversely affect its business and operating results. To be competitive, the Company must respond promptly and effectively to the challenges of technological change, evolving standards and competitors' innovations by continuing to enhance Intellashop's products and services, as well as sales and marketing channels. Increased competition could result in a decrease in shopper traffic on our Web site, fewer merchants listed in our directories, the obsolescence of the technology underlying the Company's e-commerce and direct marketing services, a loss of our market share and a reduction in the prices or margins of our products and services.
Item 2. Plan of Operation
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS FORM 10-SB ASSUMES THE ACQUISITION OF INTELLASHOP, INC. AND CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, ASSUMPTION AND UNCERTAINTIES, WHICH ARE DIFFICULT TO PREDICT. WORDS SUCH AS "BELIEVE," "MAY," "COULD," "EXCEPT," "LIKELY," AND VARIATIONS OF THESE WORDS, AND SIMILAR EXPRESSIONS, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTIONS ENTITLED "PLAN OF OPERATION," AS WELL AS THOSE DISCUSSED IN THIS PART AND ELSEWHERE IN THIS FORM 10-SB.
The Company has not had any revenues from operations in each of the last two fiscal years. Cost and expenses for the year ending December 31, 1999 and December 31, 1998 were $367,753 and $267,117, respectively, an increase of $100,636 for the period ending December 31, 1999. Management attributes this use in costs and expenses due to an increase in accounts payable from continued day to day operation of the company.
Assuming the completion of the Company's acquisition of Intellashop, an advanced technology real-time personal shopping agent, the Company's mission will be to become the primary information and comparison resource for all Internet Shoppers, by facilitating quick, easy to use, real-time, and reliable comparisons of products, prices, availability, and vendors from around the world.
Initial product offerings will be limited in order to provide for high quality managed growth. Start-up offerings include books, movies, and music New product categories will be added based upon consumer demand and vendor reliability.
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Intellashop will substantially improve the consumer's online shopping experience based upon licensed technology from Zorro, a real-time search process previously unavailable to the market. This technology can execute multiple; concurrent "search-threads" in real-time, on behalf of an end-user or application. These "search-threads" are dispatched, executed and managed in the content of a "Zorro Agent Process."
Cash Requirements
Although there can be no assurances, it is anticipated that the projected revenue for the first year will be approximately $417,000, and revenue for the second year is projected to be approximately $25,076,000. Expenses for the first year are projected to be $36,496,000, broken down as follows:
Marketing & advertising 28,976,000
Customer support 720,000
Website/software development 1,709,000
Employee costs 2,709,000
Administration 867,000
Finance 137,000
Depreciation 1,378,000
The substantial amount spent on marketing is designed to attract Internet shoppers to the site, grow market share and by using permission marketing techniques acquire a large number of registered users. Once a critical mass of registered users has been attained, which the Company projects to take approximately eight months after operational start up revenues will be generated from this registered user base. Based upon the foregoing, the projected loss for the first year is approximately $36,079,000.
On April 19, 2000, the Company entered into an agreement to sell 40,000,000 shares of its restricted common stock to Spherics Limited, Inc. (the "Spherics Stock") for a total of $2,000,000 (the "Proceeds") over a number of payments to be determined subsequently by the parties (the "Agreement"). The Agreement allows Spherics to terminate the transaction and force the return of the Proceeds in the event that the Company does not complete the intended acquisition of Intellashop within One Hundred Twenty (120) days from the date of the Agreement.
The Company believes that its initial capital is expected to last approximately six to seven months, by which time the Company will likely have to seek additional capital to fund technology development, marketing and new product offerings. Such funds will be expected to last until the Company's operations can generate enough cash flow to fund future operations.
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Research and Development
Intellashop intends to have its product locate, product detail, vendor price comparison, and price/availability alerts features in operation when it goes live on the Internet. Although there can be no assurances, Intellashop hopes to launch live in the Summer of 2000, by having its product locate, product detail, vendor price optimization, and price/availability alert features in operation on its site. It is management's intention that Intellashop continue with its aggressive development schedule over the next twelve months.
Initial sketches for several new features have been drawn which the Company hopes will be put into production over the next year. Of the new features proposed, two may be implemented by year's end. A shopping cart tool will allow consumers to shop for multiple products across multiple product categories and across multiple merchants. A second service, the Wireless price/availablity alerts, will alert customers about price and availability changes for a specific product via any number of wireless devices (i.e. cellular phones, pagers, and hand held Personal Digital Assistant's, such as palm pilots).
Books, Movies, and Music make up the initial existing shopping categories shopped by Intellashop. Intellashop will continue to investigate and launch new shopping categories throughout the year. Immediate categories will include Computer Software, Hardware, and Consumer Electronics.
Purchase of Equipment
Intellashop's business plan calls for an initial investment in equipment and software/website technology of approximately $2.2 million. After the launch of its site, the Company's plan calls for an additional capital investment of approximately $2.3 million within 6 months, which it hopes to obtain by a combination of equipment lease financing, equity financing or loans. However, there can be no assurance that adequate financing to support the Company's business will be available in the future on terms attractive to the Company, if at all.
Intellashop.com's service is supported by a state of the art systems platform, which was designed with an emphasis on scalability, performance and reliability. On command, Intellashop.com's proprietary agent sources consumer products through category specific merchants on the Internet. The software platform and architecture are built on server-side Java, Weblogic, Linux, and ISO standard SQL scripts integrated with an Oracle relational database system. This internal platform was designed to include open application protocol interfaces that can provide real-time connectivity to merchants in the range of shopping categories in which Intellashop.com operates. It also allows Intellashop.com to quickly modify or add new shopping categories with no server down time and very little technical changes to the system. As Intellashop.com grows over the coming year this system will allow Intellashop to add new computer hardware and software systems as needed without an interruption in service.
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Intellashop forecasts that they will purchase $3 to 4 million of equipment over the next year.
Employee Hiring Schedule
Intellashop believes it has formed a highly talented team to execute the company's business plan. The Company believes that strengthening its operations and marketing will be a key to its success. Intellashop.com's development team is built around five seasoned developers, including a team leader. It is anticipated that the development team will grow to 10-15 people over the next year. The marketing and design team is currently expanding and currently is made up of seven individuals with a multitude of experience, this team is expected to grow to approximately 15-20 marketers within the year, while it is a goal to increase Intellashop's administration and support team to approximately 20 people over the next year.
Item 3. Description of Properties.
The Company, as of the date of this filing, owns no real or personal property, tangible or intangible. The Company's executive office is located at 116 John Street, Suite 1300, New York, New York 10038. This space consists of only one office. The Company is a tenant-at- will and pays monthly rate of $500 for the office. Additionally, the Company currently leases two storage units in Seacacus, New Jersey, on a tenant-at-will basis, at a combined monthly rate of $402.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
As of the close of business on May 19, 2000, there were 79,665,835 shares of Common Stock and no shares of Preferred Stock ("Preferred Stock") outstanding. The Common Stock is held by approximately 777 persons of record.
The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of May 19, 2000 and adjusted to reflect the assumptions footnoted below, for each person who is known by the Company to own beneficially more than 5% of the outstanding Common Stock.
14
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Amount and Nature of Percent(1)
Title of Class Name and Address of Beneficial Owner Beneficial Ownership of Class
-------------- ------------------------------------ -------------------- --------
Common Martin F. Cardone(2) 17,041,699 21.4%
116 John Street
New York, New York 10038
Common Spherics Limited(3) 40,000,000(4) 50.2%
Victoria House, Box 58
The Valley, Anguilla, B.W.I.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The sole director, executive officer, his age and present positions with the Company are as follows:
Name Age Position
---- --- --------
Martin F. Cardone 41 President; Chief Executive Officer; Director
--------------------------------------------------------------------------------
(1) The calculation is based on 79,665,835 shares of Common Stock issued and outstanding and does not include any shares of Common Stock issuable by the Company upon completion of the proposed transaction contemplated by the Letter of Intent for Intellashop. See "Item 1. Description of Business."
(2) Martin F. Cardone is the Company's President, CEO and Chairman of the Board of Directors. In May 2000, Mr. Cardone was issued 2,500,000 shares of common stock pursuant to his employment agreement with the Company which granted him such stock for the period from October 1, 1996 through October 1, 1998.
(3) The beneficial owner of Spherics Limited is First Anguilla Trust Company Limited with principal offices located at Victoria House, The Valley, Anguilla, B.W.I.
(4) On April 19, 2000, the Company entered into an agreement to sell 40,000,000 shares of its restricted common stock to Spherics Limtied (the "Spherics Stock") for a total of $2,000,000 (the "Proceeds") over a number of payments to be determined subsequently by the parties (the "Agreement"). The Agreement allows Spherics to terminate the transaction and force the return of the Spherics Stock in the event that intended acquisition of Intellashop does not occur within One Hundred Twenty (120) days from the date of the Agreement. Further, Wall Street M&A Group LLC, a corporation of which Mr. Cardone is a principal , was granted the voting rights of the Spherics Stock for a period beginning on May 19, 2000 and ending on the earlier of: (i) a combination (reverse split) of shares of Common Stock or other capital readjustment; or (ii) 90 days from May 19, 2000. See Item 7 "Certain Relationship and Related Transactions."
15
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The Board of Directors of the Company presently consists of only one person. Directors serve until the next annual meeting of shareholders or until their successors are duly elected and qualified. Officers are elected to serve, subject to the discretion of the Board of Directors, until their successors are appointed.
Martin F. Cardone serves as the Company's President, Chief Executive Officer, and sole Director. Mr. Cardone was named President of the Company in September of 1994. In August of 1996, he was appointed as Chief Executive Officer and Chairman of the Board of Directors, to replace the retiring Dr. Nelson Merritt. Mr. Cardone is also a founder and principal of Wall Street M&A Group LLC, a consulting company that provides consultation and advice concerning mergers, acquisitions, financing, joint venture transactions and other corporate combinations. He has an extensive background of restructuring public companies (roll ups and consolidations), and he is a graduate of Boston College and holds a law degree from the William Mitchell Law School (University of Minnesota).
16
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Item 6. Executive Compensation.
The following sets forth information concerning compensation paid to the executive officers of the Company during fiscal 1997, 1998 and 1999. No director received any compensation in his or her capacity as such.
The following table sets forth information concerning all remuneration paid by the Company as of the date of the filing, to the Company's Directors and all Executive Officers as a group:
Summary Compensation Table
Annual Compensation Long Term Compensation
AWARDS PAYOUTS
Name and Year Salary($) Bonus($) Other Restricted Stock Securities LTIP All Other
Principal Annual Award(s) ($) Underlying Payouts($) Comp. ($)
Position Comp.($) Options/
SARs (#)
----------------------------------------------------------------------------------------------------------------
Martin F 1999 $150,000(1) 0 0 0 0 0 0
Cardone
(Chief
Executive
Officer and
President)
1998 $150,0001 0 0 1,125,000(2) 0 0 0
-------------------------------------------------------------------------------------------------
1997 $60,0001 0 0 1,125,000(2) 0 0 0
=================================================================================================
--------------------------------------------------------------------------------
(1) To date, Mr. Cardone has not received his annual salary for 1997, 1998 and 1999. Mr. Cardone has not received any salary for his employment with the Company from January 2000 to the present. Mr. Cardone's employment agreement allows Mr. Cardone to convert the total amount owed for his employment, in part or in whole, into shares of common stock of the Company. Mr. Cardone has indicated to the Company that on or about June 1, 2000 he intends to elect to convert any unpaid salary due to him from the Company.
(2) Pursuant to his employment agreement, Mr. Cardone received 1,125,000 shares of common stock in 1997 and 1998, respectively.
17
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Martin F. Cardone Employment Agreement
In September of 1996, the Company entered into a four-year employment agreement with Martin F. Cardone, as Chairman of the Board of Directors, Chief Executive Officer and President. The employment agreement is to expire in September of 2000, unless terminated earlier by either party pursuant to the agreement. Mr. Cardone was entitled to a base salary per annum of $60,000 for the first contractual year and $150,000 for each following contractual year, until termination of the agreement. Additionally, beginning on October 1, 1996 and ending on September 30, 1998, Mr. Cardone was entitled to receive 1,000,000 and 1,500,000 shares, respectively, of the Company's common stock for each 12 month period. Although no bonuses have been awarded, Mr. Cardone is entitled to annual bonuses as the board of directors may determine based upon the performance and achievement of specified goals of the Company. Mr. Cardone has agreed not to compete with the Company during the term of employment, unless otherwise permitted by the Company. The employment agreement includes customary provisions entitling the Company to terminate the Mr. Cardone's employment for cause or upon incapacitation or extended disability.
Item 7. Certain Relationships and Related Transactions.
Martin F. Cardone, the Company's sole officer and director, also serves as a founder and principal of Wall Street M&A Group LLC ("Wall Street M&A"), a consulting company. On February 3, 2000, Wall Street M&A entered into a Consulting Agreement (the "Consulting Agreement") with Tropika International Limited ("Tropika"), to provide Tropika, and its subsidiaries, with, among other things, advice and assistance concerning mergers, acquisitions, financing, joint venture transactions and other corporate combinations, as well as performing such other services as Tropika, or any of its subsidiaries, reasonably requires. Tropika is the parent company of Zorro Systems Ltd. ("Zorro"). Currently, Zorro owns all of the issued and outstanding stock of Intellashop, Inc. ("Intellashop"). The Company and Zorro have entered into a Letter of Intent for the sale of a one hundred percent (100%) interest in Intellashop to the Company. See "Item 1. Description of Business."
The term of the Consulting Agreement is for two years. It is agreed upon by the parties that for its services, Wall Street M&A shall receive:
o Three Thousand Dollars (U.S. $3,000.00) per calender month, for the two (2) year term of the Consulting Agreement to be paid as an advance against future fees payable to Wall Street M&A, pursuant to the Consulting Agreement;
o Upon the closing of: (i) the acquisition of Intellashop by the Company; (ii) the acquisition of substantially all of the assets of Intellashop by the Company; or, (iii) a merger, reorganization, consolidation or other business combination
18
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between the Company and Intellashop, Wall Street M&A shall immediately receive from Tropika an amount of shares equal to five percent (5%) the amount of shares issued to Intellashop by the Company in order to effectuate the aforementioned acquisition, merger, reorganization, consolidation or other business combination;
o For the term of the Consulting Agreement, and for a period of 18 months thereafter, upon the closing of any financing for Tropika, its subsidiaries and/or Intellashop, by an entity introduced by Wall Street M&A, Wall Street M&A shall receive a fee equal to 5% of the aggregate dollar value of such financing;
o Upon Tropika's listing for quotation on the NASDAQ National Market System, the American Stock Exchange or other comparable national or regional exchange, during the term of the Consulting Agreement, or within ninety (90) days after the termination of the Consulting Agreement, Wall Street M&A shall receive a fee of Fifty Thousand Dollars (US $50,000), provided, however, that Wall Street M&A substantially assisted Tropika during the application process; and,
o Options to purchase Two Hundred Fifty Thousand (250,000) shares of the common stock of Tropika, at a price of Thirty-Eight Cents Canadian (CN $0.38) per share.
Furthermore, in April of 2000, Wall Street M&A entered into a Consulting Agreement with Spherics Limited ("Spherics"), to provide Spherics with, among other things, advice and assistance concerning mergers, acquisitions, financing, joint venture transactions and other corporate combinations, as well as performing such other services as Spherics reasonably requires. The term of the Consulting Agreement is for two years. It is agreed upon by the parties that for its services, Wall Street M&A shall receive One Hundred Fifty Thousand Dollars (U.S. $150,000). See "Item 4. Recent Sale of Unregistered Stock."
In April of 2000, Martin F. Cardone, the Company's President, CEO and director, and Spherics Limited, a corporation organized under the laws of Anguilla ("Spherics"), mutually agreed to terminate a December 1999 Letter of Intent between the parties which contemplated, in part, that for consideration of $150,000, Mr. Cardone would sell an amount of shares of the Company's common stock, beneficially owned by him, to provide Spherics with a controlling interest in the Company. As a result of the Company's proposed acquisition of Intellashop, Spherics and the Company entered into an agreement (the "Spherics Agreement"), in April of 2000, whereby Spherics has agreed to commit $2,000,000 to the Company, payable over a six month period from the date of the Spherics Agreement, for operating capital to be used in connection with the operation of Intellashop.com. In consideration for the $2,000,000 commitment, the Company has agreed to issue 40,000,000 shares of the Company's common stock to Spherics under the provisions of Section 4(2) of the Act. Further, it is agreed upon by the parties that in the event that the proposed acquisition for Intellashop.com is not successfully
19
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completed within 120 days from the date of the Spherics Agreement, the Company shall return any and all monies paid to the Company by Spherics pursuant to the Spherics Agreement, and all shares issued to Spherics by the Company pursuant to the Spherics Agreement shall be returned free and clear of all security interests, claims, liens and other encumbrances. However, Wall Street M&A an entity in which Mr. Cardone is a principal, was granted the right to vote those shares by irrevocable proxy for a period beginning on May 19, 2000 and ending on the earlier of: (i) a combination (reverse split) of shares of Common Stock or other capital readjustment; or (ii) 90 days from May 19, 2000.
From 1997 to December 31, 1999, Mr. Cardone made loans to the Company totaling $191,113, exclusive of interest and penalties. To date the Company has yet to reimburse Mr. Cardone fully, although the Company intends to satisfy those loans through the proceeds of the Company's recent 504 offering. In the event that the Company is unable to satisfy such loans, Mr. Cardone and the Company may agree that the remaining principal and interest due Mr. Cardone be converted into shares of the Company's common stock.
As a general rule, all transactions among the Company and its officers, directors or stockholders have been, and in the future will be, made on terms no less favorable to the Company than those available from unaffiliated parties. All future transactions, including loans, if any, between the Company and its officers, directors and principal shareholders and their affiliates and any transactions between the Company and any entity with which its officers, directors or principal shareholders are affiliated will be subject to the approval of a majority of the Company's Board of Directors, including the majority of the independent and disinterested outside directors of the Board of Directors and must be on terms no less favorable to the Company than could be obtained from unaffiliated third parties.
Item 8. Description of Securities.
Authorized Capital Stock
The Company is authorized to issue 100,000,000 shares of Common Stock, $0.015 par value per share. As of May 19, 2000, a total of 79,665,835 shares of Common Stock were issued and outstanding, not including: (i) shares issuable to Martin F. Cardone for the conversion of salary payable to Mr. Cardone, pursuant to his employment agreement with the Company; and (iii) the shares reserved for the acquisition of Intellashop.com. See "Item 1. Description of Business." Additionally, the Company is authorized to issue 5,000,000 shares of Preferred Stock, $0.001 par value per share. No shares of Preferred Stock are presently issued and outstanding nor does the Company intend to issue such shares in the foreseeable future.
The following summary description of the Company's capital stock does not purport to be complete and is qualified in its entirety by reference to the Company's Articles of Incorporation and Nevada Law.
20
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Common Stock
Dividends. The Company has not declared any dividends since its inception. Because the Company intends to retain future earnings to fund the development and growth of its business, it does not anticipate paying cash dividends on the Common Stock in its foreseeable future. Any payments of dividends in the future is in the sole discretion of the Board of Directors of the Company. The Company's decision will be dependent upon the Company's financial condition, results of operations and other factors the Board of Directors deems relevant.
Voting Rights. Holders of shares of Common Stock will vote as a single class together on all matters submitted to a vote of stockholders, with each share of Common Stock entitled to one vote, except as otherwise provided by law.
Preemptive Rights. The holders of Common Stock are not entitled to preemptive or subscription rights.
Preferred Stock
Designations, preferences, voting rights, dividends, convertibility, redeemability and the right to participate in the proceeds of liquidation may be determined by the Board of Directors from time to time for the Company's authorized shares of Preferred Stock.
Transfer Agent
The Transfer Agent for the Company's Common Stock is American Stock Transfer & Trust Company, with an address of 6201 15th Avenue, Brooklyn, New York 11219.
21
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PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters.
Market. From March of 1992 through May 17, 2000, prices for the shares were quoted on the "OTC - Bulletin Board," maintained by the National Association of Securities Dealers, Inc. From May 18, 2000 through the present the prices for the shares have been quoted on the "Pink Sheets." The Common Stock is presently traded under the symbol "VIRT." The following table sets forth the range of high and low bid quotations for the Company's Common Stock during each calendar quarter since the end of fiscal year, 1997, each of which has been rounded to the nearest, whole cent.
HIGH BID LOW BID
March 30, 1998 0.030 0
June 30,1998 0.060 0
September 30, 1998 0.080 0
December 31, 1998 0.024 0
March 30, 1999 0.090 0
June 30,1999 0.040 0
September 30, 1999 0.060 0
December 31, 1999 0.100 0
March 30, 2000 1.040 .060
May 22, 2000 .37 .30
The above prices were obtained from the National Quotation Bureau, Inc. The quotations represent inter-dealer quotations without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
Outstanding Shares and Shareholders of Record. As of May 19, 2000, the transfer ledgers maintained by the Company's Stock Transfer Agent indicated that there were 79,665,835 shares of common stock issued and outstanding which were held of record by approximately 777 persons.
Dividends. Since its inception, the Company has not paid any cash dividends on its stock. Any declaration in the future of any cash or stock dividends will be, at the discretion of the Board of Directors and will depend upon, among other things, earnings, the operating and financial condition of the Company, capital expenditure requirements, and general business conditions. There are no restrictions currently in effect which preclude the Company from
22
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granting dividends, with the exception that dividends may not be paid on the common stock while there are accrued but unpaid dividends on the Preferred Stock. It is the current intention of the Company to retain any earnings in the foreseeable future to finance the growth and development of its business.
Item 2. Legal Proceedings.
No material legal proceedings to which the Company (or any officer or director of the Company, or any affiliate or owner of record or beneficially of more than five percent of the common stock, to management's knowledge) is a party or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated.
Item 3. Changes in and Disagreements with Accountants
None.
Item 4. Recent Sales of Unregistered Securities.
In April 2000, the Company commenced an offering (the "Offering") of 2,222,222 shares of common stock at a price of $.45 per share, pursuant to Rule 504 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act").
Of the 2,222,222 shares offered by the Company pursuant to Rule 504, 1,183,888 shares were paid for with cash. Analytica Financial Services is receiving a fee equal to $53,275 or 10% of the gross proceeds of the offering.
23
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NUMBER OF AGGREGATE
COMMON SHARES CONSIDERATION
PURCHASER PAID
Analytica Financial Services 222,222 $100,000
New Alliance Corp. 111,111 $ 50,000
Dr. Scott Busch 55,556 $ 25,000
Matt Dye 97,778 $ 44,000
Charlene Beck 111,111 $ 50,000
Michael DiMedio 111,111 $ 50,000
Paul Gastman 44,444 20,000
John Turco 44,444 20,000
Steven Jacobs 175,000 78,750
David Horvath 111,111 50,000
Mike Miller/Joshuah Foundation 100,000 45,000
==================================
TOTAL 1,183,888 $532,750
As a condition to the offering, the Company reserved the right to accept consideration for the shares consisting of any tangible or intangible property or benefit to the Company, including, but not limited to, services performed. As such, the following shares were issued in partial or complete satisfaction of prior services performed or prior debts owed for services performed at the Offering price of $.45 per share.
NUMBER OF COMMON NATURE OF SERVICE
NAME OF SHAREHOLDER SHARES PROVIDED
Steven A. Sanders 200,000 Legal
Laurence D. Paredes 22,001 Legal
William S. Rosenstadt 22,001 Legal
Ronald Berenblat 5,000 Legal
Eleccom Corporation, Ltd. 777,777 Finder of Intellashop Acquisition
Lenny Abruzzo 11,555 Accounting
==============
TOTAL 1,038,334
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In April 2000, Martin F. Cardone, the Company's President, CEO and director, and Spherics Limited, a corporation organized under the laws of Anguilla ("Spherics"), mutually agreed to terminate a December 1999 Letter of Intent between the parties which contemplated, in part, that for consideration of $150,000, Mr. Cardone would sell an amount of shares of the Company's common stock, beneficially owned by him, to provide Spherics with a controlling interest in the Company.
As a result of the Company's proposed acquisition of Intellashop, Spherics and the Company entered into an agreement (the "Spherics Agreement"), in April of 2000, whereby Spherics has agreed to commit $2,000,000 to the Company, payable over a six month period from the date of the Spherics Agreement, for operating capital to be used in connection with the operation of Intellashop.com. In consideration for the $2,000,000 commitment, the Company has agreed to issue 40,000,000 shares of the Company's common stock to Spherics under the provisions of Section 4(2) of the Act. Further, it is agreed upon by the parties that in the event that the proposed acquisition for Intellashop.com is not successfully completed within 120 days from the date of the Spherics Agreement, the Company shall return any and all monies paid to the Company by Spherics pursuant to the Spherics Agreement, and all shares issued to Spherics by the Company pursuant to the Spherics Agreement shall be returned free and clear of all security interests, claims, liens and other encumbrances.
On December 31, 1997, Mr. Cardone elected to receive 12,320,999 shares of the Company's common stock at a deemed price of $.015 per share as satisfaction for $185,264 in loans Mr. Cardone made to the Company. The Company and Mr. Cardone agreed that the conversion price for that transaction would be the closing price for the Company's stock as quoted on a nationally recognized quotation system.
As of December 31, 1999, the Company owed Mr. Cardone $551,113 which was a combination of unpaid salaries and promissory notes due Mr. Cardone (the "Notes"). The Company intends to pay $203,801 from the proceeds of its recent 504 Offering to Mr. Cardone to reduce that number to $347,312. Pursuant to Mr. Cardone's employment agreement with the Company and a separate agreement between the Company and Mr. Cardone which governed the terms of the Notes, Mr. Cardone had the right to convert any and all principal and interest due him into common stock of the Company at a 20% discount to the market price on the day(s) Mr. Cardone chooses to convert. On May 17, 2000, Mr. Cardone elected to convert $347,312 of the debts owed to him by the Company to 2,170,700 shares of the Company's common stock. In the event that the Company is unable to pay all or some of the remaining $203,801 due Mr. Cardone, Mr. Cardone retained his right to convert any unpaid debts from the Company to common stock. Further, on June 1, 2000 Mr. Cardone intends to convert $75,000 from his Year 2000 salary to common stock of the Company at the prescribed discounted price.
In May of 2000, the Company issued 795,000 shares of its unregistered common stock to a number of individuals or entities as compensation for services and advancement of certain costs for the benefit of the Company (the "4(2) Offering"). The shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended. No broker was involved and no commissions were paid. The deemed price per share for purposes of the 4(2) Offering was $.24.
NUMBER OF NATURE OF
COMMON SHARES SERVICE
NAME OF SHAREHOLDER PROVIDED
Richard Vincent 25,000 Consulting
Claudia Fioligio 5,000 Consulting
Marcella DeVone 4,000 Administrative
Mike Welsh 50,000 Consulting
William Campbell 18,000 Purchase of Goods
Dee McNamara 10,000 Consulting
Marc Gottlieb 50,000 Legal
Steven A. Sanders 200,000 Legal
Laurence D. Paredes 40,000 Legal
William S. Rosenstadt 35,000 Legal
Ron Berenblat 5,000 Legal
American Stock & Trust 25,000 Transfer Agent
Kerry Moody 50,000 Consulting
Joan Ann Handy 3,000 Administrative
Michael Beckman 25,000 Legal
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Item 5. Indemnification of Directors and Officers.
Pursuant to the Articles of Incorporation the Company has such authority, as the Utah Business Corporation Act allows to indemnify its officers and directors to the extent provided for in such statute. The only statute, charter provision, bylaw, contract or other arrangement under which any controlling person, director or officer of the Company is insured or indemnified in any manner against which liability they may incur in their capacity as such is the Utah Corporation Code, as enacted and in effect upon adoption of the Articles of Incorporation and Bylaws governing the Company. The provisions of the Utah Corporation Code provide that the Company may, but is not obligated to, indemnify against the liability an individual made a party to a lawsuit because they were previously or currently a director or officer of the Company, if such person acted in good faith and reasonably believed his or her actions were in the best interests of Company. The Company may not indemnify such persons if they are found liable to the Company in a shareholders derivative suit or are found liable for having received an improper personal benefit. The Company is required to indemnify such persons if they are ultimately successful in the suit. Pending a final determination, the Company may advance funds to these persons, but only if provision is made for the return of all funds advanced in the event such persons are subsequently found to be unentitled to indemnification. The general effect of this statute is to make indemnification available to the officers and directors of the Company regarding actions taken in their official capacity, unless they are found liable to the Company for their actions, they received an improper benefit therefrom, or they did not act in good faith while reasonably believing their actions were in the best interests of the Company. Indemnification would include actions of the of the officers and directors of the Company taken in connection with this filing. If available at reasonable cost, the Company intends to maintain insurance against any liability incurred by its officers and directors in defense of any actions to which they are made
26
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PART F/S
For information regarding this item, reference is made to the "Index of Financial Statements."
27
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Company has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 20, 2000
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
----------------------------------------------
Martin F. Cardone, Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant in the capacity on this 19th day of May, 2000.
/s/ Martin F. Cardone
----------------------------------------------
Martin F. Cardone, Director
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Index of Financial Statements
VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
VIRTUAL REALITY INC.
- INDEX -
Page(s)
Independent Auditors' Report F - 1
Financial Statements:
Balance Sheet F - 2
Statements of Operations F - 3
Statements of Changes on Shareholders' Equity F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F- 6 - F - 8
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Virtual Reality Inc.
New York, New York
We have audited the accompanying balance sheet of Virtual Reality Inc. as of December 31, 1999 and the related statements of operations, changes in shareholders' equity and cash flows for the years ended December 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Virtual Reality Inc. as of December 31, 1999, and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, certain conditions indicate that the Company may be unable to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
/s/ LAZAR LEVINE & FELIX LLP
-------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
March 17, 2000
F-1
--------------------------------------------------------------------------------
VIRTUAL REALITY INC.
BALANCE SHEET
AS OF DECEMBER 31, 1999
- ASSETS -
CURRENT ASSETS $ --
FIXED ASSETS (Note 1d):
Furniture and equipment 56,711
Less: accumulated depreciation (54,326)
---------
TOTAL ASSETS $ 2,385
=========
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable $ 149,320
Taxes payable 3,723
Due to officer (Note 3) 551,113
---------
TOTAL CURRENT LIABILITIES 704,156
CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY (DEFICIENCY) (Note 4):
Common stock, $.015 par value 34,727,913 shares issued and outstanding $ 520,919
Additional paid-in capital 2,754,791
Accumulated deficit (3,977,481) (701,771)
------------ ---------
$ 2,385
=========
The accompanying notes are an integral part of these financial statements.
F-2
--------------------------------------------------------------------------------
VIRTUAL REALITY INC.
STATEMENTS OF OPERATIONS
For the Year Ended
-----------------------------------------
December 31, December 31,
1999 1998
------------ -------------
NET SALES $ -- $ --
------------ ------------
COSTS AND EXPENSES:
Operating expenses 342,266 252,100
Interest expense 25,487 15,017
------------ ------------
TOTAL COSTS AND EXPENSES 367,753 267,117
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (367,753) (267,117)
Provision for income taxes (Note 1e) 200 200
------------ ------------
NET LOSS $ (367,953) $ (267,317)
============ ============
BASIC LOSS PER COMMON SHARE (Note 1f) $ (.01) $ (.01)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES (Note 1f) 34,727,913 34,024,707
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
--------------------------------------------------------------------------------
VIRTUAL REALITY INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock Additional
---------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 33,602,913 $ 504,044 $ 2,745,041 $(3,342,211) $ (93,126)
Shares issuable to officer (Note 4) 1,125,000 16,875 9,750 -- 26,625
Net loss -- -- -- (267,317) (267,317)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 34,727,913 520,919 2,754,791 (3,609,528) (333,818)
Net loss -- -- -- (367,953) (367,953)
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 34,727,913 $ 520,919 $ 2,754,791 $(3,977,481) $ (701,771)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
--------------------------------------------------------------------------------
VIRTUAL REALITY INC.
STATEMENTS OF CASH FLOWS
For the Year Ended
----------------------------
December 31, December 31,
1999 1998
------------ -----------
INCREASE (DECREASE) CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(367,953) $(267,317)
Adjustments to reconcile net loss to net cash (used by) operating activities:
Depreciation 2,810 2,810
Write off of patents and copyrights -- 18,692
Changes in assets and liabilities:
Increase in accounts payable 145,520 3,800
Increase in other current liabilities -- 436
Increase in taxes payable 266 --
--------- ---------
Net cash (used by) operating activities (219,357) (241,579)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in security deposits -- 5,632
--------- ---------
Net cash provided by investing activities -- 5,632
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans from officer 219,357 216,009
--------- ---------
Net cash provided by financing activities 219,357 216,009
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS -- (19,938)
Cash and cash equivalents, beginning of year -- 19,938
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest -- --
Income taxes -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Fair value of shares issued to officer for compensation -- $ 26,625
The accompanying notes are an integral part of these financial statements.
F-5
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VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Organization and Nature of Business:
The Company was previously in the business of development and production of virtual reality equipment and systems. Since 1997 the Company has been dormant. Management has been investigating opportunities to utilize and exploit the Company's goodwill.
(b) Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
(c) Fixed Assets:
Fixed assets are reflected at cost. Depreciation of furniture and equipment is provided on a straight-line basis over five years.
(d) Income Taxes:
The Company records income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). Under this standard, deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expense or benefit is based on the changes in the assets and liabilities from period to period and an operating loss carryforward. However, based upon historical losses, it is management's belief that it is more likely than not that none of the deferred tax asset will be realized. A valuation allowance has been created to reserve the entire deferred tax asset.
(e) Loss Per Common Share:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation of "basic" and "diluted" earnings per share on the face of the income statement. Loss per common share is computed by dividing the net loss by the weighted average number of common shares and common equivalent shares outstanding during each period.
F-6
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VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
(f) Use of Estimates:
In preparing financial statements in accordance with generally accepted accounting principles, management makes certain estimates and assumptions, where applicable, that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. While actual results could differ from those estimates, management does not expect such variances, if any, to have a material effect on the financial statements.
NOTE 2 - GOING CONCERN UNCERTAINTY:
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial operating losses over the past several years and has used substantial amounts of working capital in its operations. At December 31, 1999, current liabilities exceeded current assets by $704,156 and the accumulated stockholders' deficit aggregated $701,771. Management of the Company has been investigating opportunities to utilize and exploit the Company's goodwill (see also Note 6).
NOTE 3 - DUE TO SHAREHOLDER/OFFICER:
Due to shareholder/officer in the amount of $551,113 at December 31, 1999 bears interest at a rate of 8% per annum and is payable on a demand basis.
NOTE 4 - SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock issued and outstanding includes 2,500,000 shares in the aggregate issuable to an officer/shareholder for past compensation during the years ended December 31, 1998 and 1997.
F-7
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VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - CONTINGENCIES:
The Company is party to several pending legal proceedings and claims. Although the outcome of such items cannot be determined with certainty, the Company's management is of the opinion that provisions made for potential losses are adequate and any further liabilities and costs should not have a material adverse effect on the Company's results of operations or financial position.
NOTE 6 - SUBSEQUENT EVENT (Unaudited):
On February 23, 2000, the Company entered into a letter of intent for the acquisition of Intellashop, Inc., a corporation organized under the laws of Anguilla. Intellashop is an advanced technology real-time personal shopping agent with its "Intellashop.com" Web site.
F-8
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PART III
Item 1. Index to Exhibits.
For information regarding this item, reference is made to the "Index of Exhibits."
Index of Exhibits
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation
3.2 By-Laws
10.1 Martin F. Cardone Employment Agreement dated
September 12, 1996
10.2 Zorro Systems Ltd. Letter of Intent dated February
23, 2000
10.3 Spherics Limited Investment Agreement dated
April 19, 2000
10.4 Spherics Recission Agreement Dated May 9, 2000
10.5 Eleccom Finder's Agreement dated May 23, 2000
11.1 Statement re: Computation of Per Share Earnings
99.1 Irrevocable Proxy of Spherics Common Stock,
dated May 19, 2000
99.2 Promissory Note dated November 3, 1996
99.3 Promissory Note dated October 28, 1997
99.4 Promissory Note dated January 15, 2000
--------------------------------------------------------------------------------
Exhibit (3)(i)
ARTICLE OF INCORPORATION
OF
STEPRO, INC.
We, the undersigned natural persons of the age of twenty-one years or more, acting as incorporators of the corporation under the Nevada Business Corporations Act (hereinafter called the "Act") adopt the following Articles of Incorporation for such corporation.
ARTICLE I
Name. The name of the corporation (hereinafter called the "Corporation") is Stepro, Inc.
ARTICLE II
Period of Duration. The period of duration of the Corporation is perpetual.
ARTICLE III
Purposes and Powers. The purpose for which this Corporation is organized is to engage in the manufacturing of steel products and to engage in any and all other lawful business.
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue 50,000,000 shares of stock each having a par value of one-tenth of one cent (1
mil). All stock of the Corporation shall he of the same class and shall have the same rights and preference. Fully paid stock of this Corporation shall not he liable for further call or assessment. The authorized trading shares shall he issued at the
--------------------------------------------------------------------------------
discretion of the Directors.
ARTICLE V
Incorporators. The name and address of each incorporator is:
Shirrell W. Hughes 1981 East 4800 South #100 Salt Lake City, Utah 84117
Kurtis D. Hughes 2325 Arbor Lane Salt Lake City, Utah 84117
Susan Santage 4428 Greenhill Las Vegas, Nevada 89121
ARTICLE VI
Directors. The Corporation shall be governed by a Board of Directors consisting of no less than three (3) and no more than nine (9) directors. Directors need not be stockholders in the Corporation but shall be elected by the stockholders of the Corporation. The number of Directors constituting the initial Board of Directors is three (3) and the name and address of the persons who shall serve as Directors until their successors are elected and qualified are:
Shirrell W. Hughes 1981 East 4800 South #100 Salt Lake City, Utah 84117
Kurtis D. Hughes 2325 Arbor Lane Salt Lake City, Utah 84117
--------------------------------------------------------------------------------
Susan Santage 4428 Greenhill Las Vegas, Nevada 89121
ARTICLE VII
Commencement of Business. The Corporation shall not commence business until at least One Thousand Dollars ($1,000) has been received by the Corporation as consideration for the issuance of its shares.
ARTICLE VIII
Preemptive Rights. There shall be no preemptive right to acquire unissued and/or treasury shares of the stock of the Corporation.
Voting of Shares. Each outstanding share of common stock of the Corporation shall be entitled to one vote on each matter submitted to a vote at the meeting of the shareholders. Each stockholder shall be entitled to vote his or its shares in person or by proxy, executed in writing by such stockholder, or by his duly authorized attorney-in fact. At each election of Directors, every stockholder entitled to vote in such election shall have the right to vote in person or by proxy the number of shares owned by him or it for as many persons as there are directors to be elected and for whose election he or it has the right to vote, but the shareholder shall have no right to accumulate his or its votes with regard to such election.
--------------------------------------------------------------------------------
ARTICLE X
Initial Registered Office and Initial Registered Agent. The address of the initial registered office of the Corporation is 3230 East Flamingo Road, Suite 156, Las Vegas, Nevada 89121. And the initial registered agent of the Corporation at such address is Gateway Enterprises, Inc.
/s/ Shirrell W. Hughes
----------------------
Shirrell W. Hughes
/s/ Kurtis D. Hughes
----------------------
Kurtis D. Hughes
/s/ Susan Santage
----------------------
Susan Santage
STATE OF UTAH
COUNTY OF SALT LAKE
On the 10th day of September, 1991, personally appeared before me Shirrell W. Hughes, Kurtis D. Huges, and Susan Santage and duly acknowledged to me that they are the persons who signed the foregoing instrument as incorporators and that they have read the foregoing instrument and know the contents thereof and that the same is true of their own knowledge as to those matters upon which they operate and believe those matters to be true.
/s/ Lisa Hickman
-------------------------
NOTARY PUBLIC
--------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
STEPRO, INC.
Pursuant to the applicable provisions of the Nevada business Corporations Act, Stepro, Inc. (the "Corporation") adopts the following Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the Corporation is Stepro, Inc.
SECOND: The following amendments to its, Articles of Incorporation were adopted by majority vote of shareholders of the Corporation on December 30, 1991 in the manner prescribed by Nevada law.
1. Article I is amended to read as follows:
Name. The name of the corporation shall be: virtual Reality,
2. Article IV is hereby amended to read as follows:
Capitalization. (a) Common Stock. The Corporation shall have the authority to issue 100,000,000 shares of common stock having a par value of $.00l. All common stock of the Corporation shall be of the same class and shall have the same rights and preferences. Fully paid common stock of this Corporation shall not be liable for further call or assessment. The authorized common shares shall be issued at the discretion of the Directors. (b) Preferred Stock. The Corporation shall have the authority to issue 5,000,000 shares of preferred stock each having a par value of $.001, with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors of the Corporation.
--------------------------------------------------------------------------------
3. Articles VI is hereby amended to read as follows:
The Corporation shall be governed by a board of directors consisting of no less than one person. Directors need not be stockholders in the Corporation but shall be elected by the stockholders of the Corporation unless appointed by other directors to fill a vacancy on the Board. 4. Article XI is hereby added as follows:
ARTICLE XI
Liability of Directors and Officers. No director or officer shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director or officer.
Notwithstanding the foregoing sentence, a director or officer shall be liable to the extent provided by applicable law, (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) for the payment of dividends in violation of NRS 78.300.
The provisions hereof shall not apply to or have any effect on the liability or alleged liability of any officer or director of the Corporation for or with respect to any acts or omissions of such person occurring prior to such amendment.
THIRD: The number of shares of the Corporation outstanding and entitled to vote at the time of the adoption of said amendment was 40,082,593.
FORTH: The number of shares voted for such amendments was 34,105,000 (85%) and the number voted against such amendment was -0-.
DATED this 30th day of December, 1991.
--------------------------------------------------------------------------------
ATTEST: STEPRO, INC.
By:/S/Pamela Jowett By:/S/Glen R. Ulmer
------------------------ ------------------------
Pamela Jowett, Secretary Glen R.Ulmer, President
VERIFICATION
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
The undersigned being first duly sworn, deposes and states: that the undersigned is the Secretary of Stepro, Inc. that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the sole director and stockholders of the Corporation.
/S/Pamela Jowett
---------------------------
Pamela Jowett
Secretary
--------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
VIRTUAL REALITY, INC.
Pursuant to the app1icab1e provisions of the Nevada Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the corporation is VIRTUAL REALITY, INC.
SECOND: The following amendment to its Articles of Incorporation was adopted
by a Consent Reso1ution of the shareholders and Board of Directors of the Corporation on March 10, 1992 in the manner prescribed by Nevada Law.
1. Article V is amended as follows:
ARTICLE V - STOCK
a. Common Stock.
The aggregate number of common shares which the corporation shall have authority to issue is 10,000,000 shares at a par value of $.015 per share. All common stock when issued shall be fully paid and non-assessable.
No holder of shares of common stock of the corporation shall be entitled, as such, to any pre- emptive or preferential rights to subscribe to any unissued stock or any other securities which the corporation may now or thereafter be authorized to issue. The Board of Directors of the Corporation may, however, at its discretion, by resolution, determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of common stock of the corporation or solely to the holders of any class or classes of such stock, in such proportions based
--------------------------------------------------------------------------------
on stock ownership as said board at its discretion may determine.
Each share of common stock shall be entitled to one vote at stockholders meetings, either in person or by proxy. Cumulative voting in elections of Directors and all other matters brought before stockholders meetings, whether they be annual or special, shall be permitted.
b. Preferred Stock
The Corporation shall have authority to issue 5,000,000 shares of Preferred Stock, $.001 par value per share, with such rights preferences and designations and to be issued in such series as determined by the Board of Directors of the corporation.
2. The Corporation has effectuated a 15 to 1 reverse stock split of its shares of common stock outstanding as of March 11, 1992 reducing said shares from 92,782,593 shares to 6,185,506 shares. Said reverse split to be effective with the commencement of business on March 11, 1992.
THIRD: The number of shares of the Corporation outstanding and entitled to vote at the time of the adoption of said amendment was 92,782,593.
FORTH: The number of shares voted for such amendments was 47,567,520 and the number voted against such amendment was 0.
Dated this 10th day
of March, 1992.
VIRTUAL REALITY, INC. VIRTUAL REALITY, INC.
By: /s/ Nelson Merritt By: /s/ Robert Hamilton
------------------------- --------------------------
NELSON MERRITT, President ROBERT HAMILTON, Secretary
--------------------------------------------------------------------------------
VERTIFICATION
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the Secretary of VIRTUAL RRALITY, INC., that the undersigned has read the Articles of Amendment and knows contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockho1ders of the Corporation.
/s/ Robert Hamilton
---------------------------
ROBERT HAMILTON, Secretary
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the President of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Robert Hamilton
---------------------------
ROBERT HAMILTON, Secretary
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the President of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment
--------------------------------------------------------------------------------
and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Nelson Merritt
-------------------------
NELSON MERRITT, President
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
Before me the undersigned Notary Public in and for the said County and State, personally appeared the Secretary and President of VIRTUAL REALITY, INC., a Nevada corporation, and signed the foregoing Articles of Amendment as their own free and voluntary acts and deeds pursuant to a corporate resolution for the uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this 11th day of March, 1992.
/s/ Gina Moorehead
-------------------------
NOTARY PUBLIC
GINA MOOREHEAD
Notary Public, State of New York
REG. NO. 4960552
Qualified in Westchester County
My Commission Expires Dec. 26, 1993
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
VIRTUAL REALITY, INC.
Pursuant to the applicable provisions of the Nevada Business Corporations Act, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the Corporation is VIRTUAL REALITY, INC.
SECOND: The following amendment to its Articles of Incorporation was adopted by
a written Consent of Resolution of a majority of the shareholders and by unanimous consent of the Board of Directors of the Corporation on October 19, 1992 in the manner prescribed by Nevada Law.
1. Article V is amended as follows:
ARTICLE V - STOCK
a. Common Stock.
The aggregate number of common shares which the corporation shall have authority to issue is 20,000,000 shares at a par value of $.015 per share. All common stock when issued shall be fully paid and non-assessable.
No holder of shares of common stock of the corporation shall be entitled, as such, to any pre- emptive or preferential rights to subscribe to any unissued stock or any other securities which the corporation may now or thereafter be authorized to issue.
The Board of Directors of the Corporation may, however, at its discretion, by resolution,
--------------------------------------------------------------------------------
determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of common stock of the corporation or solely to the holders of any class or classes of such stock, in such proportions based on stock ownership as said board at its discretion may determine.
Each share of common stock shall be entitled to one vote at stockholders meetings, either in person or by proxy. Cumulative voting in elections of Directors and all other matters brought before stockholders meetings, whether they be annual or special, shall be permitted.
b. Preferred Stock.
The Corporation shall have authority to issue 5,000,000 shares of Preferred Stock, $.001 par value per share, with such rights preferences and designations and to be issued in such series as determined by the Board of Directors of the corporation.
THIRD: The number of shares of the corporation outstanding and entitled to vote at the time of the adoption of said amendment was 92,782,593.
FOURTH: The number of shares voted for such amendments was 47,567,520 and the number voted against such amendment was 0.
Dated this 31st day
of March, 1994.
VIRTUAL REALITY, INC.
By: /s/ Nelson A. Merritt
---------------------------------
Nelson A. Merritt, Vice President
By: /s/ Maureen J. Davis
----------------------------------
MAUREEN J. DAVIS, Secretary
--------------------------------------------------------------------------------
VERIFICATION
STATE OF NEW YORK )
:ss. Pleasantville
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the Secretary of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Maureen J. Davis
---------------------------
MAUREEN J. DAVIS, Secretary
STATE OF NEW YORK )
: ss. Pleasantville
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the President of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Nelson A. Merritt
---------------------------------
NELSON A. MERRITT, Vice President
STATE OF NEW YORK )
: ss. Pleasantville
COUNTY OF WESTCHESTER)
--------------------------------------------------------------------------------
Before me the undersigned Notary Public in and for the said County and State, personally appeared the Secretary and President of VIRTUAL REALITY, INC., a Nevada corporation, and signed the foregoing Articles of Amendment as their own free and voluntary acts and deeds pursuant to a corporate resolution for the Uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this 31st day of March, 1994.
/s/ Kathleen T. McManus
-----------------------
NOTARY PUBLIC
KATHLEEN T. McMANUS
Notary Public, State of New York
Putnam County
Reg. No. 5003017
Commission Expires 10/13/94
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CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After issuance of stock)
VRI, INC
Name of Corporation
We the Undersigned Martin F. Cardone (President) and Gwenn Long (Assistant Secretary) do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened held on the 28th day of March, 1997, adopted a resolution to amend the original articles as follows:
Article V is hereby amended to read as follows:
Article V - STOCK
a. Common Stock : The amount of the total authorized common stock of the Corporation is 100,000,000 common shares, par value $.015 per share. All common stock when issued shall be fully paid and non-assessable.
No holder of shares of common stock of the Corporation shall be entitled, as such, to any preemptive or preferential rights to subscribe to any unissued stock or any other securities which the Corporation may now or thereafter be authorized to issue. The Board of Directors of the Corporation may, however, at its discretion, by resolution, determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of common stock of the Corporation solely to the holders of any class of classes of such stock, in such proportions based on stock ownership as said board at its discretion may determine.
Each share of common stock shall be entitled to one vote at shareholders' meetings, either in person or by proxy. Cumulative voting in elections of Directors and all other matters brought before stockholders' meetings, whether they be annual or special shall be permitted.
b. Preferred Stock: The Corporation shall have authority to issue 5,000,000 shares of Preferred Stock, $0.001 par value, with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors of the Corporation.
The Number of Shares of the Corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation is 15,301,746 and the said change(s) and amendment have been consented to and approved by a majority vote of the stockholders holding at least a majority of each class of stock outstanding and entitled to vote thereon.
/s/ Martin F. Cardone
----------------------------
Martin F. Cardone, President
--------------------------------------------------------------------------------
/s/Gwenn Long
-------------------------------
Gwenn Long, Assistant Secretary
State of New York
ss
County of New York
On March 9, 2000 personally appeared before me, a Notary Public, Martin Cardone and Gwenn Long who acknowledged that they executed the above instrument.
/s/ Steven A. Sanders
-------------------------------
Signature of Notary
Notary Stamp or Seal
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Exhibit (3)(ii)
BY-LAWS
OF
VIRTUAL REALTY, INC.
ARTICLE I - OFFICES
The principal office of the corporation in the State of Nevada shall be located in the city of Reno, County or Washoe. The corporation may have such other offices, either within or without the State of incorporation as the board of directors may designate or as the business of the corporation may from time to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on such date as is determined by the Board of Directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the directors, and shall be called by the president at the request of the holders of not less than ten per cent of all the outstanding shares of the corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place, either within or without the state unless otherwise prescribed by statute, as the place for holding such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than thirty cars before the date of the meeting, either personally or by mail, by or
--------------------------------------------------------------------------------
at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each stockholder of record ant it led to vote at such meeting. It mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, thirty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than thirty days and, in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation or transfer agent and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at the meeting of stockholders.
7. QUORUM.
Unless otherwise provided by law, at any meeting of stockholders one-third of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall
--------------------------------------------------------------------------------
constitute a quorum at a meeting of stockholders. If less than said number of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and provisions of the certificate of incorporation and these by-laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholders. Upon the demand of any stockholder, the vote for directors and upon any question before the meeting shall be by ballot. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
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11. INFORMA~ ACTION BY 8TOCKHOLt)ER~.
Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the same percentage of all of the shareholders entitled to vote with respect to the subject matter thereof as would be required to take such action at a meeting.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its board of directors. The directors shall in all cases act as a board, and they may adopt such rules and regulations for the conduct of their meetings and the management of the corporation, as they may deem proper, not inconsistent with these by-laws and the laws of this state.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be no less than one or such other minimum number as is required by law. Each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. The directors may provide, by resolution(1) the time and place for the holding of additional regular meetings without other notice than such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of the president or any director. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least two days previously thereto by written notice delivered personally, or by telegram or mailed to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so
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addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors a majority shall constitute a quorum for the transaction of business, but if less than said number is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the directors or any act by unanimous consent of directors.
8. NEWLY CREATED DIRBCTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason except the removal of directors without cause may be filled by a vote of a majority of the directors then in office, although less than a quorum exists. Vacancies occurring by reason at the removal of directors without cause shall be filled by vote of the stockholders. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office tar the unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the stockholders or by action of the board. Directors may be removed without cause only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board, the president or the secretary of the corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board or such officer, and the acceptance of the resignation shall not be necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services, but by resolution of the board a fixed sum and expenses for actual attendance at each regular or special meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from
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serving the corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an executive committee and other committees, each consisting of three or more directors. Each such committee shall serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be as designated by the directors and shall include a president, a secretary and a treasurer, each of whom shall be elected by the directors. Any officer may hold more than one position. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be elected annually at the first meeting of the director held after each annual meeting of the stockholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed by the directors whenever in their judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the directors for the unexpired portion of the term.
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5. PRESIDENT.
The president shall be the principal executive officer of the corporation and, subject to the control of the directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these by-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time.
6. VICE PRESIDENT.
In the absence of the president or in event of his death, inability or refusal to act, the vice-president shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-president shall perform such other duties as from time to time may be assigned to him by the President or by the directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the directors' meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these by-laws or as required, be custodian of the corporate records and of the seal of the corporation and keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder, have general charge of the stock transfer books of the corporation and in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with these by-laws and in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the directors.
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9. SALARIES.
The salaries of the officers shall be fixed from time to time by the directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the directors. Such authority may be general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by the president and by the secretary or by such other officers authorized by law and by the directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the stockholders, the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate
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shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the corporation which shall be kept at its principal office.
(b) The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall end on the last day of such month in each year as the directors may prescribe.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation, year of incorporation and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these by-laws or under the provisions of the articles of incorporation, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
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ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repeated and new by-laws may be adopted by action of the Board of Directors
/s/ Pamela Lovett
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Secretary
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EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 12, 1996 by and between Virtual Reality, Inc., a Nevada corporation (the "Company"), and Martin Cardone, an individual currently residing at 116 John Street, New York, New York 10038 (individually, the "Executive", collectively the "Parties").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company, upon the terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Parties hereby agree as follows:
1. Employment and Duties.
(a) General. The Company hereby employs Executive and Executive agrees upon the terms and conditions herein set forth to serve as the CEO/Chairman of the Company, and in such capacities Executive agrees to perform the duties delineated in the By-Laws of the Company, together with such reasonable additional duties, commensurate with Executive's position as CEO/Chairman, as may be assigned to Executive from time to time by the Board of Directors (the "Board")of the Company. Without limiting the foregoing, Executive's duties shall include preparing monthly management accounts and reports in such form and manner as shall be prescribed by the Board. If elected or appointed, Executive shall also serve as a director or officer of any of the Company's subsidiaries or affiliated companies and, if elected, will serve as a member of the Board or committees of the Board, without further compensation. Executive shall not be elected a member of the Board or committees of the Board prior to the commencement of year two of the initial Term (as hereinafter defined).
(b) Exclusive Services. For so long as Executive is employed by the Company, Executive shall, except as may from time to time be otherwise agreed to in writing by the Company pursuant to authority granted by a resolution of the Board, devote his full-time working hours to his duties hereunder, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful and good faith directions and instructions given to him by the Board, and shall use his best efforts to promote and serve the interests of the Company.
(c) No Other Employment. For so long as Executive is employed by the Company, Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation without the consent of the Company pursuant to the authority granted by a resolution of the Board or otherwise engage in activities which would interfere significantly with his faithful performance of his duties hereunder. Executive may perform inconsequential services without direct compensation therefor in connection with the management of personal investments, provided that such activity does not contravene the provisions of section 5 hereof.
2. Term of Employment. The Company shall retain Executive and Executive shall serve in
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the employ of the Company for the four year period commencing as of September 12, 1996 (the "Effective Date") and ending on September 11, 2000 (the "Term"), subject to earlier termination in accordance with Section 4 of this Agreement. The Term shall be automatically extended without further action by either party for a successive or successive one-year period or periods, unless written notice of either party's intention to terminate this Agreement has been given to the other party at least ninety days prior to the expiration of the Term. In the event that the Company elects not to extend the Term in accordance with the provisions of this Section 2, Executive shall be entitled to devote reasonable periods of time during the remaining Term to seek new employment. For purposes of this Agreement, the twelve (12) month period commencing on the Effective Date and ending on the first anniversary thereof, and each twelve (12) month period ending on each subsequent anniversary thereof during the Term, shall be referred to as a "Contract Year".
3. Compensation and Other Benefits. Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to Executive during the Term as compensation for services rendered hereunder:
(a) (i) Salary. The Company shall pay to Executive an annual base salary (the "Salary") at the rate of $60,000 per annum in the first Contract Year and $150,000 per annum in the second, third and forth Contract Year. Salary shall be payable in substantially equal installments at the end of each calendar month or at such other intervals as may be determined by the Company in accordance with its payroll practices as established from time to time. The Salary will be reviewed not less often than annually by the Board and may be increased, but not decreased. However, in the event that the Company is unable to make any payment due to the Executive pursuant to this Section 3 for any reason whatsoever, the Executive has the right to convert any or all of such payments to unregistered common stock of the Company at a Twenty Percent (20%) discount of the closing price as reflected on a reputable national quotation system such as Yahoo! Finance as the date immediately prior to such conversion.
(ii) As additional compensation to the Executive, the Executive shall earn the following number of shares of common stock so long as the Executive is continuously employed by the Company through January 1, 2000 (the "Vesting Date"). In the event that the Executive is not continuously employed by the Company through the Vesting Date, the Company has the exclusive right to "clawback" all of the shares earned pursuant to this sub-paragraph.
Denomination Date Earned
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250,000 December 31, 1996
250,000 March 31, 1997
250,000 June 30, 1997
250,000 September 30, 1997
375,000 December 31, 1997
375,000 March 31, 1998
375,000 June 30, 1998
375,000 September 30, 1998
(b) Bonus. The Company agrees that Executive shall be eligible to earn a bonus (the "Bonus") for each Contract Year during the Term. The minimum Bonus for the initial Term shall be in accordance with the following schedule:
A Bonus for a Contract Year during the Term shall be paid no later than ninety
(90) days after the end of the Contract year to which such Bonus relates In the event that the Executive's employment ends under the circumstances described in
Section 2 above, the Bonus, it any, for the final Contract Year of Executive's employment shall be paid to Executive within ninety (90) days after the end of such final Contract Year, notwithstanding that Executive is no longer in the employ of the Company at that time.
(c) Travel Expenses. The Company shall reimburse Executive for reasonable travel and other business-related expenses incurred by Executive in the fulfillment of his duties hereunder. Travel expenses shall be accounted for in accordance with Company reporting practices. Travel shall be done in the most commercially feasible manner under the circumstances.
(d) Employee Benefits. The Company at its cost shall provide Executive with the insurance, health, major medical, disability benefits and sick leave benefits provided to similarly situated executives of the Company. Executive shall also participate in all other benefit plans, programs and arrangements that the Company typically makes available to its executive employees.
(e) Vacation. For the first Contract Year, Executive shall accrue vacation days at a rate of one day per month of employment up to a maximum of twelve (12) days and Executive shall be entitled to reasonable sick leave in accordance with the Company's policies as established from time to time. For each Contract Year thereafter, the maximum number at vacation days accrued for such year shall be increased by one (1) day for each full Contract Year completed prior thereto, and
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appropriate adjustment shall be made to the monthly rate of vacation accrual to reflect such increase; provided, however, that the maximum number of vacation days accrued in any Contract Year shall in no event exceed eighteen (18) days.
(f) Automobile Allowance. During Executive's employment with the Company, Executive may lease and insure an automobile for his business use and the Company shall promptly reimburse Executive, provided that the amount of the combined leasing, insurance and parking payments shall not exceed $700.00 per month (the "Allowance").
4. Termination of Employment.
(a) Termination for Cause; Resignation Without Good Reason. (i) If, prior to the expiration of the Term, Executive's employment is terminated by the Company for Cause, as defined in section 4(a) (ii) hereof, or if Executive resigns from his employment hereunder, other than for Good Reason, as defined in section 4(a) (iii) hereof, Executive shall be entitled to payment of the pro rata portion of Executive's Salary under section 3(a) through and including the date of termination or resignation. Except to the extent required by applicable law, Executive shall have no right under this Agreement or otherwise to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment with respect to the year of such termination or resignation and later years.
(ii) Termination for "Cause" shall mean termination of Executive's employment with the Company by the Board because of (A) any act or omission which constitutes a material breach by Executive of his obligations or agreements under this Agreement or the failure or refusal of Executive to satisfactorily perform any duties reasonably required hereunder, (other than by reason of the incapacity of Executive due to physical or mental illness), (B) the commission by Executive of a felony, or the perpetration by Executive of a dishonest act or common law fraud against the Company, or any affiliate or subsidiary thereof, (C) any act or omission by Executive which, in the good faith opinion of the Board, is injurious in any significant respect to the financial condition or business reputation of the Company or any of its affiliates or subsidiaries (other than any good faith act or omission in furtherance of the rights of the Company) and which resulted from Executive's willful misconduct or inexcusable neglect or (D) Executive's habitual drunkenness on the job or excessive absenteeism not related to illness, sick leave, holiday leave or vacation.
(iii) Resignation for "Good Reason" shall mean the resignation of Executive after an act or omission by the company which is a material breach of this Agreement; provided, however that at least 20 days prior to such resignation Executive specifies to the Company in writing the nature of such act or omission set forth in clause and the Company or the Board does not correct such act or omission within 10 business days after its receipt of such written specification.
(iv) The date of termination of employment by the Company under this section 4(a) shall be the date set forth in the written notice of termination delivered by the Company to Executive, unless no such date is specified in such notice, in which case the date of termination shall be the date of receipt by Executive of written notice of termination. The date of resignation under this section 4(a) shall be 10 business days after receipt by the Company of written notice of resignation.
(b) Termination Without Cause; Resignation for Good Reason. (i) Subject to the provisions of section 4(b) (ii), if, prior to the expiration of the Term, Executive's employment is terminated by the Company without Cause, or if Executive resigns from his employment hereunder for Good Reason, the Company shall continue to pay to Executive the Salary (at the rate An effect on the date of such termination) during the remainder of the Term; provided, however, that the amount of any such payments shall be reduced by any salary or other compensation payment received by Executive from a subsequent employer or employers during the remainder of the Term. Except to the extent required by applicable law, Executive shall have no right under this
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Agreement or otherwise to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment with respect to the year of such termination or resignation and later years.
(ii) If, following a termination of employment without Cause or a resignation for Good Reason, Executive breaches the provisions of section 5 hereof, Executive shall not be eligible, as of the date of such breach, for the payments described in this section 4(b), and any and all obligations and agreements of the Company with respect to such payments shall thereupon cease.
(iii) The date of termination of employment by the Company under this section 4(b) shall be the date specified in a written notice of termination to Executive or, it no such date is specified therein, the date on which such notice is given to Executive The date of resignation under this section 4(b) shall be 10 business days after receipt by the Company of written notice of resignation.
(c) Termination Due to Death or Disability. In the event of Executive's disability, as defined below, the Company shall be entitled to terminate his employment. Notwithstanding anything contained in this Agreement to the contrary, if Executive's employment should terminate due, to death or disability, no further payments of Salary shall be earned by Executive, and any Salary earned by Executive to the date of such termination shall be paid to Executive or Executive's estate, as the case may be, within 30 days of such termination. As used in this section, the term "disability" shall mean the inability of Executive to perform his services as President of the Company as required hereunder due to physical or mental incapacity or illness for more than 45 consecutive days.
5. Secrecy and Noncompetition.
(a) No Competing Employment. For so long as Executive is employed by the Company and continuing for 3 years after the termination of such employment or resignation therefrom (such period being referred to hereinafter as the "Restricted Period"), Executive shall not, unless he receives after the Effective Date the prior written consent of the Company pursuant to authority granted by a resolution of the Board, directly or indirectly engage or participate, as an owner, partner, shareholder, officer, employee, director, agent or consultant, in any business which directly or indirectly competes with the Company or any of its subsidiaries or affiliates, and, further, that Executive will not make any investments in any business that competes with the Company.
(b) No Interference. During the Restricted Period, Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), intentionally solicit, endeavor to entice away from the Company, or otherwise interfere with the relationship of the Company with, any person who is employed by or otherwise engaged to perform services for the Company (including, but not limited to, any independent sales representatives or organizations) or any person or entity who is, or was within the then most recent 12 month period, a customer or client of the Company.
(c) Secrecy. Executive recognizes that the services to be performed by him hereunder are special, unique and extraordinary in that, by reason of his employment hereunder, he may acquire confidential information and trade secrets concerning the operation of the Company, or its affiliates or subsidiaries, the use or disclosure of which could cause the Company or its affiliates or subsidiaries substantial loss and damages which could not be readily calculated and for which no remedy at law would be adequate. According1y, Executive covenants and agrees with the Company that he will not at any time, except in performance of Executive's obligations to the Company hereunder or with the prior written consent of the Company pursuant to authority granted by a resolution of the Board, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company, or any of its subsidiaries and affiliates, or use any such information. The term "confidential information" includes, without
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limitation, information not previously disclosed to the public or to the trade by the Company's management with respect to the Company's, or any of its affiliates' or subsidiaries', products, facilities and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product price lists, customer lists, financial information (including the revenues, costs or profits associated with any of the Company's products), business plans, prospects or opportunities but shall exclude any information already in the public domain. Executive understands and agrees that the rights and obligations set forth in this section 5(c) shall continue for 10 years and, in any case, shall extend for a period of three years beyond the Restricted Period and Executive's employment hereunder.
(d) Exclusive Property. Executive confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by Executive relating to the business of the Company shall be and remain the property of the Company. Upon the termination of his employment with the Company or upon the request of the Company at any time, Executive shall promptly deliver to the Company, and shall not without the consent of the Company, retain copies of, any written materials not previously made available to the public, records and documents made by Executive or coming into his possession concerning the business or affairs of the Company or any of its affiliates or subsidiaries; provided, however, that subsequent to any such termination, the Company shall provide Executive with copies (the cost of which shall be borne by Executive) of any documents which are requested by Executive and which Executive has determined in good faith are
(i) required to establish a defense to a claim that Executive has not complied with his duties hereunder or (ii) necessary to Executive in order to comply with applicable law. Executive understands and agrees that the rights and obligations set forth in this section 5(d) are perpetual and, in any case, shall extend beyond the Restricted period and Executive's employment hereunder.
(e) Injunctive Relief. Without intending to limit the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in this section 5 may result in material irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Executive from engaging in activities prohibited by this section 5 or such other relief as may be required to specifically enforce any of the covenants in this section 5.
(f) Extension of Restricted Period. In addition to the remedies the Company may seek and obtain pursuant to section 5(f), the Restricted Period shall be extended by any and all periods during which Executive shall be found by a court possessing personal jurisdiction over him to have been in violation of the covenants contained in this section 5.
6. Source of Payments. All payments provided under this Agreement, other than payments made pursuant to a plan which provides otherwise, shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company.
7. Nonassignability; Binding Agreement.
(a) By Executive. Without the prior written consent of the Company pursuant to authority granted by a resolution of the Board, this Agreement and any and all rights, duties, obligations or interests hereunder shall not be assignable or delegable by Executive, nor shall any right of Executive (or Executive=s estate or beneficiary, as the case may be) to any payment or benefit
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hereunder be subject to any manner of alienation or assignment.
(b) By the Company. This Agreement and all of the Company's rights and obligations hereunder may be assigned, delegated or transferred by it to any business entity which at any time by merger, consolidation or otherwise acquires all or substantially all of the assets of the Company or to which the Company transfers all or substantially all of its assets. Upon such assignment, delegation or transfer, any such business entity shall be deemed to be substituted for all purposes as the Company hereunder.
(c) Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto, any successors to or assigns of the Company and Executive's heirs and the personal representatives of Executive's estate.
8. Severability. If the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term or provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.
9. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto; provided, however, that any such modification, amendment or waiver on the part of the Company shall have been previously approved by the Board. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.
10. Tax Withholding. Payments to Executive of all compensation contemplated under this Agreement be subject to all applicable legal requirements with respect to the withholding of taxes.
11. Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State.
12. Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall he delivered or mailed to Executive at the address first set forth above, or if addressed to the Company, the notice shall be delivered or mailed to, or such other address as the Company or Executive may designate by written notice at any time or from time to time to the other party. A notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt.
13. Supercedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder.
14. Counterparts. This Agreement may be executed by either of the parties hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
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15. Headings. The headings of sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the Company has caused the Agreement to he signed by its officer pursuant to the authority of its Board, and Executive has executed this Agreement, as of the day and year first written above.
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
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Name: Martin F. Cardone
Title: President
/s/ Martin F. Cardone
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Martin F. Cardone
"Executive"
/s/ [ILLEGIBLE]
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Witnessed By
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VRI, Inc. 333 Meadowlands Parkway Secaucus, New Jersey 07094 Telephone: (201) 390-9200 Facsimile: (201) 390-0156
February 23, 2000
VIA FACSIMILE: (246) 431-0076
Zorro Systems, Ltd.
Chancery House
High Street
Bridgetown, Barbados
Attention: Mr. Alec Wright
Re: Proposed Agreement for the Purchase of Common Stock of Intellashop, Inc.
Dear Mr. Wright:
This letter, when countersigned by you and Intellashop, Inc., shall confirm the agreement as of January 7, 2000, by and between VRI, Inc., a Nevada corporation (the "Buyer"), Zorro Systems Ltd., a Barbados corporation (the "Shareholder") and Intellashop, Inc., a Barbados corporation (the "Company"), upon which the Shareholder will sell to Buyer shares of the Company's common stock. Our agreement is on the terms, and subject to the conditions, described below. Except for paragraphs 5, 6 and 7 below, however, this letter represents only our current good-faith intention to negotiate and enter into a definitive agreement for the purchase of common stock (the "Agreement for the Purchase of Common Stock"), which shall be subject to the terms and conditions of this letter satisfactory completion of the parties' due diligence investigation and to negotiation of such as Agreement for the Purchase of Common Stock in a form acceptable to the parties (except with respect to paragraphs 5, 6 and 7, below) and none of the parties hereto shall have any liability to the other if the parties fail to execute an Agreement for the Purchase of Common Stock. Statements below as to what the parties will do, or agree to do, or the like, are so expressed for convenience purposes only, and are understood in all instances (except for paragraphs 5, 6 and 7 below) to be subject to our mutual continued willingness to proceed with any transaction as our negotiations take place.
1. Fundamental Terms. At the date of closing of the Agreement for the Purchase of Common Stock (the "Closing"), the Buyer agrees to purchase and Shareholders agrees to sell and deliver, such number of shares of the Company's common stock, $100.00 par value, which shall represent not less than 100% of the Company's issued and outstanding shares of common stock as of the Closing, on a fully diluted basis (collectively, the "Shares"), after giving effect to all outstanding Company shares of common stock, options, warrants or rights to acquire Company shares of common stock, as if all Company shares of common stock which may be acquired by exercise or conversion of options, warrants or rights, were deemed outstanding. As consideration for the sale of Shares to Buyer, Buyer agrees to pay Shareholder
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200,000,000 shares of common stock, $0.15 par value, of the Buyer (collectively, the "Exchange Shares" or, the "Purchase Price"). The parties hereto agree that the Shares and the Exchange Shares shall be fully paid and nonassessable, free and clear of all liens, encumbrances, options, and legal or equitable rights of others not a party to this letter.
2. Definitive Agreement. The parties hereto mutually agree to proceed in good faith toward negotiations and execution of the Agreement for the Purchase of Common Stock, which shall provide for the sale and purchase of the Shares and which shall contain representations, warranties, conditions, covenants and the like typical in such transaction.
3. Conditions. This letter is and, to the extent applicable, the Agreement for the Purchase of Common Stock will be subject to the following conditions:
a. A complete and satisfactory due diligence review by the Buyer of the books, records, business and affairs of the Company. The Company agrees to provide Buyer and its agents complete access to all of the Company's books, records and personnel for purposes of conducting Buyer's investigation;
b. A complete and satisfactory due diligence review by the Shareholder and the Company of the books, records, business and affairs of the Buyer. The Buyer agrees to provide Shareholder and the Company and their respective agents complete access to all of the Buyer's books, records and personnel for purposes of conducting Shareholder's and Company's investigation;
c. The existence at the Closing of no material liabilities on the books of the Company and the Buyer, and no undisclosed or contingent liabilities, other than those expressly agreed upon by the parties;
d. The approvals and consents of all applicable governmental bodies, lenders, lessors, third parties, and Company's Buyers and Seller's respective board of directors;
e. The occurrence of no material changes in the Company's and Buyer's business or capitalization between the date of this letter and the date of Closing, other than as required or conditioned herein, or otherwise expressly agreed upon by the parties in writing; and,
f. The completion and filing by Shareholder, Company and/or Buyer of all documentation, reports, schedules and other information necessary to bring the Company and/or the Buyer into compliance with the rules and regulations of the U.S. Securities and Exchange Commission and the Internal Revenue Service.
4. Expenses. Each party to this letter shall bear its own expenses, except as specifically
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provided to the contrary above.
5. Indemnification. The Company hereby agrees to defend, indemnify and hold harmless the Buyer, and all of Buyer's officers, directors, attorneys, stockholders, employees and agents against any and all expenses of defense and investigation related thereto, of any and every nature and description, however incurred, arising out of or related to this letter of intent, the Agreement for the Purchase of Common Stock, and any agreements or proceedings related thereto.
The Buyer hereby agrees to defend, indemnify and hold harmless the Shareholders and the Company, and all of the Company's officers, directors, attorneys, stockholders, employees and agents against any and all expenses of defense and investigation related thereto, of any and every nature and description, however incurred, arising out of or related to this letter of intent, the Agreement for the Purchase of Common Stock, and any agreements or proceedings related thereto.
6. Confidentiality. Buyer hereby agrees that all information provided by Shareholder or the company and identified as "confidential" by Shareholder or the Company will be treated as such, and that the Buyer shall not make any use of such information other than with respect to the transactions contemplated by this letter or by this letter are terminated without the execution of a definitive Agreement for the Purchase of Common Stock, Buyer shall return to Shareholder or the Company all such confidential information in its possession, or will certify to Shareholder and the Company that all of such that has not been returned has been destroyed.
Shareholders and Company hereby agree that all information provided by Buyer and identified as "confidential" by Buyer will be treated as such, and that the Shareholder and Company shall not make any use of such information other than with respect to the transactions contemplated by this letter or by the Agreement for the Purchase of Common Stock. If the agreements contemplated by this letter are terminated without the execution of a definitive Agreement for the Purchase of Common Stock, Shareholder and Company shall return to Buyer all such confidential information in its possession, or will certify to Buyer that all of such that has not been returned has been destroyed.
7. Termination. This letter of intent may be terminated by mutual consent of the Buyer, the Shareholder and the Company.
In the event of such termination, all provisions hereof shall terminate except as provided in the initial paragraph preceding paragraph 1, above, except that if a party is in breach of its obligations hereunder, such transaction shall not relieve such party of liability for such breach.
This letter agreement shall be governed by, and construed with, the laws of the State of Nevada, without giving effect to conflict of laws principles thereof, and in any action to enforce or interpret or arising under any of the provisions of this agreement, the parties expressly agree to
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submit to the jurisdiction of any Federal or State court sitting in Clark County, State of Nevada.
Sincerely,
VRI, INC.
By: /S/ Martin F. Cardone
-------------------------------
Name: Martin F. Cardone
Title: President
ACCEPTED AND AGREED TO as of the date first above written:
ZORRO SYSTEMS LTD.
By: /S/ Alec Wright
---------------------------
Name: Alec Wright
Title: Chairman
ACCEPTED AND AGREED TO as of the date first above written:
INTELLASHOP INC.
By: /S/ Alec Wright
---------------------------
Name: Alec Wright
Title: Chairman
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SPHERICS LIMITED
Victoria House - Box 58
The Valley, Anguilla BWI
April 19, 2000
Virtual Reality, Inc.
116 John Street - Suite 130
New York, NY 10038
Attn: Martin F. Cardone
CEO & Chairman
Re: Letter Agreement for Operating Capital Financing from Spherics
Limited
Dear Mr. Cardone,
This Letter Agreement, when countersigned by you, shall be binding agreement between Spherics Limited (the "Investor") and Virtual Reality, Inc. (The "Company") for a Two Million Dollar ($2,000,000) investment in the Company in return for Forty Million (40,000,000) restricted shares of the Company's common stock, $.015 par value (the "Shares"), pursuant to the terms and conditions found herein:
1. Fundamental Terms. The Investor shall invest a total of Two Million Dollars ($2,000,000) (the "Investment") in the Company. The Investment shall consist of One (1) initial payment of Five Hundred Thousand Dollars ($500,000) and one or more payments totaling One Million Five Hundred Thousand Dollars ($1,500,000)(the "Balance"). The first payment shall be made on the One (1) month anniversary of this Letter Agreement (the "First Payment"). The Balance shall be satisfied through a payment schedule to be determined by the Parties in a subsequent agreement, written or otherwise. As consideration for the Company's sale of the Shares, the Company shall issue the Shares to the Investor, upon execution of this Letter Agreement. The Shares shall be fully paid and nonassessable, free and clear of all liens, encumbrances, options, restrictions and legal or equitable rights of others not a party to this letter. The investment may take the form of equity or loan, or a combination thereof.
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2. Use of Proceeds. The Investor anticipates and intends that the Company shall use the Investment to satisfy the operating capital requirements of Intellashop, Inc., the Company's intended acquisition (the "Acquisition"). In the event that the Company does not successfully complete the Acquisition within One Hundred Twenty (120) days from the date hereof, the Company shall promptly return all payments received pursuant to paragraph 1 of this Letter Agreement and the Investor shall, simultaneous with such remittance, return the Shares to the Company.
3. Closing. Payment of the First Payment for, and delivery of the Shares shall be made at the offices of Beckman, Millman & Sanders, LLP, 116 John Street - Suite 1313, New York, New York 10038, or at such other place as shall be agreed upon by the Investor and the Company, and shall be made at the time and date of execution of this Agreement (such payment and delivery being herein called the "Closing"). The time and place of the remaining payments of the Balance shall be made as shall agreed upon subsequent to this Letter Agreement by the Investor and the Company.
4. Expenses. Each party to this Letter Agreement shall bear its own expenses.
5. Indemnification. The Company hereby agrees to defend, indemnify and hold harmless the Investor, and all of Investor's officers, directors, attorneys, stockholders, employees and agents against any and all expenses of defense and investigation related to this Letter Agreement and any agreements or proceedings related thereto.
6. Confidentiality. Investor hereby agrees that all information provided by the Company and identified as "confidential" by the Company will be treated as such, and that the Investor shall not make any use of such information other than with respect to the transaction contemplated by this Letter Agreement. If the agreements contemplated by this letter are terminated, Investor shall return to the Company all such confidential information in its possession, or will certify to the Company that all of such that has not been returned has been destroyed.
7. Termination. This letter of intent may not be terminated unless the Investor and the Company have agreed to such in writing. In the event of such termination, all provisions hereof shall terminate.
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8. Governing Law. This letter agreement shall be governed by, and construed with, the laws of the State of New York, without giving effect to conflict of laws principles thereof, and in any action to enforce or interpret or arising under any of the provisions of this agreement, the parties expressly agree to submit to the jurisdiction of any Federal or State court sitting in New York County, State of New York.
Sincerely,
SPHERICS LIMITED
By: /S/ John O. Dyrud
-------------------------------
Name: John O. Dyrud
Title: Corporate Counsel and
Authorized Agent
ACCEPTED AND AGREED TO as of the date first above written:
VIRTUAL REALITY, INC.
By: /S/ Martin F. Cardone
----------------------------
Martin F. Cardone
CEO and Chairman
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RECISSION AGREEMENT made and entered into as of the th day of April, 2000, by and among Martin F. Cardone ("Cardone") and Spherics Limited ("Spherics", Cardone and Spherics shall be collectively known as the "Parties").
W I T N E S S E T H
WHEREAS, the Parties are desirous for the termination of the Letter of Intent dated December 8, 1999 to which Cardone and Spherics are parties (the "Letter of Intent"); and
WHEREAS, the Parties are desirous of releasing each other from all legal liability associated with the Letter of Intent.
NOW, THEREFORE, in consideration of the foregoing premises and covenants, agreements, representations and warranties herein contained, the parties hereto agree as follows:
1. Transfer of the Funds. (a) The Parties hereby agree that no funds were transferred pursuant to the Letter of Intent and that the Escrow Agent does not presently hold nor did it ever hold funds pursuant to the Letter of Intent.
2. The Closing. The date of closing shall be when all of the conditions set forth in this Agreement have been satisfied or waived by the respective parties in writing.
3. Mutual Releases. All of the parties to this Agreement, as well as any officers, directors, shareholders, agents, successors, assignees and representatives of the parties, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby release, remise, acquit and forever discharge the others and all of their respective executors, heirs, affiliates, representatives, administrators, predecessors, successors and assigns, from any and all known, unknown, matured and unmatured, liquidated and unliquidated, contingent and non-contingent, actions, causes of action, claims, demands, damages, costs, suits, debts, dues, sums of money, accounts, reckonings, bills, covenants, contracts, liens, controversies, agreement, promises, variances, trespasses, extents and executions whatsoever, at law or in equity (collectively, the "Claims") which the Parties had, have or may have arising out of or in whole or in part at any time prior to the execution of this Agreement related to the transaction effected under the Letter of Intent dated as of December 8, 1999. The release given herein shall be and remain in effect, as a full and complete release of such Claims, notwithstanding discovery or existence or any additional or
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different claims or facts. Provided that nothing in this release shall act to release any party from any claims which arise as a result of a breach of this Agreement notwithstanding the basis for such claim. THIS RELEASE MAY NOT BE CHANGED ORALLY.
4. Choice of Law. This Agreement shall be governed by, and construed with, the laws of the State of New York, without giving effect to conflict of laws principals thereof, and in any action to enforce or interpret or arising under any of the provisions of this agreement, the parties expressly agree to submit to the jurisdiction of any Federal or State court sitting in New York County, State of New York.
5. Escrow Agent's Rights and Duties. (a) All of the parties to this Agreement agree to indemnify Beckman, Millman & Sanders, LLP, the Escrow Agent as that term is defined in the Letter of Intent for and hold it harmless against any loss, liability, damage, claim or expense (including the reasonable fees and disbursements of its attorneys) incurred by or asserted against the Escrow Agent, arising out of or in connection with its entering into the escrow account herein referenced, the performance of its duties hereunder and otherwise in respect hereof, including the costs and expenses of defending itself against any claim or liability in the premises, except that we shall not be liable hereunder as to matters in respect of which the Escrow Agent is determined to have acted with gross negligence or in bad faith. The Escrow Agent shall have no liability to any of the parties to this Agreement or to any person in respect to any action taken or any failure to act in respect of this Escrow Agreement if such action was taken or omitted to be taken in good faith, and Escrow Agent shall be entitled to rely in this regard on the advice of counsel.
[This space intentionally left blank.]
-2-
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(b) The Escrow Agent may assume that any notice or instruction received by it hereunder is authentic and has been duly and validly given, pursuant to due authorization by or on behalf of the person by which or on behalf of which it purports to be given, and the Escrow Agent shall have no duty to inquire with respect thereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the date first above written.
MARTIN F. CARDONE
/s/ Martin F. Cardone
---------------------------
Martin F. Cardone
SPHERICS LIMITED
By: John O. Dyrud
Name: John O. Dyrud Title: Corporate Counsel and Authorized Agent
As Escrow Agent:
BECKMAN, MILLMAN & SANDERS, LLP
By:
Steven A. Sanders
-3-
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FINDER'S AGREEMENT
This Agreement is made this 23 day of May, 2000, between Virtual Reality, Inc. ("Virtual") and Eleccom Corporation LTD. ("Eleccom") with reference to the following facts:
Virtual is a Nevada corporation with its principal offices located at 116 John Street, New York, new York 11038;
Eleccom is an Anguillan corporation with its principal offices located at Victoria House, P.O. Box 58, The Valley, Anguilla, B.W.I.;
Virtual desires to sell 200,000,000 shares of its restricted Common Stock
(the "Virtual Shares") to Zorro Systems Ltd., a Barbados corporation ("Zorro")
in exchange for 100% of the issued and outstanding common stock of Intellashop Inc., a wholly owned subsidiary of Zorro (the "Intellashop Shares");
Zorro desires to sell the Intellashop Shares to Virtual in exchange for the Virtual Shares;
Virtual affirms that Eleccom introduced Virtual to Zorro; and
Virtual desires to pay to Eleccom a finder's fee for such introduction.
THEREFORE, the following is agreed between Virtual and Eleccom:
1. In the event that Virtual and Zorro enter into a definitive agreement for the purchase of common stock (a "Definitive Stock Purchase Agreement"), Virtual will pay to Zorro the finder's fee found in paragraph 3 below. In no event shall Zorro be liable for any finder's fee to Eleccom. Eleccom will not, and is not, required to take part in any such negotiations between Virtual and Zorro.
2. Virtual shall be under no obligation to pay any fee or other monies whatsoever to Eleccom on account of this Agreement until a Definitive Stock Purchase Agreement is entered into by both Virtual and Zorro.
3. Should Virtual and Eleccom enter into a Definitive Stock Purchase Agreement, Virtual, shall upon the closing of the Definitive Stock Purchase Agreement issue to Eleccom, One Million Two Hundred Twenty-Two Thousand Two Hundred Twenty-Two (1,222,222) shares of Virtual's free trading common stock, free and clear of all liens, security interests, pledges, charges, claims, options, encumbrances and restrictions of any kind, at a deemed price of $.45 per share (the "Finder's Fee").
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4. Any arrangements made by Eleccom with any other persons with whom Eleccom is involved, are Eleccom's exclusive responsibility. Upon payment made by Virtual, to Eleccom of the Finder's Fee, Eleccom will hold Virtual harmless from and indemnify Virtual against all claims or expenses caused by and liabilities to any person claiming commission, fee or expense in connection with the transaction who alleges a relationship with Eleccom.
5. Should any litigation be commenced between Eleccom and Virtual concerning this Agreement regarding the rights and duties of either of the parties to this Agreement, then the party prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for attorneys' fees in such litigation which may be determined by the Court in such litigation or in a separate action brought for that purpose.
6. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, the parties expressly agree that all the terms and provisions hereof shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to conflict of law principles thereof.
7. This Agreement contains the entire agreement between Eleccom and Virtual concerning the introduction of Virtual to Zorro, and correctly sets forth the rights and duties of each of the parties to each other concerning such matter as of this date. Any agreement or representation concerning the subject matter of this Agreement or the duties of Eleccom in relation to Virtual not set forth in this Agreement is null and void.
8. This Agreement and any provision hereof, may not be waived, changed modified, or discharged orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought.
9. Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Agreement shall be deemed to have been made unless expressly in writing and signed by the party against whom such waiver is charged; and (i) the failure of any party to insist in any one or more cases upon the performance of any of the provisions, covenants or conditions of this Agreement or to exercise any option herein contained shall not be construed as a waiver or relinquishment for the future of any such provisions, covenants, or conditions; (ii) the acceptance of performance of anything required by this Agreement to be performed with knowledge of the breach or failure of a covenant, condition, or provision hereof shall not be deemed a waiver of such breach or failure, and no waiver by any party of one breach by another party shall be construed as a waiver with respect to any other or subsequent breach.
10. This Agreement contains the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings.
11. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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12. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day after mailing if prepaid, and properly addressed as follows:
VIRTUAL REALITY, INC.
116 John Street - Suite 1300
New York, New York 10038
ELECCOM CORPORATION LTD.
Victoria House, P.O. Box 58
The Valley, Anguilla B.W.I.
13. This Agreement shall inure to and be binding upon the heirs, executors, personal representatives, successors and assigns of each of the parties to this Agreement.
As of the date first above written:
VIRTUAL REALITY, INC.
By: /S/ Martin F. Cardone
-------------------------
Name: Martin F. Cardone
Title: President
ELECCOM CORPORATION LTD.
By: /s/ Disa Billington
----------------------
Name: Disa Billington
Title: Director
3
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IRREVOCABLE PROXY FROM SPHERICS LIMITED FOR A SPECIFIED PERIOD
KNOW ALL MEN BY THESE PRESENTS, That Spherics Limited, a corporation organized and existing under and by virtue of the laws of Anguilla, owning and holding Forty Million (40,000,000) shares of the capital stock of Virtual Reality, Inc., does hereby appoint and constitute Wall Street M&A Group of New York, New York, its true and lawful attorney to vote in behalf of this Corporation, and in its name, place, and stead, as its proxy and representative, the number of votes that this Corporation would be entitled to cast, by written consent or at any and all meetings of the stockholders of Virtual Reality, Inc., held within the period beginning on the date hereof, until the earlier to occur of: (i) a combination (reverse split) of shares of common stock or other capital readjustment or other reduction of the number of shares of Virtual Reality, Inc. common stock outstanding (without receiving compensation therefor in money, services or property), in accordance with Virtual Reality Inc.'s Articles of Incorporation, Bylaws and the laws of the State of Nevada; or, (ii) ninety (90) days from the date hereof, upon any and all matters that may be presented, considered, and voted upon by the stockholders of the Corporation, including the election of directors, as fully and with like effect as it might or could have done if personally present, hereby ratifying and confirming all that my attorney may do in my name, place, and stead. This proxy is irrevocable and it is coupled with an interest.
WITNESS my hand and seal, this 19th day of May, 2000
SPHERICS LIMITED
/S/ W. Hasewood
---------------------------------
Name/Title
(Corporate Seal)
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PROMISSORY NOTE
Virtual Reality, Inc. ("VRI"), a Nevada corporation with its principal place of business at 333 Meadowlands Parkway, Secaucus, New Jersey 07094, hereby acknowledges a loan to VRI in the amount of Fifteen Thousand ($15,000.00) Dollars for operating capital as yet unpaid, and hereby promises to pay said debt to the order of said Martin F. Cardone, together with interest of 10% per annum, in twelve equal monthly installments of One Thousand ($1,000.00) Dollars on the first day of each month beginning January 1, 1997. All such payments shall be made to Martin F. Cardone at 240 Larch Lane, Mahwah, New Jersey 07430, or such other place as he or the holder of this Note may designate.
Presentment for payment, notice of dishonor, and protest and notice of protest are hereby waived by VRI and its successor, heirs and/or assigns.
Made this 3rd day of November, 1996.
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
---------------------------
Martin F. Cardone
President
Witnessed By:
/S/ [ILLEGIBLE]
---------------------------
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PROMISSORY NOTE
Virtual Reality, Inc. ("VRI"), a Nevada corporation with its principal place of business at 333 Meadowlands Parkway, Secaucus, New Jersey 07094, hereby acknowledges a loan to VRI in the amount of Forty Two Thousand ($42,000.00) Dollars for operating capital as yet unpaid, and hereby promises to pay said debt to the order of said Martin F. Cardone, together with interest of 10% per annum, in twelve equal monthly installments of One Thousand ($1,000.00) Dollars on the first day of each month beginning January 1, 1998. All such payments shall be made to Cardone at 240 Larch Lane, Mahwah, New Jersey 07430, or such other place as he or the holder of this Note may designate.
Presentment for payment, notice of dishonor, and protest and notice of protest are hereby waived by VRI and its successor, heirs and/or assigns.
Made this 28th day of October, 1997.
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
---------------------------
Martin F. Cardone
President
Witnessed By:
/s/ [ILLEGIBLE]
---------------------------
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January 15, 2000
PROMISSORY NOTE
Virtual Reality, Inc. (AVRI@), a Nevada corporation with its principal place of business at 333 Meadowlands Parkway, Secaucus, New Jersey 07094, hereby acknowledges a loan to VRI in the amount of One Hundred Thirty Four Thousand ($134,000.00) Dollars for operating capital as yet unpaid, and hereby promises to pay said debt to the order of said Martin F. Cardone, together with interest of 10% per annum, in twelve equal monthly installments of One Thousand ($1,000.00) Dollars on the first day of each month beginning February 1, 2000. All such payments shall be made to Cardone at 116 John Street, New York, New York 10038, or such other place as he or the holder of this Note may designate.
Presentment for payment, notice of dishonor, and protest and notice of protest are hereby waived by VRI and its successor, heirs and/or assigns
Made this 15th day of January, 2000.
VIRTUAL REALITY, INC.
By:/S/ Martin F. Cardone
---------------------
Martin F. Cardone
President
Witnessed By:
/s/ Marcella Devone
-------------------
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
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VIRTUAL REALITY, INC.
(Name of Small Business Issuer in its Charter)
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Nevada 87-0393256
(State of Incorporation) (I.R.S. Employer Identification Number)
116 John Street - Suite 1300
New York, New York 10038
(Address of principal executive offices) (Zip Code)
(212) 619-3100
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered Name of each exchange on which each
class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $.015 PAR VALUE
(Title of class)
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Table of Contents
PART I.......................................................................... 1
Item 1. Description of Business........................................ 1
The Company................................................... 1
General ............................................ 1
Business ............................................ 2
General..................................... 2
Letter of Intent for Intellashop.com........ 2
Intellashop.com............................. 2
Intellashop's Business Strategy. .......... 6
Intellashop's Operations and Technology..... 8
Employees..................................................... 9
Competition................................................... 9
Item 2. Plan of Operation.............................................11
Cash Requirements.............................................11
Research and Development......................................12
Purchase of Equipment.........................................13
Employee Hiring Schedule......................................13
Item 3. Description of Properties......................................14
Item 4. Security Ownership of Certain Beneficial Owners and Management.14
Item 5. Directors, Executive Officers, Promoters and Control Persons...15
Item 6. Executive Compensation........................................16
Item 7. Certain Relationships and Related Transactions.................17
Item 8. Description of Securities......................................19
PART II .......................................................................21
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters...................21
Item 2. Legal Proceedings..............................................22
Item 3. Changes in and Disagreements with Accountants..................22
Item 4. Recent Sales of Unregistered Securities........................22
Item 5. Indemnification of Directors and Officers.....................25
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PART F/S .......................................................................27
Financial Statements...................................................27
PART III .......................................................................28
Item 1. Index to Exhibits..............................................28
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FORWARD LOOKING STATEMENTS
In this registration statement references to "Virtual Reality," "the Company," "Intellashop," "we," "us," and "our" refer to Virtual Reality, Inc. and assumes the acquisition of Intellashop, Inc. This Form 10-SB contains certain forward-looking statements. For this purpose any statements contained in this Form 10-SB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within Virtual Reality's control. These factors include but are not limited to economic conditions generally and in the industries in which Virtual Reality may participate; competition within Virtual Reality's chosen industry, including competition from much larger competitors; technological advances and failure by Virtual Reality to successfully develop business relationships.
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PART I
Item 1. Description of Business
THE COMPANY
General
Virtual Reality, Inc. (the "Company") was originally organized under the laws of the State of Utah on October 9, 1981 under the name Stepro, Inc. On September 25, 1991, shareholders of the Company approved a change of corporate domicile to the State of Nevada. Thereafter, on December 31, 1991, the Company acquired Technology Innovation Group, Inc. ("TIG"), and amended its Articles of Incorporation to change its name to "Virtual Reality, Inc."
At the time of its acquisition, TIG specialized in the development and manufacturing of new technology and systems for aerospace applications in technical disciplines such as electro- optical systems for space flight, helmet-mounted displays, artificial intelligence, holographic optical designs, and engineering and training simulation. Through this wholly owned subsidiary, the Company was able to develop proprietary designs for the military, NASA, and major aerospace firms. Its customers included the U.S. Air Force, U.S. Naval Ocean Systems Command, Martin-Marietta, United Technologies, Northrop, and CAE. In 1992, the Company was listed for quotation on the OTC-Bulletin Board, under the symbol, "VIRT." At this time, management decided to pursue the objective of applying its high technology to the development and production of commercial virtual reality equipment and systems and transferred all of the technology and assets of TIG to the Company.
Since the Company was dependent primarily on doing business with the Federal government, pursuing commercial acceptance proved to be very difficult and expensive. In 1996, the present management of the Company acquired control and attempted to compete in an industry characterized by rapid obsolescence of technology and filled with large competitors with substantial resources. By late 1997, it became clear that the Company was unable to continue on such a course without the infusion of significant capital. Despite exploring a number of financing opportunities and potential strategic alliances or acquisition targets with complimentary businesses and services, in the opinion of management, no opportunity was available on terms acceptable to the Company. Without sufficient capital, the Company's technology became increasingly obsolete and in 1997, the Company's patent protecting its technology expired.
By 1999, the Company decided to suspend its business plan incorporating its virtual reality technology and placed much of its prototypes and designs in storage. The Company then began investigating opportunities to utilize and exploit the Company's goodwill, as well as the contacts and experience of its management in the area of high technology, by exploring potential strategic alliances or acquisition candidates involved with the Internet. As a result, in February
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2000, the Company entered into a letter of intent, confirming the parties' understandings of January 7, 2000, for the acquisition of Intellashop, Inc., a corporation organized under the laws of Anguilla ("Intellashop" or "Intellashop.com"), and an advanced technology real-time personal shopping agent with its "Intellashop.com" Web site.
Business
General. In 1991, the Company entered the high technology industry with the acquisition of TIG, as a wholly owned subsidiary. Through this subsidiary, the Company was able to create and manufacture unique virtual display systems for advanced aerospace applications such as electro-optical systems for space flight, helmet-mounted displays, holographic optical designs, artificial intelligence, and training simulation. Purchasers included: the Air Force, Naval Ocean Systems Command, Martin-Marietta, United Technologies, Northrop, and CAE.
In an attempt to exploit the potential commercial markets such as the fields of medicine, entertainment, education, training, and communication, all of the technology and assets of TIG was transferred to the Company. Subsequently, the Company made an attempt to advance the development of a new generation of Head Mounted Displays ("HMD's"), utilizing its electro- optical technology, for commercial applications. However, faced with rapidly evolving technology, increased competition, and the lack of financing, the Company was not able to successfully enter the commercial market. Confronted with older technology, an expired patent and the unavailability of adequate financing, in 1999, the Company began exploring opportunities to utilize its management's contacts and relationships, as well as its goodwill in connection with high technology, in order to enter into the world of Internet technology. As a result, in February 2000, the Company entered into a Letter of Intent for the acquisition of Intellashop, Inc. ("Intellashop"), as a wholly owned subsidiary of the Company.
Letter of Intent for Intellashop.com. On January 7, 2000, the Company reached an agreement, in principle, with Zorro Systems Inc., a Barbadian corporation ("Zorro Systems") and a leader in developing sophisticated real-time search technologies, for the acquisition of a one hundred percent (100%) interest in its subsidiary Intellashop.com (the "Acquisition"). As a result, on February 23, 2000, the Company and Zorro Systems executed a Letter of Intent contemplating, in part, that the Company issue 200,000,000 shares of its common stock to Zorro Systems, for the acquisition of Intellashop.com. The Acquisition is subject to the satisfactory due diligence of both the Company and Zorro, the successful amendment of the Company's Articles of Incorporation in order to increase the amount of shares authorized to be issued by the Company, as well as the successful negotiations and execution of a definitive agreement. See "Item
7. Certain Relationships and Related Transactions."
Intellashop.com. Klein Valuation Services, Inc., of Toronto, Canada and a respected member in good standing of the Canadian Institute of Business Valuators, determined that
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Intellashop had a fair market value of between US $21,000,000 and US $24,000,000, as of January 15, 2000. Intellashop is an advanced technology real-time personal shopping agent. Management of Intellashop believes it will become one of the world's leading consumer and business shopping portals because of the use of high technology which facilitates finding the best deals for consumers in an unbiased manner. Intellashop is based upon Zorro's technology, a real-time search process previously unavailable to the market. Through its Intellashop.com site, Intellashop intends to facilitate quick, easy to use, real-time, and reliable comparisons of products, prices, availability, and vendors from around the world, in order to become a primary shopping source for all Internet shoppers.
International Data Corporation estimates that annual worldwide e-commerce over the Internet will grow from $32 billion in 1998 to approximately $425 billion by 2002. It is also estimated that Internet users will increase from 97 million in 1998 to over 319 million by the end of 2002.
As the number of online merchants continues to grow, the consumer's ability to search for a specific product across multiple merchant sites becomes a time consuming task. A consumer can spend an average of ten minutes on each site locating price and shipping quotations. There are currently over 100 online book vendors and one can only imagine how long it might take to conduct a thorough search for a specific book. Thus, the need for a central location to source products, compare prices, and evaluate merchants continues to grow in importance. Many new e-commerce merchant sites are launched on the Internet everyday offering millions of products and services. Finding a specific product has become a daunting task, which is increasing in difficulty everyday as product selection continues to grow.
There is a growing need for a centralized service to act as the consumer's dedicated shopper. A dedicated shopper or personal shopping agent will have to answer four basic questions when servicing users. Intellashop is designed to provide the answers to four primary questions for consumers:
o Where can I find X product?
o How much is the product?
o How long will it take to arrive and what are the shipping and delivery costs?
o How well can I trust the available online merchants?
Intellashop is a personal shopping agent, which will meet all of the consumer's shopping needs. By allowing consumers to personalize their shopping preferences, Intellashop provides the tools to source products and product information, check real-time availability, compare price and quality of merchants, and obtain price and availability alerts.
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Intellashop is designed to provide three primary services to consumers:
o Product Locator services allow consumers to identify products of interest by using keywords or selected category criteria.
o Order Optimization services organize and group products based on client criteria such as lowest price, quickest delivery or merchant service rating.
o Order Placement services allow consumers to add product selections to a "shopping cart" and be guided through a "checkout" process that standardizes and simplifies the interface to the numerous vendors available.
Initial product offerings through Intellashop are purposefully limited in order to provide for high quality managed growth of the business. Startup offerings include books, movies, DVD's, and music. New product categories will be added monthly based on market demand and vendor reliability. Intellashop.com intends to eventually service the following consumer product shopping categories:
Books Music / Video / Movies Computer Software Computer Hardware / Peripherals Consumer Electronics Toys / Collectibles Flowers / Gifts Travel Services Home and Garden Tools and Supplies Office Supplies Entertainment/Sports Ticketing Clothing / Apparel Fitness / Sports Equipment Family / Health / Beauty Gourmet Foods / Groceries Hobby & Leisure Automotive
Intellashop hopes to fulfill these services through the following feature set:
o Product Location. A general search that allows consumers to search for products based on the following criteria: Title, Author/Producer/Manufacturer, Year, Format, Features, and/or Keywords. Users can refine search results by adding more variables to search strings or by sorting results by specific criterion.
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o Product Detail. By clicking on items within search results users can see additional details of the product. Product detail presents all information available for a specific product (i.e. Title, Author, Year, Format, Abstract, Image, Specifications).
o Merchant Compare. Intellashop.com does a real time search across vendor sites to present the consumer with the following details:
Merchant, Merchant Rating, Shipping Details, Shipping Timeframe, Shipping Cost, Merchant Price, Total Localized Price, and a clickthrough button which will take them to the vendor's site. The merchant rating is a measurement of the merchant's quality of service, policies, features, and ease of use. Ratings are presented out of five stars with a clickthrough button to take user to merchant report card. The total localized price converts all pricing information into the user's local currency.
o Price Availability Alert. Intellashop.com offers registered users the option to set an alert which will report back to the user when a specified product's price has come down to a predetermined level. Availability Alert will work in the same capacity. This feature will alert the user when a specified product becomes available. Intellashop.com's Price Availability Alert will evolve into a buying consortium model. Multiple users will set price expectations with credit card confirmation. Intellashop.com will then accumulate bids and proceed to make the purchase on the user's behalf.
o Domestic Currency Conversion. Within Merchant Comparison grid, Intellashop.com converts all available vendors pricing into the domestic currency of the user.
o Value Added Content. Intellashop.com will produce value added content to attract users on a frequent basis. Content will include product reviews, top 10 best sellers within a shopping category, weekly newsletters with online shopping tips and one click searches for popular products.
o Saved Searches. Intellashop.com has set up a process where users can save specific product searches for later viewing. A natural extension for saved searches is to give the user the ability to send the results to a "friend" via email.
o Rebate Program. Utilizing Affiliate fees and Merchant relationships, Intellashop.com can entice users with purchase rebates.
o Shopping Cart. The shopping cart feature allows consumers to source a variety of products from multiple categories to determine best deal or package. For example, a consumer can build a Christmas shopping list consisting of various books, computer software, toys, and flowers. This feature would then report the
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merchants that would deliver all of the above goods.
o Express Check Out. Express check out allows consumers to automatically fill out personal information, billing, and shipping profiles on merchant sites from Intellashop.com's database. Express Check Out will evolve into a "one click" check out, where the user clicks one button for Intellashop to process and make the requested purchase on the user's behalf.
Dedicated to helping consumers, Intellashop will aim to source and provide timely information and an evaluation and comparison of products and merchants available on the Internet. Intellashop's evaluation is based on important consumer-specific criteria such as price, delivery time-frame and quality of the merchant's service. In essence, Intellashop.com will offer consumers a singularly dedicated, unbiased one-stop, user-friendly shopping service with their best interest in mind, while facilitating instantaneous, easy, current and reliable comparisons of prices, products and vendors from around the world.
Intellashop is consumer driven, not merchant driven. Intellashop.com will dramatically simplify and enhance the online shopping experience. The dialogue created between Intellashop, consumers, and merchants will provide multiple channels in which to generate revenue. Revenue channels for Intellashop will continue to evolve as use of the Internet increases. As Intellashop's user base grows, revenue will be generated through advertising, data-mining, buy consortium, merchandising and rebate programs. Long term revenue generators include partnership programs, licensing of Intellashop.com, and additional service offerings.
Management feels that the primary advantage of Intellashop over its competitors is that the driving search engine technology is fast, efficient, and operates concurrently and instantaneously against vendor sites. Shoppers will be able to compare current prices for products among a wide variety of vendors with the confidence that the pricing they are receiving is accurate and current.
Both ALPHA and BETA tests of Intellashop.com and all related software was completed as of December 31, 1999. Final quality control measures, feature improvements and user interface improvements are currently being implemented and Intellashop is preparing for official launch in the Spring of 2000.
Intellashop's Business Strategy. Intellashop's business strategy includes the following key elements:
o Centralized Service. Intellashop.com will become a central service users will value for being a trustworthy and timesaving online shopping solution.
o Source and Compare. Intellashop will leverage the power of its real time search technology by giving users the ability to source products and compare available
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merchants in real time positions.
o Create Strong Brand Recognition. Intellashop believes that building brand recognition of Intellashop.com is critical to attracting and expanding its customer base. Intellashop intends to promote, advertise and increase its brand recognition through various marketing and advertising vehicles, heavy online promotion, and very strong public relations programs.
o Develop Strategic Alliances. Intellashop will continue to seek and establish strategic alliances with global media companies to attract additional shoppers and to increase the brand recognition of Intellashop.com. Intellashop will establish arrangements with major search portals, guides and online communities. Intellashop is looking to build strong ties with "product recommendation" sites and other sites that offer complimentary services to the consumer.
o Develop Customer Loyalty. Intellashop believes that satisfied customers will return to Intellashop.com and will contribute to increased traffic to the site through word-of-mouth referrals. Intellashop looks to provide its customers with an efficient and entertaining shopping experience by making Intellashop.com entertaining, convenient, and easy to use, by offering extensive selection of categories, an attractive presentation of product information, outstanding customer support, and compelling incentive programs.
o Multi-Channel Revenue Model. Revenue will be generated through multiple channels:
o Advertising - Advertising revenues are based on two streams. Sponsorship revenue is derived through the sponsorship of all out going media (i.e. weekly newsletters, price, and availability alerts). The second stream is through Advertising Banners. Intellashop will generate significant revenue through the hosting of Advertising Banners throughout the Intellashop.com site.
o Data Mining - Intellashop.com will derive revenue through the analysis of consumer buying behavior. Aggregate data reports can be marketed and sold to a broad audience. Intellashop will also set up a service for vendors, which will allow them, for a monthly subscription, to query Intellashop.com's database to analyze consumer buying trends, product preferences and hot shopping categories.
o Buying Consortium. The Buying Consortium is an evolution of Intellashop.com's Price/Availability Alert. This service will allow the consumer to secure a bid for
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a particular product via credit card. Based on demand for the product, if Intellashop.com can fulfill the request through the vendor partner's requested price point, Intellashop.com will broker the sale and receive a commission.
o Merchandising. Intellashop.com will be in a position to derive revenues through merchandising directly into its database of users. As Intellashop.com builds relationships with its valued consumer base, it will be able to leverage that relationship to sell different categories of products directly to the user.
o Rebate Program. Through merchant relationships and merchant affiliate programs, Intellashop.com will pass on an additional rebate to consumers who use Intellashop.com as a gateway to purchase products from Intellashop vendors. Intellashop.com will derive significant revenue by administering and managing the float of money being passed through. Intellashop.com also derives an additional percentage of sales as revenue.
Intellashop's Operations and Technology. Intellashop.com's service is supported by a state of the art systems platform, which was designed with an emphasis on scalability, performance and reliability. On command, Intellashop.com's proprietary agent sources consumer products through category specific merchants on the Internet. The software platform and architecture are built on server-side Java, Weblogic, Linux, and ISO standard SQL scripts integrated with an Oracle relational database system. This internal platform was designed to include open application protocol interfaces that can provide real-time connectivity to merchants in the range of shopping categories in which Intellashop.com operates. It also allows Intellashop.com to quickly modify or add new shopping categories with no server down time and very little technical changes to the system.
Intellashop.com's Internet servers utilize Verisign digital certificates to help it conduct secure communications and transactions.
Intellashop.com out-sources most of its call center and customer service functions to APS Marketing in Cape Town, South Africa ("APS"). Intellashop.com takes advantage of APS's 24- hour real-time interactive response system with transfer capabilities.
Intellashop.com has an exclusive license for its agent process system from Zorro Systems.
Zorro Systems' processes are much like a network of components rather than a single integrated system. This new technology allows scalability both up and down (application services) and side to side (operational size). In other words the technology can be easily adapted for rapid growth in number of applications or user volume without any redesign or re- programming required.
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Zorro Systems' technology has anticipated deployment in a number of diverse marketplace contexts and implementation in both friendly and unfriendly vendor environments. The technology is based on intelligent agents "data mining" vendor sites to facilitate information gathering and order processing.
Zorro Systems' technology is JAVA servlet based, with Oracle as the database environment, and can be deployed on either UNIX or LINUX, or a combination of both. JAVA servlets are JAVA programs that run on our servers instead of the client's PC. The JAVA servlet environment is particularly powerful since it provides all of the JAVA functionality without the overhead and security risks of deploying JAVA programs to the client's computer.
Intellashop.com's systems infrastructure, Web and database servers are hosted at Netsurf Inc. in Toronto, Ontario, which provides communication lines from multiple providers including UUNet and Sprint Worldwide, as well as 24-hour monitoring and engineering support. Netsurf Inc. has its own generator and multiple back-up systems in Toronto. Intellashop.com will also implement and maintain a non-interruptible power supply system and generator and redundant servers to provide service capability if failure may occur at the Netsurf Inc. center.
Employees
As of May 15, 2000, the Company employed only one full time employee, Martin F. Cardone. Mr. Cardone presently devotes 90% of his time to the current administration and management of the Company.
Competition
The market for Internet products and services is new, rapidly evolving and intensely competitive. The number of companies offering e-commerce and online direct marketing services, as well as shopping destination Web sites and merchant and product Web site directories and search services is large and increasing at a rapid rate. These companies compete with Intellashop.com for e-commerce merchants, shoppers, e-commerce transactions, advertisers and other sources of online revenue.
Intellashop.com also competes with Web development firms, systems integrators, Internet service providers and traditional media companies that may offer alternatives to one or more components of Intellashop's e-commerce and direct marketing solutions. The Company expects competition to intensify in the future. Barriers to entry in its market are not significant, and current and new competitors may be able to launch new Web sites at a relatively low cost. Accordingly, the Company believes that its success will depend heavily upon achieving
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significant market acceptance before competitors and potential competitors introduce competing services. The Company shall compete directly for e-commerce merchants, shoppers, advertisers and other affiliates with numerous Internet and non-Internet businesses, including:
o providers of e-commerce and online direct marketing services, such as Go2Net, Xoom and DoubleClick;
o providers of e-commerce outsourcing services, such as Digital River, US Web and CyberSource;
o providers of Web directories and search and information services, all of whom offer online shopping, including America Online, Microsoft, Yahoo!, Excite, Lycos and Infoseek;
o online shopping destination Web sites, such as iMall and Shopping.com;
o Internet service providers, Web development firms and systems integrators, as well as companies offering products that address specific aspects of e-commerce, such as payment and transaction processing and security; and,
o e-commerce and conventional merchants that provide goods and services similar to those available through links on our Web site.
The Company expects that other companies, including media companies and traditional retailers, will offer directly competing services in the future. Many of these potential competitors are likely to enjoy substantial competitive advantages, including:
o the ability to offer a wider array of e-commerce and direct marketing services;
o larger customer or user bases;
o greater name recognition and larger marketing budgets and resources;
o substantially greater financial, technical and other resources;
o the ability to offer additional content and other personalization features; and,
o larger production and technical staffs.
In addition, as the use of the Internet and other online services increases, larger, well- established and well-financed entities may continue to acquire, invest in or form joint ventures with providers of e-commerce and direct marketing solutions, and existing providers of e- commerce and direct marketing solutions may continue to consolidate. Providers of Internet
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browsers and other Internet products and services who are affiliated with providers of Web directories and information services that compete with the Company's Web site may more tightly integrate these affiliated offerings into their browsers or other products or services. Any of these trends would increase the competition the Company faces and could adversely affect its business and operating results. To be competitive, the Company must respond promptly and effectively to the challenges of technological change, evolving standards and competitors' innovations by continuing to enhance Intellashop's products and services, as well as sales and marketing channels. Increased competition could result in a decrease in shopper traffic on our Web site, fewer merchants listed in our directories, the obsolescence of the technology underlying the Company's e-commerce and direct marketing services, a loss of our market share and a reduction in the prices or margins of our products and services.
Item 2. Plan of Operation
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS FORM 10-SB ASSUMES THE ACQUISITION OF INTELLASHOP, INC. AND CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, ASSUMPTION AND UNCERTAINTIES, WHICH ARE DIFFICULT TO PREDICT. WORDS SUCH AS "BELIEVE," "MAY," "COULD," "EXCEPT," "LIKELY," AND VARIATIONS OF THESE WORDS, AND SIMILAR EXPRESSIONS, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTIONS ENTITLED "PLAN OF OPERATION," AS WELL AS THOSE DISCUSSED IN THIS PART AND ELSEWHERE IN THIS FORM 10-SB.
The Company has not had any revenues from operations in each of the last two fiscal years. Cost and expenses for the year ending December 31, 1999 and December 31, 1998 were $367,753 and $267,117, respectively, an increase of $100,636 for the period ending December 31, 1999. Management attributes this use in costs and expenses due to an increase in accounts payable from continued day to day operation of the company.
Assuming the completion of the Company's acquisition of Intellashop, an advanced technology real-time personal shopping agent, the Company's mission will be to become the primary information and comparison resource for all Internet Shoppers, by facilitating quick, easy to use, real-time, and reliable comparisons of products, prices, availability, and vendors from around the world.
Initial product offerings will be limited in order to provide for high quality managed growth. Start-up offerings include books, movies, and music New product categories will be added based upon consumer demand and vendor reliability.
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Intellashop will substantially improve the consumer's online shopping experience based upon licensed technology from Zorro, a real-time search process previously unavailable to the market. This technology can execute multiple; concurrent "search-threads" in real-time, on behalf of an end-user or application. These "search-threads" are dispatched, executed and managed in the content of a "Zorro Agent Process."
Cash Requirements
Although there can be no assurances, it is anticipated that the projected revenue for the first year will be approximately $417,000, and revenue for the second year is projected to be approximately $25,076,000. Expenses for the first year are projected to be $36,496,000, broken down as follows:
Marketing & advertising 28,976,000
Customer support 720,000
Website/software development 1,709,000
Employee costs 2,709,000
Administration 867,000
Finance 137,000
Depreciation 1,378,000
The substantial amount spent on marketing is designed to attract Internet shoppers to the site, grow market share and by using permission marketing techniques acquire a large number of registered users. Once a critical mass of registered users has been attained, which the Company projects to take approximately eight months after operational start up revenues will be generated from this registered user base. Based upon the foregoing, the projected loss for the first year is approximately $36,079,000.
On April 19, 2000, the Company entered into an agreement to sell 40,000,000 shares of its restricted common stock to Spherics Limited, Inc. (the "Spherics Stock") for a total of $2,000,000 (the "Proceeds") over a number of payments to be determined subsequently by the parties (the "Agreement"). The Agreement allows Spherics to terminate the transaction and force the return of the Proceeds in the event that the Company does not complete the intended acquisition of Intellashop within One Hundred Twenty (120) days from the date of the Agreement.
The Company believes that its initial capital is expected to last approximately six to seven months, by which time the Company will likely have to seek additional capital to fund technology development, marketing and new product offerings. Such funds will be expected to last until the Company's operations can generate enough cash flow to fund future operations.
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Research and Development
Intellashop intends to have its product locate, product detail, vendor price comparison, and price/availability alerts features in operation when it goes live on the Internet. Although there can be no assurances, Intellashop hopes to launch live in the Summer of 2000, by having its product locate, product detail, vendor price optimization, and price/availability alert features in operation on its site. It is management's intention that Intellashop continue with its aggressive development schedule over the next twelve months.
Initial sketches for several new features have been drawn which the Company hopes will be put into production over the next year. Of the new features proposed, two may be implemented by year's end. A shopping cart tool will allow consumers to shop for multiple products across multiple product categories and across multiple merchants. A second service, the Wireless price/availablity alerts, will alert customers about price and availability changes for a specific product via any number of wireless devices (i.e. cellular phones, pagers, and hand held Personal Digital Assistant's, such as palm pilots).
Books, Movies, and Music make up the initial existing shopping categories shopped by Intellashop. Intellashop will continue to investigate and launch new shopping categories throughout the year. Immediate categories will include Computer Software, Hardware, and Consumer Electronics.
Purchase of Equipment
Intellashop's business plan calls for an initial investment in equipment and software/website technology of approximately $2.2 million. After the launch of its site, the Company's plan calls for an additional capital investment of approximately $2.3 million within 6 months, which it hopes to obtain by a combination of equipment lease financing, equity financing or loans. However, there can be no assurance that adequate financing to support the Company's business will be available in the future on terms attractive to the Company, if at all.
Intellashop.com's service is supported by a state of the art systems platform, which was designed with an emphasis on scalability, performance and reliability. On command, Intellashop.com's proprietary agent sources consumer products through category specific merchants on the Internet. The software platform and architecture are built on server-side Java, Weblogic, Linux, and ISO standard SQL scripts integrated with an Oracle relational database system. This internal platform was designed to include open application protocol interfaces that can provide real-time connectivity to merchants in the range of shopping categories in which Intellashop.com operates. It also allows Intellashop.com to quickly modify or add new shopping categories with no server down time and very little technical changes to the system. As Intellashop.com grows over the coming year this system will allow Intellashop to add new computer hardware and software systems as needed without an interruption in service.
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Intellashop forecasts that they will purchase $3 to 4 million of equipment over the next year.
Employee Hiring Schedule
Intellashop believes it has formed a highly talented team to execute the company's business plan. The Company believes that strengthening its operations and marketing will be a key to its success. Intellashop.com's development team is built around five seasoned developers, including a team leader. It is anticipated that the development team will grow to 10-15 people over the next year. The marketing and design team is currently expanding and currently is made up of seven individuals with a multitude of experience, this team is expected to grow to approximately 15-20 marketers within the year, while it is a goal to increase Intellashop's administration and support team to approximately 20 people over the next year.
Item 3. Description of Properties.
The Company, as of the date of this filing, owns no real or personal property, tangible or intangible. The Company's executive office is located at 116 John Street, Suite 1300, New York, New York 10038. This space consists of only one office. The Company is a tenant-at- will and pays monthly rate of $500 for the office. Additionally, the Company currently leases two storage units in Seacacus, New Jersey, on a tenant-at-will basis, at a combined monthly rate of $402.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
As of the close of business on May 19, 2000, there were 79,665,835 shares of Common Stock and no shares of Preferred Stock ("Preferred Stock") outstanding. The Common Stock is held by approximately 777 persons of record.
The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of May 19, 2000 and adjusted to reflect the assumptions footnoted below, for each person who is known by the Company to own beneficially more than 5% of the outstanding Common Stock.
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Amount and Nature of Percent(1)
Title of Class Name and Address of Beneficial Owner Beneficial Ownership of Class
-------------- ------------------------------------ -------------------- --------
Common Martin F. Cardone(2) 17,041,699 21.4%
116 John Street
New York, New York 10038
Common Spherics Limited(3) 40,000,000(4) 50.2%
Victoria House, Box 58
The Valley, Anguilla, B.W.I.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The sole director, executive officer, his age and present positions with the Company are as follows:
Name Age Position
---- --- --------
Martin F. Cardone 41 President; Chief Executive Officer; Director
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(1) The calculation is based on 79,665,835 shares of Common Stock issued and outstanding and does not include any shares of Common Stock issuable by the Company upon completion of the proposed transaction contemplated by the Letter of Intent for Intellashop. See "Item 1. Description of Business."
(2) Martin F. Cardone is the Company's President, CEO and Chairman of the Board of Directors. In May 2000, Mr. Cardone was issued 2,500,000 shares of common stock pursuant to his employment agreement with the Company which granted him such stock for the period from October 1, 1996 through October 1, 1998.
(3) The beneficial owner of Spherics Limited is First Anguilla Trust Company Limited with principal offices located at Victoria House, The Valley, Anguilla, B.W.I.
(4) On April 19, 2000, the Company entered into an agreement to sell 40,000,000 shares of its restricted common stock to Spherics Limtied (the "Spherics Stock") for a total of $2,000,000 (the "Proceeds") over a number of payments to be determined subsequently by the parties (the "Agreement"). The Agreement allows Spherics to terminate the transaction and force the return of the Spherics Stock in the event that intended acquisition of Intellashop does not occur within One Hundred Twenty (120) days from the date of the Agreement. Further, Wall Street M&A Group LLC, a corporation of which Mr. Cardone is a principal , was granted the voting rights of the Spherics Stock for a period beginning on May 19, 2000 and ending on the earlier of: (i) a combination (reverse split) of shares of Common Stock or other capital readjustment; or (ii) 90 days from May 19, 2000. See Item 7 "Certain Relationship and Related Transactions."
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The Board of Directors of the Company presently consists of only one person. Directors serve until the next annual meeting of shareholders or until their successors are duly elected and qualified. Officers are elected to serve, subject to the discretion of the Board of Directors, until their successors are appointed.
Martin F. Cardone serves as the Company's President, Chief Executive Officer, and sole Director. Mr. Cardone was named President of the Company in September of 1994. In August of 1996, he was appointed as Chief Executive Officer and Chairman of the Board of Directors, to replace the retiring Dr. Nelson Merritt. Mr. Cardone is also a founder and principal of Wall Street M&A Group LLC, a consulting company that provides consultation and advice concerning mergers, acquisitions, financing, joint venture transactions and other corporate combinations. He has an extensive background of restructuring public companies (roll ups and consolidations), and he is a graduate of Boston College and holds a law degree from the William Mitchell Law School (University of Minnesota).
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Item 6. Executive Compensation.
The following sets forth information concerning compensation paid to the executive officers of the Company during fiscal 1997, 1998 and 1999. No director received any compensation in his or her capacity as such.
The following table sets forth information concerning all remuneration paid by the Company as of the date of the filing, to the Company's Directors and all Executive Officers as a group:
Summary Compensation Table
Annual Compensation Long Term Compensation
AWARDS PAYOUTS
Name and Year Salary($) Bonus($) Other Restricted Stock Securities LTIP All Other
Principal Annual Award(s) ($) Underlying Payouts($) Comp. ($)
Position Comp.($) Options/
SARs (#)
----------------------------------------------------------------------------------------------------------------
Martin F 1999 $150,000(1) 0 0 0 0 0 0
Cardone
(Chief
Executive
Officer and
President)
1998 $150,0001 0 0 1,125,000(2) 0 0 0
-------------------------------------------------------------------------------------------------
1997 $60,0001 0 0 1,125,000(2) 0 0 0
=================================================================================================
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(1) To date, Mr. Cardone has not received his annual salary for 1997, 1998 and 1999. Mr. Cardone has not received any salary for his employment with the Company from January 2000 to the present. Mr. Cardone's employment agreement allows Mr. Cardone to convert the total amount owed for his employment, in part or in whole, into shares of common stock of the Company. Mr. Cardone has indicated to the Company that on or about June 1, 2000 he intends to elect to convert any unpaid salary due to him from the Company.
(2) Pursuant to his employment agreement, Mr. Cardone received 1,125,000 shares of common stock in 1997 and 1998, respectively.
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Martin F. Cardone Employment Agreement
In September of 1996, the Company entered into a four-year employment agreement with Martin F. Cardone, as Chairman of the Board of Directors, Chief Executive Officer and President. The employment agreement is to expire in September of 2000, unless terminated earlier by either party pursuant to the agreement. Mr. Cardone was entitled to a base salary per annum of $60,000 for the first contractual year and $150,000 for each following contractual year, until termination of the agreement. Additionally, beginning on October 1, 1996 and ending on September 30, 1998, Mr. Cardone was entitled to receive 1,000,000 and 1,500,000 shares, respectively, of the Company's common stock for each 12 month period. Although no bonuses have been awarded, Mr. Cardone is entitled to annual bonuses as the board of directors may determine based upon the performance and achievement of specified goals of the Company. Mr. Cardone has agreed not to compete with the Company during the term of employment, unless otherwise permitted by the Company. The employment agreement includes customary provisions entitling the Company to terminate the Mr. Cardone's employment for cause or upon incapacitation or extended disability.
Item 7. Certain Relationships and Related Transactions.
Martin F. Cardone, the Company's sole officer and director, also serves as a founder and principal of Wall Street M&A Group LLC ("Wall Street M&A"), a consulting company. On February 3, 2000, Wall Street M&A entered into a Consulting Agreement (the "Consulting Agreement") with Tropika International Limited ("Tropika"), to provide Tropika, and its subsidiaries, with, among other things, advice and assistance concerning mergers, acquisitions, financing, joint venture transactions and other corporate combinations, as well as performing such other services as Tropika, or any of its subsidiaries, reasonably requires. Tropika is the parent company of Zorro Systems Ltd. ("Zorro"). Currently, Zorro owns all of the issued and outstanding stock of Intellashop, Inc. ("Intellashop"). The Company and Zorro have entered into a Letter of Intent for the sale of a one hundred percent (100%) interest in Intellashop to the Company. See "Item 1. Description of Business."
The term of the Consulting Agreement is for two years. It is agreed upon by the parties that for its services, Wall Street M&A shall receive:
o Three Thousand Dollars (U.S. $3,000.00) per calender month, for the two (2) year term of the Consulting Agreement to be paid as an advance against future fees payable to Wall Street M&A, pursuant to the Consulting Agreement;
o Upon the closing of: (i) the acquisition of Intellashop by the Company; (ii) the acquisition of substantially all of the assets of Intellashop by the Company; or, (iii) a merger, reorganization, consolidation or other business combination
18
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between the Company and Intellashop, Wall Street M&A shall immediately receive from Tropika an amount of shares equal to five percent (5%) the amount of shares issued to Intellashop by the Company in order to effectuate the aforementioned acquisition, merger, reorganization, consolidation or other business combination;
o For the term of the Consulting Agreement, and for a period of 18 months thereafter, upon the closing of any financing for Tropika, its subsidiaries and/or Intellashop, by an entity introduced by Wall Street M&A, Wall Street M&A shall receive a fee equal to 5% of the aggregate dollar value of such financing;
o Upon Tropika's listing for quotation on the NASDAQ National Market System, the American Stock Exchange or other comparable national or regional exchange, during the term of the Consulting Agreement, or within ninety (90) days after the termination of the Consulting Agreement, Wall Street M&A shall receive a fee of Fifty Thousand Dollars (US $50,000), provided, however, that Wall Street M&A substantially assisted Tropika during the application process; and,
o Options to purchase Two Hundred Fifty Thousand (250,000) shares of the common stock of Tropika, at a price of Thirty-Eight Cents Canadian (CN $0.38) per share.
Furthermore, in April of 2000, Wall Street M&A entered into a Consulting Agreement with Spherics Limited ("Spherics"), to provide Spherics with, among other things, advice and assistance concerning mergers, acquisitions, financing, joint venture transactions and other corporate combinations, as well as performing such other services as Spherics reasonably requires. The term of the Consulting Agreement is for two years. It is agreed upon by the parties that for its services, Wall Street M&A shall receive One Hundred Fifty Thousand Dollars (U.S. $150,000). See "Item 4. Recent Sale of Unregistered Stock."
In April of 2000, Martin F. Cardone, the Company's President, CEO and director, and Spherics Limited, a corporation organized under the laws of Anguilla ("Spherics"), mutually agreed to terminate a December 1999 Letter of Intent between the parties which contemplated, in part, that for consideration of $150,000, Mr. Cardone would sell an amount of shares of the Company's common stock, beneficially owned by him, to provide Spherics with a controlling interest in the Company. As a result of the Company's proposed acquisition of Intellashop, Spherics and the Company entered into an agreement (the "Spherics Agreement"), in April of 2000, whereby Spherics has agreed to commit $2,000,000 to the Company, payable over a six month period from the date of the Spherics Agreement, for operating capital to be used in connection with the operation of Intellashop.com. In consideration for the $2,000,000 commitment, the Company has agreed to issue 40,000,000 shares of the Company's common stock to Spherics under the provisions of Section 4(2) of the Act. Further, it is agreed upon by the parties that in the event that the proposed acquisition for Intellashop.com is not successfully
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completed within 120 days from the date of the Spherics Agreement, the Company shall return any and all monies paid to the Company by Spherics pursuant to the Spherics Agreement, and all shares issued to Spherics by the Company pursuant to the Spherics Agreement shall be returned free and clear of all security interests, claims, liens and other encumbrances. However, Wall Street M&A an entity in which Mr. Cardone is a principal, was granted the right to vote those shares by irrevocable proxy for a period beginning on May 19, 2000 and ending on the earlier of: (i) a combination (reverse split) of shares of Common Stock or other capital readjustment; or (ii) 90 days from May 19, 2000.
From 1997 to December 31, 1999, Mr. Cardone made loans to the Company totaling $191,113, exclusive of interest and penalties. To date the Company has yet to reimburse Mr. Cardone fully, although the Company intends to satisfy those loans through the proceeds of the Company's recent 504 offering. In the event that the Company is unable to satisfy such loans, Mr. Cardone and the Company may agree that the remaining principal and interest due Mr. Cardone be converted into shares of the Company's common stock.
As a general rule, all transactions among the Company and its officers, directors or stockholders have been, and in the future will be, made on terms no less favorable to the Company than those available from unaffiliated parties. All future transactions, including loans, if any, between the Company and its officers, directors and principal shareholders and their affiliates and any transactions between the Company and any entity with which its officers, directors or principal shareholders are affiliated will be subject to the approval of a majority of the Company's Board of Directors, including the majority of the independent and disinterested outside directors of the Board of Directors and must be on terms no less favorable to the Company than could be obtained from unaffiliated third parties.
Item 8. Description of Securities.
Authorized Capital Stock
The Company is authorized to issue 100,000,000 shares of Common Stock, $0.015 par value per share. As of May 19, 2000, a total of 79,665,835 shares of Common Stock were issued and outstanding, not including: (i) shares issuable to Martin F. Cardone for the conversion of salary payable to Mr. Cardone, pursuant to his employment agreement with the Company; and (iii) the shares reserved for the acquisition of Intellashop.com. See "Item 1. Description of Business." Additionally, the Company is authorized to issue 5,000,000 shares of Preferred Stock, $0.001 par value per share. No shares of Preferred Stock are presently issued and outstanding nor does the Company intend to issue such shares in the foreseeable future.
The following summary description of the Company's capital stock does not purport to be complete and is qualified in its entirety by reference to the Company's Articles of Incorporation and Nevada Law.
20
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Common Stock
Dividends. The Company has not declared any dividends since its inception. Because the Company intends to retain future earnings to fund the development and growth of its business, it does not anticipate paying cash dividends on the Common Stock in its foreseeable future. Any payments of dividends in the future is in the sole discretion of the Board of Directors of the Company. The Company's decision will be dependent upon the Company's financial condition, results of operations and other factors the Board of Directors deems relevant.
Voting Rights. Holders of shares of Common Stock will vote as a single class together on all matters submitted to a vote of stockholders, with each share of Common Stock entitled to one vote, except as otherwise provided by law.
Preemptive Rights. The holders of Common Stock are not entitled to preemptive or subscription rights.
Preferred Stock
Designations, preferences, voting rights, dividends, convertibility, redeemability and the right to participate in the proceeds of liquidation may be determined by the Board of Directors from time to time for the Company's authorized shares of Preferred Stock.
Transfer Agent
The Transfer Agent for the Company's Common Stock is American Stock Transfer & Trust Company, with an address of 6201 15th Avenue, Brooklyn, New York 11219.
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PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters.
Market. From March of 1992 through May 17, 2000, prices for the shares were quoted on the "OTC - Bulletin Board," maintained by the National Association of Securities Dealers, Inc. From May 18, 2000 through the present the prices for the shares have been quoted on the "Pink Sheets." The Common Stock is presently traded under the symbol "VIRT." The following table sets forth the range of high and low bid quotations for the Company's Common Stock during each calendar quarter since the end of fiscal year, 1997, each of which has been rounded to the nearest, whole cent.
HIGH BID LOW BID
March 30, 1998 0.030 0
June 30,1998 0.060 0
September 30, 1998 0.080 0
December 31, 1998 0.024 0
March 30, 1999 0.090 0
June 30,1999 0.040 0
September 30, 1999 0.060 0
December 31, 1999 0.100 0
March 30, 2000 1.040 .060
May 22, 2000 .37 .30
The above prices were obtained from the National Quotation Bureau, Inc. The quotations represent inter-dealer quotations without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
Outstanding Shares and Shareholders of Record. As of May 19, 2000, the transfer ledgers maintained by the Company's Stock Transfer Agent indicated that there were 79,665,835 shares of common stock issued and outstanding which were held of record by approximately 777 persons.
Dividends. Since its inception, the Company has not paid any cash dividends on its stock. Any declaration in the future of any cash or stock dividends will be, at the discretion of the Board of Directors and will depend upon, among other things, earnings, the operating and financial condition of the Company, capital expenditure requirements, and general business conditions. There are no restrictions currently in effect which preclude the Company from
22
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granting dividends, with the exception that dividends may not be paid on the common stock while there are accrued but unpaid dividends on the Preferred Stock. It is the current intention of the Company to retain any earnings in the foreseeable future to finance the growth and development of its business.
Item 2. Legal Proceedings.
No material legal proceedings to which the Company (or any officer or director of the Company, or any affiliate or owner of record or beneficially of more than five percent of the common stock, to management's knowledge) is a party or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated.
Item 3. Changes in and Disagreements with Accountants
None.
Item 4. Recent Sales of Unregistered Securities.
In April 2000, the Company commenced an offering (the "Offering") of 2,222,222 shares of common stock at a price of $.45 per share, pursuant to Rule 504 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act").
Of the 2,222,222 shares offered by the Company pursuant to Rule 504, 1,183,888 shares were paid for with cash. Analytica Financial Services is receiving a fee equal to $53,275 or 10% of the gross proceeds of the offering.
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NUMBER OF AGGREGATE
COMMON SHARES CONSIDERATION
PURCHASER PAID
Analytica Financial Services 222,222 $100,000
New Alliance Corp. 111,111 $ 50,000
Dr. Scott Busch 55,556 $ 25,000
Matt Dye 97,778 $ 44,000
Charlene Beck 111,111 $ 50,000
Michael DiMedio 111,111 $ 50,000
Paul Gastman 44,444 20,000
John Turco 44,444 20,000
Steven Jacobs 175,000 78,750
David Horvath 111,111 50,000
Mike Miller/Joshuah Foundation 100,000 45,000
==================================
TOTAL 1,183,888 $532,750
As a condition to the offering, the Company reserved the right to accept consideration for the shares consisting of any tangible or intangible property or benefit to the Company, including, but not limited to, services performed. As such, the following shares were issued in partial or complete satisfaction of prior services performed or prior debts owed for services performed at the Offering price of $.45 per share.
NUMBER OF COMMON NATURE OF SERVICE
NAME OF SHAREHOLDER SHARES PROVIDED
Steven A. Sanders 200,000 Legal
Laurence D. Paredes 22,001 Legal
William S. Rosenstadt 22,001 Legal
Ronald Berenblat 5,000 Legal
Eleccom Corporation, Ltd. 777,777 Finder of Intellashop Acquisition
Lenny Abruzzo 11,555 Accounting
==============
TOTAL 1,038,334
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In April 2000, Martin F. Cardone, the Company's President, CEO and director, and Spherics Limited, a corporation organized under the laws of Anguilla ("Spherics"), mutually agreed to terminate a December 1999 Letter of Intent between the parties which contemplated, in part, that for consideration of $150,000, Mr. Cardone would sell an amount of shares of the Company's common stock, beneficially owned by him, to provide Spherics with a controlling interest in the Company.
As a result of the Company's proposed acquisition of Intellashop, Spherics and the Company entered into an agreement (the "Spherics Agreement"), in April of 2000, whereby Spherics has agreed to commit $2,000,000 to the Company, payable over a six month period from the date of the Spherics Agreement, for operating capital to be used in connection with the operation of Intellashop.com. In consideration for the $2,000,000 commitment, the Company has agreed to issue 40,000,000 shares of the Company's common stock to Spherics under the provisions of Section 4(2) of the Act. Further, it is agreed upon by the parties that in the event that the proposed acquisition for Intellashop.com is not successfully completed within 120 days from the date of the Spherics Agreement, the Company shall return any and all monies paid to the Company by Spherics pursuant to the Spherics Agreement, and all shares issued to Spherics by the Company pursuant to the Spherics Agreement shall be returned free and clear of all security interests, claims, liens and other encumbrances.
On December 31, 1997, Mr. Cardone elected to receive 12,320,999 shares of the Company's common stock at a deemed price of $.015 per share as satisfaction for $185,264 in loans Mr. Cardone made to the Company. The Company and Mr. Cardone agreed that the conversion price for that transaction would be the closing price for the Company's stock as quoted on a nationally recognized quotation system.
As of December 31, 1999, the Company owed Mr. Cardone $551,113 which was a combination of unpaid salaries and promissory notes due Mr. Cardone (the "Notes"). The Company intends to pay $203,801 from the proceeds of its recent 504 Offering to Mr. Cardone to reduce that number to $347,312. Pursuant to Mr. Cardone's employment agreement with the Company and a separate agreement between the Company and Mr. Cardone which governed the terms of the Notes, Mr. Cardone had the right to convert any and all principal and interest due him into common stock of the Company at a 20% discount to the market price on the day(s) Mr. Cardone chooses to convert. On May 17, 2000, Mr. Cardone elected to convert $347,312 of the debts owed to him by the Company to 2,170,700 shares of the Company's common stock. In the event that the Company is unable to pay all or some of the remaining $203,801 due Mr. Cardone, Mr. Cardone retained his right to convert any unpaid debts from the Company to common stock. Further, on June 1, 2000 Mr. Cardone intends to convert $75,000 from his Year 2000 salary to common stock of the Company at the prescribed discounted price.
In May of 2000, the Company issued 795,000 shares of its unregistered common stock to a number of individuals or entities as compensation for services and advancement of certain costs for the benefit of the Company (the "4(2) Offering"). The shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended. No broker was involved and no commissions were paid. The deemed price per share for purposes of the 4(2) Offering was $.24.
NUMBER OF NATURE OF
COMMON SHARES SERVICE
NAME OF SHAREHOLDER PROVIDED
Richard Vincent 25,000 Consulting
Claudia Fioligio 5,000 Consulting
Marcella DeVone 4,000 Administrative
Mike Welsh 50,000 Consulting
William Campbell 18,000 Purchase of Goods
Dee McNamara 10,000 Consulting
Marc Gottlieb 50,000 Legal
Steven A. Sanders 200,000 Legal
Laurence D. Paredes 40,000 Legal
William S. Rosenstadt 35,000 Legal
Ron Berenblat 5,000 Legal
American Stock & Trust 25,000 Transfer Agent
Kerry Moody 50,000 Consulting
Joan Ann Handy 3,000 Administrative
Michael Beckman 25,000 Legal
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Item 5. Indemnification of Directors and Officers.
Pursuant to the Articles of Incorporation the Company has such authority, as the Utah Business Corporation Act allows to indemnify its officers and directors to the extent provided for in such statute. The only statute, charter provision, bylaw, contract or other arrangement under which any controlling person, director or officer of the Company is insured or indemnified in any manner against which liability they may incur in their capacity as such is the Utah Corporation Code, as enacted and in effect upon adoption of the Articles of Incorporation and Bylaws governing the Company. The provisions of the Utah Corporation Code provide that the Company may, but is not obligated to, indemnify against the liability an individual made a party to a lawsuit because they were previously or currently a director or officer of the Company, if such person acted in good faith and reasonably believed his or her actions were in the best interests of Company. The Company may not indemnify such persons if they are found liable to the Company in a shareholders derivative suit or are found liable for having received an improper personal benefit. The Company is required to indemnify such persons if they are ultimately successful in the suit. Pending a final determination, the Company may advance funds to these persons, but only if provision is made for the return of all funds advanced in the event such persons are subsequently found to be unentitled to indemnification. The general effect of this statute is to make indemnification available to the officers and directors of the Company regarding actions taken in their official capacity, unless they are found liable to the Company for their actions, they received an improper benefit therefrom, or they did not act in good faith while reasonably believing their actions were in the best interests of the Company. Indemnification would include actions of the of the officers and directors of the Company taken in connection with this filing. If available at reasonable cost, the Company intends to maintain insurance against any liability incurred by its officers and directors in defense of any actions to which they are made
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PART F/S
For information regarding this item, reference is made to the "Index of Financial Statements."
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the Company has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 20, 2000
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
----------------------------------------------
Martin F. Cardone, Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant in the capacity on this 19th day of May, 2000.
/s/ Martin F. Cardone
----------------------------------------------
Martin F. Cardone, Director
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Index of Financial Statements
VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
VIRTUAL REALITY INC.
- INDEX -
Page(s)
Independent Auditors' Report F - 1
Financial Statements:
Balance Sheet F - 2
Statements of Operations F - 3
Statements of Changes on Shareholders' Equity F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F- 6 - F - 8
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Virtual Reality Inc.
New York, New York
We have audited the accompanying balance sheet of Virtual Reality Inc. as of December 31, 1999 and the related statements of operations, changes in shareholders' equity and cash flows for the years ended December 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Virtual Reality Inc. as of December 31, 1999, and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, certain conditions indicate that the Company may be unable to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
/s/ LAZAR LEVINE & FELIX LLP
-------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
March 17, 2000
F-1
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VIRTUAL REALITY INC.
BALANCE SHEET
AS OF DECEMBER 31, 1999
- ASSETS -
CURRENT ASSETS $ --
FIXED ASSETS (Note 1d):
Furniture and equipment 56,711
Less: accumulated depreciation (54,326)
---------
TOTAL ASSETS $ 2,385
=========
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable $ 149,320
Taxes payable 3,723
Due to officer (Note 3) 551,113
---------
TOTAL CURRENT LIABILITIES 704,156
CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY (DEFICIENCY) (Note 4):
Common stock, $.015 par value 34,727,913 shares issued and outstanding $ 520,919
Additional paid-in capital 2,754,791
Accumulated deficit (3,977,481) (701,771)
------------ ---------
$ 2,385
=========
The accompanying notes are an integral part of these financial statements.
F-2
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VIRTUAL REALITY INC.
STATEMENTS OF OPERATIONS
For the Year Ended
-----------------------------------------
December 31, December 31,
1999 1998
------------ -------------
NET SALES $ -- $ --
------------ ------------
COSTS AND EXPENSES:
Operating expenses 342,266 252,100
Interest expense 25,487 15,017
------------ ------------
TOTAL COSTS AND EXPENSES 367,753 267,117
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (367,753) (267,117)
Provision for income taxes (Note 1e) 200 200
------------ ------------
NET LOSS $ (367,953) $ (267,317)
============ ============
BASIC LOSS PER COMMON SHARE (Note 1f) $ (.01) $ (.01)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES (Note 1f) 34,727,913 34,024,707
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
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VIRTUAL REALITY INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
Common Stock Additional
---------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 33,602,913 $ 504,044 $ 2,745,041 $(3,342,211) $ (93,126)
Shares issuable to officer (Note 4) 1,125,000 16,875 9,750 -- 26,625
Net loss -- -- -- (267,317) (267,317)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 34,727,913 520,919 2,754,791 (3,609,528) (333,818)
Net loss -- -- -- (367,953) (367,953)
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 34,727,913 $ 520,919 $ 2,754,791 $(3,977,481) $ (701,771)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
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VIRTUAL REALITY INC.
STATEMENTS OF CASH FLOWS
For the Year Ended
----------------------------
December 31, December 31,
1999 1998
------------ -----------
INCREASE (DECREASE) CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(367,953) $(267,317)
Adjustments to reconcile net loss to net cash (used by) operating activities:
Depreciation 2,810 2,810
Write off of patents and copyrights -- 18,692
Changes in assets and liabilities:
Increase in accounts payable 145,520 3,800
Increase in other current liabilities -- 436
Increase in taxes payable 266 --
--------- ---------
Net cash (used by) operating activities (219,357) (241,579)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in security deposits -- 5,632
--------- ---------
Net cash provided by investing activities -- 5,632
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans from officer 219,357 216,009
--------- ---------
Net cash provided by financing activities 219,357 216,009
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS -- (19,938)
Cash and cash equivalents, beginning of year -- 19,938
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest -- --
Income taxes -- --
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Fair value of shares issued to officer for compensation -- $ 26,625
The accompanying notes are an integral part of these financial statements.
F-5
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VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Organization and Nature of Business:
The Company was previously in the business of development and production of virtual reality equipment and systems. Since 1997 the Company has been dormant. Management has been investigating opportunities to utilize and exploit the Company's goodwill.
(b) Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
(c) Fixed Assets:
Fixed assets are reflected at cost. Depreciation of furniture and equipment is provided on a straight-line basis over five years.
(d) Income Taxes:
The Company records income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). Under this standard, deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expense or benefit is based on the changes in the assets and liabilities from period to period and an operating loss carryforward. However, based upon historical losses, it is management's belief that it is more likely than not that none of the deferred tax asset will be realized. A valuation allowance has been created to reserve the entire deferred tax asset.
(e) Loss Per Common Share:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation of "basic" and "diluted" earnings per share on the face of the income statement. Loss per common share is computed by dividing the net loss by the weighted average number of common shares and common equivalent shares outstanding during each period.
F-6
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VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
(f) Use of Estimates:
In preparing financial statements in accordance with generally accepted accounting principles, management makes certain estimates and assumptions, where applicable, that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. While actual results could differ from those estimates, management does not expect such variances, if any, to have a material effect on the financial statements.
NOTE 2 - GOING CONCERN UNCERTAINTY:
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained substantial operating losses over the past several years and has used substantial amounts of working capital in its operations. At December 31, 1999, current liabilities exceeded current assets by $704,156 and the accumulated stockholders' deficit aggregated $701,771. Management of the Company has been investigating opportunities to utilize and exploit the Company's goodwill (see also Note 6).
NOTE 3 - DUE TO SHAREHOLDER/OFFICER:
Due to shareholder/officer in the amount of $551,113 at December 31, 1999 bears interest at a rate of 8% per annum and is payable on a demand basis.
NOTE 4 - SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock issued and outstanding includes 2,500,000 shares in the aggregate issuable to an officer/shareholder for past compensation during the years ended December 31, 1998 and 1997.
F-7
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VIRTUAL REALITY INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - CONTINGENCIES:
The Company is party to several pending legal proceedings and claims. Although the outcome of such items cannot be determined with certainty, the Company's management is of the opinion that provisions made for potential losses are adequate and any further liabilities and costs should not have a material adverse effect on the Company's results of operations or financial position.
NOTE 6 - SUBSEQUENT EVENT (Unaudited):
On February 23, 2000, the Company entered into a letter of intent for the acquisition of Intellashop, Inc., a corporation organized under the laws of Anguilla. Intellashop is an advanced technology real-time personal shopping agent with its "Intellashop.com" Web site.
F-8
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PART III
Item 1. Index to Exhibits.
For information regarding this item, reference is made to the "Index of Exhibits."
Index of Exhibits
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation
3.2 By-Laws
10.1 Martin F. Cardone Employment Agreement dated
September 12, 1996
10.2 Zorro Systems Ltd. Letter of Intent dated February
23, 2000
10.3 Spherics Limited Investment Agreement dated
April 19, 2000
10.4 Spherics Recission Agreement Dated May 9, 2000
10.5 Eleccom Finder's Agreement dated May 23, 2000
11.1 Statement re: Computation of Per Share Earnings
99.1 Irrevocable Proxy of Spherics Common Stock,
dated May 19, 2000
99.2 Promissory Note dated November 3, 1996
99.3 Promissory Note dated October 28, 1997
99.4 Promissory Note dated January 15, 2000
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Exhibit (3)(i)
ARTICLE OF INCORPORATION
OF
STEPRO, INC.
We, the undersigned natural persons of the age of twenty-one years or more, acting as incorporators of the corporation under the Nevada Business Corporations Act (hereinafter called the "Act") adopt the following Articles of Incorporation for such corporation.
ARTICLE I
Name. The name of the corporation (hereinafter called the "Corporation") is Stepro, Inc.
ARTICLE II
Period of Duration. The period of duration of the Corporation is perpetual.
ARTICLE III
Purposes and Powers. The purpose for which this Corporation is organized is to engage in the manufacturing of steel products and to engage in any and all other lawful business.
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue 50,000,000 shares of stock each having a par value of one-tenth of one cent (1
mil). All stock of the Corporation shall he of the same class and shall have the same rights and preference. Fully paid stock of this Corporation shall not he liable for further call or assessment. The authorized trading shares shall he issued at the
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discretion of the Directors.
ARTICLE V
Incorporators. The name and address of each incorporator is:
Shirrell W. Hughes 1981 East 4800 South #100 Salt Lake City, Utah 84117
Kurtis D. Hughes 2325 Arbor Lane Salt Lake City, Utah 84117
Susan Santage 4428 Greenhill Las Vegas, Nevada 89121
ARTICLE VI
Directors. The Corporation shall be governed by a Board of Directors consisting of no less than three (3) and no more than nine (9) directors. Directors need not be stockholders in the Corporation but shall be elected by the stockholders of the Corporation. The number of Directors constituting the initial Board of Directors is three (3) and the name and address of the persons who shall serve as Directors until their successors are elected and qualified are:
Shirrell W. Hughes 1981 East 4800 South #100 Salt Lake City, Utah 84117
Kurtis D. Hughes 2325 Arbor Lane Salt Lake City, Utah 84117
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Susan Santage 4428 Greenhill Las Vegas, Nevada 89121
ARTICLE VII
Commencement of Business. The Corporation shall not commence business until at least One Thousand Dollars ($1,000) has been received by the Corporation as consideration for the issuance of its shares.
ARTICLE VIII
Preemptive Rights. There shall be no preemptive right to acquire unissued and/or treasury shares of the stock of the Corporation.
Voting of Shares. Each outstanding share of common stock of the Corporation shall be entitled to one vote on each matter submitted to a vote at the meeting of the shareholders. Each stockholder shall be entitled to vote his or its shares in person or by proxy, executed in writing by such stockholder, or by his duly authorized attorney-in fact. At each election of Directors, every stockholder entitled to vote in such election shall have the right to vote in person or by proxy the number of shares owned by him or it for as many persons as there are directors to be elected and for whose election he or it has the right to vote, but the shareholder shall have no right to accumulate his or its votes with regard to such election.
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ARTICLE X
Initial Registered Office and Initial Registered Agent. The address of the initial registered office of the Corporation is 3230 East Flamingo Road, Suite 156, Las Vegas, Nevada 89121. And the initial registered agent of the Corporation at such address is Gateway Enterprises, Inc.
/s/ Shirrell W. Hughes
----------------------
Shirrell W. Hughes
/s/ Kurtis D. Hughes
----------------------
Kurtis D. Hughes
/s/ Susan Santage
----------------------
Susan Santage
STATE OF UTAH
COUNTY OF SALT LAKE
On the 10th day of September, 1991, personally appeared before me Shirrell W. Hughes, Kurtis D. Huges, and Susan Santage and duly acknowledged to me that they are the persons who signed the foregoing instrument as incorporators and that they have read the foregoing instrument and know the contents thereof and that the same is true of their own knowledge as to those matters upon which they operate and believe those matters to be true.
/s/ Lisa Hickman
-------------------------
NOTARY PUBLIC
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
STEPRO, INC.
Pursuant to the applicable provisions of the Nevada business Corporations Act, Stepro, Inc. (the "Corporation") adopts the following Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the Corporation is Stepro, Inc.
SECOND: The following amendments to its, Articles of Incorporation were adopted by majority vote of shareholders of the Corporation on December 30, 1991 in the manner prescribed by Nevada law.
1. Article I is amended to read as follows:
Name. The name of the corporation shall be: virtual Reality,
2. Article IV is hereby amended to read as follows:
Capitalization. (a) Common Stock. The Corporation shall have the authority to issue 100,000,000 shares of common stock having a par value of $.00l. All common stock of the Corporation shall be of the same class and shall have the same rights and preferences. Fully paid common stock of this Corporation shall not be liable for further call or assessment. The authorized common shares shall be issued at the discretion of the Directors. (b) Preferred Stock. The Corporation shall have the authority to issue 5,000,000 shares of preferred stock each having a par value of $.001, with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors of the Corporation.
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3. Articles VI is hereby amended to read as follows:
The Corporation shall be governed by a board of directors consisting of no less than one person. Directors need not be stockholders in the Corporation but shall be elected by the stockholders of the Corporation unless appointed by other directors to fill a vacancy on the Board. 4. Article XI is hereby added as follows:
ARTICLE XI
Liability of Directors and Officers. No director or officer shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such person as a director or officer.
Notwithstanding the foregoing sentence, a director or officer shall be liable to the extent provided by applicable law, (i) for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or (ii) for the payment of dividends in violation of NRS 78.300.
The provisions hereof shall not apply to or have any effect on the liability or alleged liability of any officer or director of the Corporation for or with respect to any acts or omissions of such person occurring prior to such amendment.
THIRD: The number of shares of the Corporation outstanding and entitled to vote at the time of the adoption of said amendment was 40,082,593.
FORTH: The number of shares voted for such amendments was 34,105,000 (85%) and the number voted against such amendment was -0-.
DATED this 30th day of December, 1991.
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ATTEST: STEPRO, INC.
By:/S/Pamela Jowett By:/S/Glen R. Ulmer
------------------------ ------------------------
Pamela Jowett, Secretary Glen R.Ulmer, President
VERIFICATION
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
The undersigned being first duly sworn, deposes and states: that the undersigned is the Secretary of Stepro, Inc. that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the sole director and stockholders of the Corporation.
/S/Pamela Jowett
---------------------------
Pamela Jowett
Secretary
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
VIRTUAL REALITY, INC.
Pursuant to the app1icab1e provisions of the Nevada Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the corporation is VIRTUAL REALITY, INC.
SECOND: The following amendment to its Articles of Incorporation was adopted
by a Consent Reso1ution of the shareholders and Board of Directors of the Corporation on March 10, 1992 in the manner prescribed by Nevada Law.
1. Article V is amended as follows:
ARTICLE V - STOCK
a. Common Stock.
The aggregate number of common shares which the corporation shall have authority to issue is 10,000,000 shares at a par value of $.015 per share. All common stock when issued shall be fully paid and non-assessable.
No holder of shares of common stock of the corporation shall be entitled, as such, to any pre- emptive or preferential rights to subscribe to any unissued stock or any other securities which the corporation may now or thereafter be authorized to issue. The Board of Directors of the Corporation may, however, at its discretion, by resolution, determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of common stock of the corporation or solely to the holders of any class or classes of such stock, in such proportions based
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on stock ownership as said board at its discretion may determine.
Each share of common stock shall be entitled to one vote at stockholders meetings, either in person or by proxy. Cumulative voting in elections of Directors and all other matters brought before stockholders meetings, whether they be annual or special, shall be permitted.
b. Preferred Stock
The Corporation shall have authority to issue 5,000,000 shares of Preferred Stock, $.001 par value per share, with such rights preferences and designations and to be issued in such series as determined by the Board of Directors of the corporation.
2. The Corporation has effectuated a 15 to 1 reverse stock split of its shares of common stock outstanding as of March 11, 1992 reducing said shares from 92,782,593 shares to 6,185,506 shares. Said reverse split to be effective with the commencement of business on March 11, 1992.
THIRD: The number of shares of the Corporation outstanding and entitled to vote at the time of the adoption of said amendment was 92,782,593.
FORTH: The number of shares voted for such amendments was 47,567,520 and the number voted against such amendment was 0.
Dated this 10th day
of March, 1992.
VIRTUAL REALITY, INC. VIRTUAL REALITY, INC.
By: /s/ Nelson Merritt By: /s/ Robert Hamilton
------------------------- --------------------------
NELSON MERRITT, President ROBERT HAMILTON, Secretary
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VERTIFICATION
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the Secretary of VIRTUAL RRALITY, INC., that the undersigned has read the Articles of Amendment and knows contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockho1ders of the Corporation.
/s/ Robert Hamilton
---------------------------
ROBERT HAMILTON, Secretary
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the President of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Robert Hamilton
---------------------------
ROBERT HAMILTON, Secretary
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the President of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment
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and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Nelson Merritt
-------------------------
NELSON MERRITT, President
STATE OF NEW YORK )
: ss.
COUNTY OF WESTCHESTER)
Before me the undersigned Notary Public in and for the said County and State, personally appeared the Secretary and President of VIRTUAL REALITY, INC., a Nevada corporation, and signed the foregoing Articles of Amendment as their own free and voluntary acts and deeds pursuant to a corporate resolution for the uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this 11th day of March, 1992.
/s/ Gina Moorehead
-------------------------
NOTARY PUBLIC
GINA MOOREHEAD
Notary Public, State of New York
REG. NO. 4960552
Qualified in Westchester County
My Commission Expires Dec. 26, 1993
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ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
VIRTUAL REALITY, INC.
Pursuant to the applicable provisions of the Nevada Business Corporations Act, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the Corporation is VIRTUAL REALITY, INC.
SECOND: The following amendment to its Articles of Incorporation was adopted by
a written Consent of Resolution of a majority of the shareholders and by unanimous consent of the Board of Directors of the Corporation on October 19, 1992 in the manner prescribed by Nevada Law.
1. Article V is amended as follows:
ARTICLE V - STOCK
a. Common Stock.
The aggregate number of common shares which the corporation shall have authority to issue is 20,000,000 shares at a par value of $.015 per share. All common stock when issued shall be fully paid and non-assessable.
No holder of shares of common stock of the corporation shall be entitled, as such, to any pre- emptive or preferential rights to subscribe to any unissued stock or any other securities which the corporation may now or thereafter be authorized to issue.
The Board of Directors of the Corporation may, however, at its discretion, by resolution,
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determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of common stock of the corporation or solely to the holders of any class or classes of such stock, in such proportions based on stock ownership as said board at its discretion may determine.
Each share of common stock shall be entitled to one vote at stockholders meetings, either in person or by proxy. Cumulative voting in elections of Directors and all other matters brought before stockholders meetings, whether they be annual or special, shall be permitted.
b. Preferred Stock.
The Corporation shall have authority to issue 5,000,000 shares of Preferred Stock, $.001 par value per share, with such rights preferences and designations and to be issued in such series as determined by the Board of Directors of the corporation.
THIRD: The number of shares of the corporation outstanding and entitled to vote at the time of the adoption of said amendment was 92,782,593.
FOURTH: The number of shares voted for such amendments was 47,567,520 and the number voted against such amendment was 0.
Dated this 31st day
of March, 1994.
VIRTUAL REALITY, INC.
By: /s/ Nelson A. Merritt
---------------------------------
Nelson A. Merritt, Vice President
By: /s/ Maureen J. Davis
----------------------------------
MAUREEN J. DAVIS, Secretary
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VERIFICATION
STATE OF NEW YORK )
:ss. Pleasantville
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the Secretary of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Maureen J. Davis
---------------------------
MAUREEN J. DAVIS, Secretary
STATE OF NEW YORK )
: ss. Pleasantville
COUNTY OF WESTCHESTER)
The undersigned being first duly sworn, deposes and states: that the undersigned is the President of VIRTUAL REALITY, INC., that the undersigned has read the Articles of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the stockholders of the Corporation.
/s/ Nelson A. Merritt
---------------------------------
NELSON A. MERRITT, Vice President
STATE OF NEW YORK )
: ss. Pleasantville
COUNTY OF WESTCHESTER)
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Before me the undersigned Notary Public in and for the said County and State, personally appeared the Secretary and President of VIRTUAL REALITY, INC., a Nevada corporation, and signed the foregoing Articles of Amendment as their own free and voluntary acts and deeds pursuant to a corporate resolution for the Uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this 31st day of March, 1994.
/s/ Kathleen T. McManus
-----------------------
NOTARY PUBLIC
KATHLEEN T. McMANUS
Notary Public, State of New York
Putnam County
Reg. No. 5003017
Commission Expires 10/13/94
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CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After issuance of stock)
VRI, INC
Name of Corporation
We the Undersigned Martin F. Cardone (President) and Gwenn Long (Assistant Secretary) do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened held on the 28th day of March, 1997, adopted a resolution to amend the original articles as follows:
Article V is hereby amended to read as follows:
Article V - STOCK
a. Common Stock : The amount of the total authorized common stock of the Corporation is 100,000,000 common shares, par value $.015 per share. All common stock when issued shall be fully paid and non-assessable.
No holder of shares of common stock of the Corporation shall be entitled, as such, to any preemptive or preferential rights to subscribe to any unissued stock or any other securities which the Corporation may now or thereafter be authorized to issue. The Board of Directors of the Corporation may, however, at its discretion, by resolution, determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of common stock of the Corporation solely to the holders of any class of classes of such stock, in such proportions based on stock ownership as said board at its discretion may determine.
Each share of common stock shall be entitled to one vote at shareholders' meetings, either in person or by proxy. Cumulative voting in elections of Directors and all other matters brought before stockholders' meetings, whether they be annual or special shall be permitted.
b. Preferred Stock: The Corporation shall have authority to issue 5,000,000 shares of Preferred Stock, $0.001 par value, with such rights, preferences and designations and to be issued in such series as determined by the Board of Directors of the Corporation.
The Number of Shares of the Corporation outstanding and entitled to vote on an amendment to the Articles of Incorporation is 15,301,746 and the said change(s) and amendment have been consented to and approved by a majority vote of the stockholders holding at least a majority of each class of stock outstanding and entitled to vote thereon.
/s/ Martin F. Cardone
----------------------------
Martin F. Cardone, President
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/s/Gwenn Long
-------------------------------
Gwenn Long, Assistant Secretary
State of New York
ss
County of New York
On March 9, 2000 personally appeared before me, a Notary Public, Martin Cardone and Gwenn Long who acknowledged that they executed the above instrument.
/s/ Steven A. Sanders
-------------------------------
Signature of Notary
Notary Stamp or Seal
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Exhibit (3)(ii)
BY-LAWS
OF
VIRTUAL REALTY, INC.
ARTICLE I - OFFICES
The principal office of the corporation in the State of Nevada shall be located in the city of Reno, County or Washoe. The corporation may have such other offices, either within or without the State of incorporation as the board of directors may designate or as the business of the corporation may from time to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on such date as is determined by the Board of Directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the directors, and shall be called by the president at the request of the holders of not less than ten per cent of all the outstanding shares of the corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place, either within or without the state unless otherwise prescribed by statute, as the place for holding such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than thirty cars before the date of the meeting, either personally or by mail, by or
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at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each stockholder of record ant it led to vote at such meeting. It mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, thirty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than thirty days and, in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation or transfer agent and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at the meeting of stockholders.
7. QUORUM.
Unless otherwise provided by law, at any meeting of stockholders one-third of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall
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constitute a quorum at a meeting of stockholders. If less than said number of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and provisions of the certificate of incorporation and these by-laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholders. Upon the demand of any stockholder, the vote for directors and upon any question before the meeting shall be by ballot. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
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11. INFORMA~ ACTION BY 8TOCKHOLt)ER~.
Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the same percentage of all of the shareholders entitled to vote with respect to the subject matter thereof as would be required to take such action at a meeting.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its board of directors. The directors shall in all cases act as a board, and they may adopt such rules and regulations for the conduct of their meetings and the management of the corporation, as they may deem proper, not inconsistent with these by-laws and the laws of this state.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be no less than one or such other minimum number as is required by law. Each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. The directors may provide, by resolution(1) the time and place for the holding of additional regular meetings without other notice than such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of the president or any director. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least two days previously thereto by written notice delivered personally, or by telegram or mailed to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so
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addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors a majority shall constitute a quorum for the transaction of business, but if less than said number is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the directors or any act by unanimous consent of directors.
8. NEWLY CREATED DIRBCTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason except the removal of directors without cause may be filled by a vote of a majority of the directors then in office, although less than a quorum exists. Vacancies occurring by reason at the removal of directors without cause shall be filled by vote of the stockholders. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office tar the unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the stockholders or by action of the board. Directors may be removed without cause only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board, the president or the secretary of the corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board or such officer, and the acceptance of the resignation shall not be necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services, but by resolution of the board a fixed sum and expenses for actual attendance at each regular or special meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from
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serving the corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an executive committee and other committees, each consisting of three or more directors. Each such committee shall serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be as designated by the directors and shall include a president, a secretary and a treasurer, each of whom shall be elected by the directors. Any officer may hold more than one position. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be elected annually at the first meeting of the director held after each annual meeting of the stockholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed by the directors whenever in their judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the directors for the unexpired portion of the term.
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5. PRESIDENT.
The president shall be the principal executive officer of the corporation and, subject to the control of the directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these by-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time.
6. VICE PRESIDENT.
In the absence of the president or in event of his death, inability or refusal to act, the vice-president shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-president shall perform such other duties as from time to time may be assigned to him by the President or by the directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the directors' meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these by-laws or as required, be custodian of the corporate records and of the seal of the corporation and keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder, have general charge of the stock transfer books of the corporation and in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with these by-laws and in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the directors.
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9. SALARIES.
The salaries of the officers shall be fixed from time to time by the directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the directors. Such authority may be general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by the president and by the secretary or by such other officers authorized by law and by the directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the stockholders, the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate
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shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the corporation which shall be kept at its principal office.
(b) The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall end on the last day of such month in each year as the directors may prescribe.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation, year of incorporation and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these by-laws or under the provisions of the articles of incorporation, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
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ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repeated and new by-laws may be adopted by action of the Board of Directors
/s/ Pamela Lovett
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Secretary
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EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 12, 1996 by and between Virtual Reality, Inc., a Nevada corporation (the "Company"), and Martin Cardone, an individual currently residing at 116 John Street, New York, New York 10038 (individually, the "Executive", collectively the "Parties").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company, upon the terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Parties hereby agree as follows:
1. Employment and Duties.
(a) General. The Company hereby employs Executive and Executive agrees upon the terms and conditions herein set forth to serve as the CEO/Chairman of the Company, and in such capacities Executive agrees to perform the duties delineated in the By-Laws of the Company, together with such reasonable additional duties, commensurate with Executive's position as CEO/Chairman, as may be assigned to Executive from time to time by the Board of Directors (the "Board")of the Company. Without limiting the foregoing, Executive's duties shall include preparing monthly management accounts and reports in such form and manner as shall be prescribed by the Board. If elected or appointed, Executive shall also serve as a director or officer of any of the Company's subsidiaries or affiliated companies and, if elected, will serve as a member of the Board or committees of the Board, without further compensation. Executive shall not be elected a member of the Board or committees of the Board prior to the commencement of year two of the initial Term (as hereinafter defined).
(b) Exclusive Services. For so long as Executive is employed by the Company, Executive shall, except as may from time to time be otherwise agreed to in writing by the Company pursuant to authority granted by a resolution of the Board, devote his full-time working hours to his duties hereunder, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful and good faith directions and instructions given to him by the Board, and shall use his best efforts to promote and serve the interests of the Company.
(c) No Other Employment. For so long as Executive is employed by the Company, Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation without the consent of the Company pursuant to the authority granted by a resolution of the Board or otherwise engage in activities which would interfere significantly with his faithful performance of his duties hereunder. Executive may perform inconsequential services without direct compensation therefor in connection with the management of personal investments, provided that such activity does not contravene the provisions of section 5 hereof.
2. Term of Employment. The Company shall retain Executive and Executive shall serve in
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the employ of the Company for the four year period commencing as of September 12, 1996 (the "Effective Date") and ending on September 11, 2000 (the "Term"), subject to earlier termination in accordance with Section 4 of this Agreement. The Term shall be automatically extended without further action by either party for a successive or successive one-year period or periods, unless written notice of either party's intention to terminate this Agreement has been given to the other party at least ninety days prior to the expiration of the Term. In the event that the Company elects not to extend the Term in accordance with the provisions of this Section 2, Executive shall be entitled to devote reasonable periods of time during the remaining Term to seek new employment. For purposes of this Agreement, the twelve (12) month period commencing on the Effective Date and ending on the first anniversary thereof, and each twelve (12) month period ending on each subsequent anniversary thereof during the Term, shall be referred to as a "Contract Year".
3. Compensation and Other Benefits. Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to Executive during the Term as compensation for services rendered hereunder:
(a) (i) Salary. The Company shall pay to Executive an annual base salary (the "Salary") at the rate of $60,000 per annum in the first Contract Year and $150,000 per annum in the second, third and forth Contract Year. Salary shall be payable in substantially equal installments at the end of each calendar month or at such other intervals as may be determined by the Company in accordance with its payroll practices as established from time to time. The Salary will be reviewed not less often than annually by the Board and may be increased, but not decreased. However, in the event that the Company is unable to make any payment due to the Executive pursuant to this Section 3 for any reason whatsoever, the Executive has the right to convert any or all of such payments to unregistered common stock of the Company at a Twenty Percent (20%) discount of the closing price as reflected on a reputable national quotation system such as Yahoo! Finance as the date immediately prior to such conversion.
(ii) As additional compensation to the Executive, the Executive shall earn the following number of shares of common stock so long as the Executive is continuously employed by the Company through January 1, 2000 (the "Vesting Date"). In the event that the Executive is not continuously employed by the Company through the Vesting Date, the Company has the exclusive right to "clawback" all of the shares earned pursuant to this sub-paragraph.
Denomination Date Earned
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250,000 December 31, 1996
250,000 March 31, 1997
250,000 June 30, 1997
250,000 September 30, 1997
375,000 December 31, 1997
375,000 March 31, 1998
375,000 June 30, 1998
375,000 September 30, 1998
(b) Bonus. The Company agrees that Executive shall be eligible to earn a bonus (the "Bonus") for each Contract Year during the Term. The minimum Bonus for the initial Term shall be in accordance with the following schedule:
A Bonus for a Contract Year during the Term shall be paid no later than ninety
(90) days after the end of the Contract year to which such Bonus relates In the event that the Executive's employment ends under the circumstances described in
Section 2 above, the Bonus, it any, for the final Contract Year of Executive's employment shall be paid to Executive within ninety (90) days after the end of such final Contract Year, notwithstanding that Executive is no longer in the employ of the Company at that time.
(c) Travel Expenses. The Company shall reimburse Executive for reasonable travel and other business-related expenses incurred by Executive in the fulfillment of his duties hereunder. Travel expenses shall be accounted for in accordance with Company reporting practices. Travel shall be done in the most commercially feasible manner under the circumstances.
(d) Employee Benefits. The Company at its cost shall provide Executive with the insurance, health, major medical, disability benefits and sick leave benefits provided to similarly situated executives of the Company. Executive shall also participate in all other benefit plans, programs and arrangements that the Company typically makes available to its executive employees.
(e) Vacation. For the first Contract Year, Executive shall accrue vacation days at a rate of one day per month of employment up to a maximum of twelve (12) days and Executive shall be entitled to reasonable sick leave in accordance with the Company's policies as established from time to time. For each Contract Year thereafter, the maximum number at vacation days accrued for such year shall be increased by one (1) day for each full Contract Year completed prior thereto, and
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appropriate adjustment shall be made to the monthly rate of vacation accrual to reflect such increase; provided, however, that the maximum number of vacation days accrued in any Contract Year shall in no event exceed eighteen (18) days.
(f) Automobile Allowance. During Executive's employment with the Company, Executive may lease and insure an automobile for his business use and the Company shall promptly reimburse Executive, provided that the amount of the combined leasing, insurance and parking payments shall not exceed $700.00 per month (the "Allowance").
4. Termination of Employment.
(a) Termination for Cause; Resignation Without Good Reason. (i) If, prior to the expiration of the Term, Executive's employment is terminated by the Company for Cause, as defined in section 4(a) (ii) hereof, or if Executive resigns from his employment hereunder, other than for Good Reason, as defined in section 4(a) (iii) hereof, Executive shall be entitled to payment of the pro rata portion of Executive's Salary under section 3(a) through and including the date of termination or resignation. Except to the extent required by applicable law, Executive shall have no right under this Agreement or otherwise to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment with respect to the year of such termination or resignation and later years.
(ii) Termination for "Cause" shall mean termination of Executive's employment with the Company by the Board because of (A) any act or omission which constitutes a material breach by Executive of his obligations or agreements under this Agreement or the failure or refusal of Executive to satisfactorily perform any duties reasonably required hereunder, (other than by reason of the incapacity of Executive due to physical or mental illness), (B) the commission by Executive of a felony, or the perpetration by Executive of a dishonest act or common law fraud against the Company, or any affiliate or subsidiary thereof, (C) any act or omission by Executive which, in the good faith opinion of the Board, is injurious in any significant respect to the financial condition or business reputation of the Company or any of its affiliates or subsidiaries (other than any good faith act or omission in furtherance of the rights of the Company) and which resulted from Executive's willful misconduct or inexcusable neglect or (D) Executive's habitual drunkenness on the job or excessive absenteeism not related to illness, sick leave, holiday leave or vacation.
(iii) Resignation for "Good Reason" shall mean the resignation of Executive after an act or omission by the company which is a material breach of this Agreement; provided, however that at least 20 days prior to such resignation Executive specifies to the Company in writing the nature of such act or omission set forth in clause and the Company or the Board does not correct such act or omission within 10 business days after its receipt of such written specification.
(iv) The date of termination of employment by the Company under this section 4(a) shall be the date set forth in the written notice of termination delivered by the Company to Executive, unless no such date is specified in such notice, in which case the date of termination shall be the date of receipt by Executive of written notice of termination. The date of resignation under this section 4(a) shall be 10 business days after receipt by the Company of written notice of resignation.
(b) Termination Without Cause; Resignation for Good Reason. (i) Subject to the provisions of section 4(b) (ii), if, prior to the expiration of the Term, Executive's employment is terminated by the Company without Cause, or if Executive resigns from his employment hereunder for Good Reason, the Company shall continue to pay to Executive the Salary (at the rate An effect on the date of such termination) during the remainder of the Term; provided, however, that the amount of any such payments shall be reduced by any salary or other compensation payment received by Executive from a subsequent employer or employers during the remainder of the Term. Except to the extent required by applicable law, Executive shall have no right under this
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Agreement or otherwise to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment with respect to the year of such termination or resignation and later years.
(ii) If, following a termination of employment without Cause or a resignation for Good Reason, Executive breaches the provisions of section 5 hereof, Executive shall not be eligible, as of the date of such breach, for the payments described in this section 4(b), and any and all obligations and agreements of the Company with respect to such payments shall thereupon cease.
(iii) The date of termination of employment by the Company under this section 4(b) shall be the date specified in a written notice of termination to Executive or, it no such date is specified therein, the date on which such notice is given to Executive The date of resignation under this section 4(b) shall be 10 business days after receipt by the Company of written notice of resignation.
(c) Termination Due to Death or Disability. In the event of Executive's disability, as defined below, the Company shall be entitled to terminate his employment. Notwithstanding anything contained in this Agreement to the contrary, if Executive's employment should terminate due, to death or disability, no further payments of Salary shall be earned by Executive, and any Salary earned by Executive to the date of such termination shall be paid to Executive or Executive's estate, as the case may be, within 30 days of such termination. As used in this section, the term "disability" shall mean the inability of Executive to perform his services as President of the Company as required hereunder due to physical or mental incapacity or illness for more than 45 consecutive days.
5. Secrecy and Noncompetition.
(a) No Competing Employment. For so long as Executive is employed by the Company and continuing for 3 years after the termination of such employment or resignation therefrom (such period being referred to hereinafter as the "Restricted Period"), Executive shall not, unless he receives after the Effective Date the prior written consent of the Company pursuant to authority granted by a resolution of the Board, directly or indirectly engage or participate, as an owner, partner, shareholder, officer, employee, director, agent or consultant, in any business which directly or indirectly competes with the Company or any of its subsidiaries or affiliates, and, further, that Executive will not make any investments in any business that competes with the Company.
(b) No Interference. During the Restricted Period, Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), intentionally solicit, endeavor to entice away from the Company, or otherwise interfere with the relationship of the Company with, any person who is employed by or otherwise engaged to perform services for the Company (including, but not limited to, any independent sales representatives or organizations) or any person or entity who is, or was within the then most recent 12 month period, a customer or client of the Company.
(c) Secrecy. Executive recognizes that the services to be performed by him hereunder are special, unique and extraordinary in that, by reason of his employment hereunder, he may acquire confidential information and trade secrets concerning the operation of the Company, or its affiliates or subsidiaries, the use or disclosure of which could cause the Company or its affiliates or subsidiaries substantial loss and damages which could not be readily calculated and for which no remedy at law would be adequate. According1y, Executive covenants and agrees with the Company that he will not at any time, except in performance of Executive's obligations to the Company hereunder or with the prior written consent of the Company pursuant to authority granted by a resolution of the Board, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company, or any of its subsidiaries and affiliates, or use any such information. The term "confidential information" includes, without
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limitation, information not previously disclosed to the public or to the trade by the Company's management with respect to the Company's, or any of its affiliates' or subsidiaries', products, facilities and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product price lists, customer lists, financial information (including the revenues, costs or profits associated with any of the Company's products), business plans, prospects or opportunities but shall exclude any information already in the public domain. Executive understands and agrees that the rights and obligations set forth in this section 5(c) shall continue for 10 years and, in any case, shall extend for a period of three years beyond the Restricted Period and Executive's employment hereunder.
(d) Exclusive Property. Executive confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by Executive relating to the business of the Company shall be and remain the property of the Company. Upon the termination of his employment with the Company or upon the request of the Company at any time, Executive shall promptly deliver to the Company, and shall not without the consent of the Company, retain copies of, any written materials not previously made available to the public, records and documents made by Executive or coming into his possession concerning the business or affairs of the Company or any of its affiliates or subsidiaries; provided, however, that subsequent to any such termination, the Company shall provide Executive with copies (the cost of which shall be borne by Executive) of any documents which are requested by Executive and which Executive has determined in good faith are
(i) required to establish a defense to a claim that Executive has not complied with his duties hereunder or (ii) necessary to Executive in order to comply with applicable law. Executive understands and agrees that the rights and obligations set forth in this section 5(d) are perpetual and, in any case, shall extend beyond the Restricted period and Executive's employment hereunder.
(e) Injunctive Relief. Without intending to limit the remedies available to the Company, Executive acknowledges that a breach of any of the covenants contained in this section 5 may result in material irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining Executive from engaging in activities prohibited by this section 5 or such other relief as may be required to specifically enforce any of the covenants in this section 5.
(f) Extension of Restricted Period. In addition to the remedies the Company may seek and obtain pursuant to section 5(f), the Restricted Period shall be extended by any and all periods during which Executive shall be found by a court possessing personal jurisdiction over him to have been in violation of the covenants contained in this section 5.
6. Source of Payments. All payments provided under this Agreement, other than payments made pursuant to a plan which provides otherwise, shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company.
7. Nonassignability; Binding Agreement.
(a) By Executive. Without the prior written consent of the Company pursuant to authority granted by a resolution of the Board, this Agreement and any and all rights, duties, obligations or interests hereunder shall not be assignable or delegable by Executive, nor shall any right of Executive (or Executive=s estate or beneficiary, as the case may be) to any payment or benefit
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hereunder be subject to any manner of alienation or assignment.
(b) By the Company. This Agreement and all of the Company's rights and obligations hereunder may be assigned, delegated or transferred by it to any business entity which at any time by merger, consolidation or otherwise acquires all or substantially all of the assets of the Company or to which the Company transfers all or substantially all of its assets. Upon such assignment, delegation or transfer, any such business entity shall be deemed to be substituted for all purposes as the Company hereunder.
(c) Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto, any successors to or assigns of the Company and Executive's heirs and the personal representatives of Executive's estate.
8. Severability. If the final determination of a court of competent jurisdiction declares, after the expiration of the time within which judicial review (if permitted) of such determination may be perfected, that any term or provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.
9. Amendment; Waiver. This Agreement may not be modified, amended or waived in any manner except by an instrument in writing signed by both parties hereto; provided, however, that any such modification, amendment or waiver on the part of the Company shall have been previously approved by the Board. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.
10. Tax Withholding. Payments to Executive of all compensation contemplated under this Agreement be subject to all applicable legal requirements with respect to the withholding of taxes.
11. Governing Law. All matters affecting this Agreement, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State.
12. Notices. Any notice hereunder by either party to the other shall be given in writing by personal delivery or certified mail, return receipt requested. If addressed to Executive, the notice shall he delivered or mailed to Executive at the address first set forth above, or if addressed to the Company, the notice shall be delivered or mailed to, or such other address as the Company or Executive may designate by written notice at any time or from time to time to the other party. A notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by certified mail, on the date shown on the applicable return receipt.
13. Supercedes Previous Agreements. This Agreement supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, all such other negotiations, commitments, agreements and writings will have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing will have no further rights or obligations thereunder.
14. Counterparts. This Agreement may be executed by either of the parties hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
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15. Headings. The headings of sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the Company has caused the Agreement to he signed by its officer pursuant to the authority of its Board, and Executive has executed this Agreement, as of the day and year first written above.
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
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Name: Martin F. Cardone
Title: President
/s/ Martin F. Cardone
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Martin F. Cardone
"Executive"
/s/ [ILLEGIBLE]
---------------------------------------
Witnessed By
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VRI, Inc. 333 Meadowlands Parkway Secaucus, New Jersey 07094 Telephone: (201) 390-9200 Facsimile: (201) 390-0156
February 23, 2000
VIA FACSIMILE: (246) 431-0076
Zorro Systems, Ltd.
Chancery House
High Street
Bridgetown, Barbados
Attention: Mr. Alec Wright
Re: Proposed Agreement for the Purchase of Common Stock of Intellashop, Inc.
Dear Mr. Wright:
This letter, when countersigned by you and Intellashop, Inc., shall confirm the agreement as of January 7, 2000, by and between VRI, Inc., a Nevada corporation (the "Buyer"), Zorro Systems Ltd., a Barbados corporation (the "Shareholder") and Intellashop, Inc., a Barbados corporation (the "Company"), upon which the Shareholder will sell to Buyer shares of the Company's common stock. Our agreement is on the terms, and subject to the conditions, described below. Except for paragraphs 5, 6 and 7 below, however, this letter represents only our current good-faith intention to negotiate and enter into a definitive agreement for the purchase of common stock (the "Agreement for the Purchase of Common Stock"), which shall be subject to the terms and conditions of this letter satisfactory completion of the parties' due diligence investigation and to negotiation of such as Agreement for the Purchase of Common Stock in a form acceptable to the parties (except with respect to paragraphs 5, 6 and 7, below) and none of the parties hereto shall have any liability to the other if the parties fail to execute an Agreement for the Purchase of Common Stock. Statements below as to what the parties will do, or agree to do, or the like, are so expressed for convenience purposes only, and are understood in all instances (except for paragraphs 5, 6 and 7 below) to be subject to our mutual continued willingness to proceed with any transaction as our negotiations take place.
1. Fundamental Terms. At the date of closing of the Agreement for the Purchase of Common Stock (the "Closing"), the Buyer agrees to purchase and Shareholders agrees to sell and deliver, such number of shares of the Company's common stock, $100.00 par value, which shall represent not less than 100% of the Company's issued and outstanding shares of common stock as of the Closing, on a fully diluted basis (collectively, the "Shares"), after giving effect to all outstanding Company shares of common stock, options, warrants or rights to acquire Company shares of common stock, as if all Company shares of common stock which may be acquired by exercise or conversion of options, warrants or rights, were deemed outstanding. As consideration for the sale of Shares to Buyer, Buyer agrees to pay Shareholder
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200,000,000 shares of common stock, $0.15 par value, of the Buyer (collectively, the "Exchange Shares" or, the "Purchase Price"). The parties hereto agree that the Shares and the Exchange Shares shall be fully paid and nonassessable, free and clear of all liens, encumbrances, options, and legal or equitable rights of others not a party to this letter.
2. Definitive Agreement. The parties hereto mutually agree to proceed in good faith toward negotiations and execution of the Agreement for the Purchase of Common Stock, which shall provide for the sale and purchase of the Shares and which shall contain representations, warranties, conditions, covenants and the like typical in such transaction.
3. Conditions. This letter is and, to the extent applicable, the Agreement for the Purchase of Common Stock will be subject to the following conditions:
a. A complete and satisfactory due diligence review by the Buyer of the books, records, business and affairs of the Company. The Company agrees to provide Buyer and its agents complete access to all of the Company's books, records and personnel for purposes of conducting Buyer's investigation;
b. A complete and satisfactory due diligence review by the Shareholder and the Company of the books, records, business and affairs of the Buyer. The Buyer agrees to provide Shareholder and the Company and their respective agents complete access to all of the Buyer's books, records and personnel for purposes of conducting Shareholder's and Company's investigation;
c. The existence at the Closing of no material liabilities on the books of the Company and the Buyer, and no undisclosed or contingent liabilities, other than those expressly agreed upon by the parties;
d. The approvals and consents of all applicable governmental bodies, lenders, lessors, third parties, and Company's Buyers and Seller's respective board of directors;
e. The occurrence of no material changes in the Company's and Buyer's business or capitalization between the date of this letter and the date of Closing, other than as required or conditioned herein, or otherwise expressly agreed upon by the parties in writing; and,
f. The completion and filing by Shareholder, Company and/or Buyer of all documentation, reports, schedules and other information necessary to bring the Company and/or the Buyer into compliance with the rules and regulations of the U.S. Securities and Exchange Commission and the Internal Revenue Service.
4. Expenses. Each party to this letter shall bear its own expenses, except as specifically
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provided to the contrary above.
5. Indemnification. The Company hereby agrees to defend, indemnify and hold harmless the Buyer, and all of Buyer's officers, directors, attorneys, stockholders, employees and agents against any and all expenses of defense and investigation related thereto, of any and every nature and description, however incurred, arising out of or related to this letter of intent, the Agreement for the Purchase of Common Stock, and any agreements or proceedings related thereto.
The Buyer hereby agrees to defend, indemnify and hold harmless the Shareholders and the Company, and all of the Company's officers, directors, attorneys, stockholders, employees and agents against any and all expenses of defense and investigation related thereto, of any and every nature and description, however incurred, arising out of or related to this letter of intent, the Agreement for the Purchase of Common Stock, and any agreements or proceedings related thereto.
6. Confidentiality. Buyer hereby agrees that all information provided by Shareholder or the company and identified as "confidential" by Shareholder or the Company will be treated as such, and that the Buyer shall not make any use of such information other than with respect to the transactions contemplated by this letter or by this letter are terminated without the execution of a definitive Agreement for the Purchase of Common Stock, Buyer shall return to Shareholder or the Company all such confidential information in its possession, or will certify to Shareholder and the Company that all of such that has not been returned has been destroyed.
Shareholders and Company hereby agree that all information provided by Buyer and identified as "confidential" by Buyer will be treated as such, and that the Shareholder and Company shall not make any use of such information other than with respect to the transactions contemplated by this letter or by the Agreement for the Purchase of Common Stock. If the agreements contemplated by this letter are terminated without the execution of a definitive Agreement for the Purchase of Common Stock, Shareholder and Company shall return to Buyer all such confidential information in its possession, or will certify to Buyer that all of such that has not been returned has been destroyed.
7. Termination. This letter of intent may be terminated by mutual consent of the Buyer, the Shareholder and the Company.
In the event of such termination, all provisions hereof shall terminate except as provided in the initial paragraph preceding paragraph 1, above, except that if a party is in breach of its obligations hereunder, such transaction shall not relieve such party of liability for such breach.
This letter agreement shall be governed by, and construed with, the laws of the State of Nevada, without giving effect to conflict of laws principles thereof, and in any action to enforce or interpret or arising under any of the provisions of this agreement, the parties expressly agree to
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submit to the jurisdiction of any Federal or State court sitting in Clark County, State of Nevada.
Sincerely,
VRI, INC.
By: /S/ Martin F. Cardone
-------------------------------
Name: Martin F. Cardone
Title: President
ACCEPTED AND AGREED TO as of the date first above written:
ZORRO SYSTEMS LTD.
By: /S/ Alec Wright
---------------------------
Name: Alec Wright
Title: Chairman
ACCEPTED AND AGREED TO as of the date first above written:
INTELLASHOP INC.
By: /S/ Alec Wright
---------------------------
Name: Alec Wright
Title: Chairman
--------------------------------------------------------------------------------
SPHERICS LIMITED
Victoria House - Box 58
The Valley, Anguilla BWI
April 19, 2000
Virtual Reality, Inc.
116 John Street - Suite 130
New York, NY 10038
Attn: Martin F. Cardone
CEO & Chairman
Re: Letter Agreement for Operating Capital Financing from Spherics
Limited
Dear Mr. Cardone,
This Letter Agreement, when countersigned by you, shall be binding agreement between Spherics Limited (the "Investor") and Virtual Reality, Inc. (The "Company") for a Two Million Dollar ($2,000,000) investment in the Company in return for Forty Million (40,000,000) restricted shares of the Company's common stock, $.015 par value (the "Shares"), pursuant to the terms and conditions found herein:
1. Fundamental Terms. The Investor shall invest a total of Two Million Dollars ($2,000,000) (the "Investment") in the Company. The Investment shall consist of One (1) initial payment of Five Hundred Thousand Dollars ($500,000) and one or more payments totaling One Million Five Hundred Thousand Dollars ($1,500,000)(the "Balance"). The first payment shall be made on the One (1) month anniversary of this Letter Agreement (the "First Payment"). The Balance shall be satisfied through a payment schedule to be determined by the Parties in a subsequent agreement, written or otherwise. As consideration for the Company's sale of the Shares, the Company shall issue the Shares to the Investor, upon execution of this Letter Agreement. The Shares shall be fully paid and nonassessable, free and clear of all liens, encumbrances, options, restrictions and legal or equitable rights of others not a party to this letter. The investment may take the form of equity or loan, or a combination thereof.
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2. Use of Proceeds. The Investor anticipates and intends that the Company shall use the Investment to satisfy the operating capital requirements of Intellashop, Inc., the Company's intended acquisition (the "Acquisition"). In the event that the Company does not successfully complete the Acquisition within One Hundred Twenty (120) days from the date hereof, the Company shall promptly return all payments received pursuant to paragraph 1 of this Letter Agreement and the Investor shall, simultaneous with such remittance, return the Shares to the Company.
3. Closing. Payment of the First Payment for, and delivery of the Shares shall be made at the offices of Beckman, Millman & Sanders, LLP, 116 John Street - Suite 1313, New York, New York 10038, or at such other place as shall be agreed upon by the Investor and the Company, and shall be made at the time and date of execution of this Agreement (such payment and delivery being herein called the "Closing"). The time and place of the remaining payments of the Balance shall be made as shall agreed upon subsequent to this Letter Agreement by the Investor and the Company.
4. Expenses. Each party to this Letter Agreement shall bear its own expenses.
5. Indemnification. The Company hereby agrees to defend, indemnify and hold harmless the Investor, and all of Investor's officers, directors, attorneys, stockholders, employees and agents against any and all expenses of defense and investigation related to this Letter Agreement and any agreements or proceedings related thereto.
6. Confidentiality. Investor hereby agrees that all information provided by the Company and identified as "confidential" by the Company will be treated as such, and that the Investor shall not make any use of such information other than with respect to the transaction contemplated by this Letter Agreement. If the agreements contemplated by this letter are terminated, Investor shall return to the Company all such confidential information in its possession, or will certify to the Company that all of such that has not been returned has been destroyed.
7. Termination. This letter of intent may not be terminated unless the Investor and the Company have agreed to such in writing. In the event of such termination, all provisions hereof shall terminate.
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8. Governing Law. This letter agreement shall be governed by, and construed with, the laws of the State of New York, without giving effect to conflict of laws principles thereof, and in any action to enforce or interpret or arising under any of the provisions of this agreement, the parties expressly agree to submit to the jurisdiction of any Federal or State court sitting in New York County, State of New York.
Sincerely,
SPHERICS LIMITED
By: /S/ John O. Dyrud
-------------------------------
Name: John O. Dyrud
Title: Corporate Counsel and
Authorized Agent
ACCEPTED AND AGREED TO as of the date first above written:
VIRTUAL REALITY, INC.
By: /S/ Martin F. Cardone
----------------------------
Martin F. Cardone
CEO and Chairman
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RECISSION AGREEMENT made and entered into as of the th day of April, 2000, by and among Martin F. Cardone ("Cardone") and Spherics Limited ("Spherics", Cardone and Spherics shall be collectively known as the "Parties").
W I T N E S S E T H
WHEREAS, the Parties are desirous for the termination of the Letter of Intent dated December 8, 1999 to which Cardone and Spherics are parties (the "Letter of Intent"); and
WHEREAS, the Parties are desirous of releasing each other from all legal liability associated with the Letter of Intent.
NOW, THEREFORE, in consideration of the foregoing premises and covenants, agreements, representations and warranties herein contained, the parties hereto agree as follows:
1. Transfer of the Funds. (a) The Parties hereby agree that no funds were transferred pursuant to the Letter of Intent and that the Escrow Agent does not presently hold nor did it ever hold funds pursuant to the Letter of Intent.
2. The Closing. The date of closing shall be when all of the conditions set forth in this Agreement have been satisfied or waived by the respective parties in writing.
3. Mutual Releases. All of the parties to this Agreement, as well as any officers, directors, shareholders, agents, successors, assignees and representatives of the parties, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby release, remise, acquit and forever discharge the others and all of their respective executors, heirs, affiliates, representatives, administrators, predecessors, successors and assigns, from any and all known, unknown, matured and unmatured, liquidated and unliquidated, contingent and non-contingent, actions, causes of action, claims, demands, damages, costs, suits, debts, dues, sums of money, accounts, reckonings, bills, covenants, contracts, liens, controversies, agreement, promises, variances, trespasses, extents and executions whatsoever, at law or in equity (collectively, the "Claims") which the Parties had, have or may have arising out of or in whole or in part at any time prior to the execution of this Agreement related to the transaction effected under the Letter of Intent dated as of December 8, 1999. The release given herein shall be and remain in effect, as a full and complete release of such Claims, notwithstanding discovery or existence or any additional or
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different claims or facts. Provided that nothing in this release shall act to release any party from any claims which arise as a result of a breach of this Agreement notwithstanding the basis for such claim. THIS RELEASE MAY NOT BE CHANGED ORALLY.
4. Choice of Law. This Agreement shall be governed by, and construed with, the laws of the State of New York, without giving effect to conflict of laws principals thereof, and in any action to enforce or interpret or arising under any of the provisions of this agreement, the parties expressly agree to submit to the jurisdiction of any Federal or State court sitting in New York County, State of New York.
5. Escrow Agent's Rights and Duties. (a) All of the parties to this Agreement agree to indemnify Beckman, Millman & Sanders, LLP, the Escrow Agent as that term is defined in the Letter of Intent for and hold it harmless against any loss, liability, damage, claim or expense (including the reasonable fees and disbursements of its attorneys) incurred by or asserted against the Escrow Agent, arising out of or in connection with its entering into the escrow account herein referenced, the performance of its duties hereunder and otherwise in respect hereof, including the costs and expenses of defending itself against any claim or liability in the premises, except that we shall not be liable hereunder as to matters in respect of which the Escrow Agent is determined to have acted with gross negligence or in bad faith. The Escrow Agent shall have no liability to any of the parties to this Agreement or to any person in respect to any action taken or any failure to act in respect of this Escrow Agreement if such action was taken or omitted to be taken in good faith, and Escrow Agent shall be entitled to rely in this regard on the advice of counsel.
[This space intentionally left blank.]
-2-
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(b) The Escrow Agent may assume that any notice or instruction received by it hereunder is authentic and has been duly and validly given, pursuant to due authorization by or on behalf of the person by which or on behalf of which it purports to be given, and the Escrow Agent shall have no duty to inquire with respect thereto.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the date first above written.
MARTIN F. CARDONE
/s/ Martin F. Cardone
---------------------------
Martin F. Cardone
SPHERICS LIMITED
By: John O. Dyrud
Name: John O. Dyrud Title: Corporate Counsel and Authorized Agent
As Escrow Agent:
BECKMAN, MILLMAN & SANDERS, LLP
By:
Steven A. Sanders
-3-
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FINDER'S AGREEMENT
This Agreement is made this 23 day of May, 2000, between Virtual Reality, Inc. ("Virtual") and Eleccom Corporation LTD. ("Eleccom") with reference to the following facts:
Virtual is a Nevada corporation with its principal offices located at 116 John Street, New York, new York 11038;
Eleccom is an Anguillan corporation with its principal offices located at Victoria House, P.O. Box 58, The Valley, Anguilla, B.W.I.;
Virtual desires to sell 200,000,000 shares of its restricted Common Stock
(the "Virtual Shares") to Zorro Systems Ltd., a Barbados corporation ("Zorro")
in exchange for 100% of the issued and outstanding common stock of Intellashop Inc., a wholly owned subsidiary of Zorro (the "Intellashop Shares");
Zorro desires to sell the Intellashop Shares to Virtual in exchange for the Virtual Shares;
Virtual affirms that Eleccom introduced Virtual to Zorro; and
Virtual desires to pay to Eleccom a finder's fee for such introduction.
THEREFORE, the following is agreed between Virtual and Eleccom:
1. In the event that Virtual and Zorro enter into a definitive agreement for the purchase of common stock (a "Definitive Stock Purchase Agreement"), Virtual will pay to Zorro the finder's fee found in paragraph 3 below. In no event shall Zorro be liable for any finder's fee to Eleccom. Eleccom will not, and is not, required to take part in any such negotiations between Virtual and Zorro.
2. Virtual shall be under no obligation to pay any fee or other monies whatsoever to Eleccom on account of this Agreement until a Definitive Stock Purchase Agreement is entered into by both Virtual and Zorro.
3. Should Virtual and Eleccom enter into a Definitive Stock Purchase Agreement, Virtual, shall upon the closing of the Definitive Stock Purchase Agreement issue to Eleccom, One Million Two Hundred Twenty-Two Thousand Two Hundred Twenty-Two (1,222,222) shares of Virtual's free trading common stock, free and clear of all liens, security interests, pledges, charges, claims, options, encumbrances and restrictions of any kind, at a deemed price of $.45 per share (the "Finder's Fee").
1
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4. Any arrangements made by Eleccom with any other persons with whom Eleccom is involved, are Eleccom's exclusive responsibility. Upon payment made by Virtual, to Eleccom of the Finder's Fee, Eleccom will hold Virtual harmless from and indemnify Virtual against all claims or expenses caused by and liabilities to any person claiming commission, fee or expense in connection with the transaction who alleges a relationship with Eleccom.
5. Should any litigation be commenced between Eleccom and Virtual concerning this Agreement regarding the rights and duties of either of the parties to this Agreement, then the party prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for attorneys' fees in such litigation which may be determined by the Court in such litigation or in a separate action brought for that purpose.
6. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, the parties expressly agree that all the terms and provisions hereof shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to conflict of law principles thereof.
7. This Agreement contains the entire agreement between Eleccom and Virtual concerning the introduction of Virtual to Zorro, and correctly sets forth the rights and duties of each of the parties to each other concerning such matter as of this date. Any agreement or representation concerning the subject matter of this Agreement or the duties of Eleccom in relation to Virtual not set forth in this Agreement is null and void.
8. This Agreement and any provision hereof, may not be waived, changed modified, or discharged orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought.
9. Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Agreement shall be deemed to have been made unless expressly in writing and signed by the party against whom such waiver is charged; and (i) the failure of any party to insist in any one or more cases upon the performance of any of the provisions, covenants or conditions of this Agreement or to exercise any option herein contained shall not be construed as a waiver or relinquishment for the future of any such provisions, covenants, or conditions; (ii) the acceptance of performance of anything required by this Agreement to be performed with knowledge of the breach or failure of a covenant, condition, or provision hereof shall not be deemed a waiver of such breach or failure, and no waiver by any party of one breach by another party shall be construed as a waiver with respect to any other or subsequent breach.
10. This Agreement contains the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings.
11. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
2
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12. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day after mailing if prepaid, and properly addressed as follows:
VIRTUAL REALITY, INC.
116 John Street - Suite 1300
New York, New York 10038
ELECCOM CORPORATION LTD.
Victoria House, P.O. Box 58
The Valley, Anguilla B.W.I.
13. This Agreement shall inure to and be binding upon the heirs, executors, personal representatives, successors and assigns of each of the parties to this Agreement.
As of the date first above written:
VIRTUAL REALITY, INC.
By: /S/ Martin F. Cardone
-------------------------
Name: Martin F. Cardone
Title: President
ELECCOM CORPORATION LTD.
By: /s/ Disa Billington
----------------------
Name: Disa Billington
Title: Director
3
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IRREVOCABLE PROXY FROM SPHERICS LIMITED FOR A SPECIFIED PERIOD
KNOW ALL MEN BY THESE PRESENTS, That Spherics Limited, a corporation organized and existing under and by virtue of the laws of Anguilla, owning and holding Forty Million (40,000,000) shares of the capital stock of Virtual Reality, Inc., does hereby appoint and constitute Wall Street M&A Group of New York, New York, its true and lawful attorney to vote in behalf of this Corporation, and in its name, place, and stead, as its proxy and representative, the number of votes that this Corporation would be entitled to cast, by written consent or at any and all meetings of the stockholders of Virtual Reality, Inc., held within the period beginning on the date hereof, until the earlier to occur of: (i) a combination (reverse split) of shares of common stock or other capital readjustment or other reduction of the number of shares of Virtual Reality, Inc. common stock outstanding (without receiving compensation therefor in money, services or property), in accordance with Virtual Reality Inc.'s Articles of Incorporation, Bylaws and the laws of the State of Nevada; or, (ii) ninety (90) days from the date hereof, upon any and all matters that may be presented, considered, and voted upon by the stockholders of the Corporation, including the election of directors, as fully and with like effect as it might or could have done if personally present, hereby ratifying and confirming all that my attorney may do in my name, place, and stead. This proxy is irrevocable and it is coupled with an interest.
WITNESS my hand and seal, this 19th day of May, 2000
SPHERICS LIMITED
/S/ W. Hasewood
---------------------------------
Name/Title
(Corporate Seal)
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PROMISSORY NOTE
Virtual Reality, Inc. ("VRI"), a Nevada corporation with its principal place of business at 333 Meadowlands Parkway, Secaucus, New Jersey 07094, hereby acknowledges a loan to VRI in the amount of Fifteen Thousand ($15,000.00) Dollars for operating capital as yet unpaid, and hereby promises to pay said debt to the order of said Martin F. Cardone, together with interest of 10% per annum, in twelve equal monthly installments of One Thousand ($1,000.00) Dollars on the first day of each month beginning January 1, 1997. All such payments shall be made to Martin F. Cardone at 240 Larch Lane, Mahwah, New Jersey 07430, or such other place as he or the holder of this Note may designate.
Presentment for payment, notice of dishonor, and protest and notice of protest are hereby waived by VRI and its successor, heirs and/or assigns.
Made this 3rd day of November, 1996.
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
---------------------------
Martin F. Cardone
President
Witnessed By:
/S/ [ILLEGIBLE]
---------------------------
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PROMISSORY NOTE
Virtual Reality, Inc. ("VRI"), a Nevada corporation with its principal place of business at 333 Meadowlands Parkway, Secaucus, New Jersey 07094, hereby acknowledges a loan to VRI in the amount of Forty Two Thousand ($42,000.00) Dollars for operating capital as yet unpaid, and hereby promises to pay said debt to the order of said Martin F. Cardone, together with interest of 10% per annum, in twelve equal monthly installments of One Thousand ($1,000.00) Dollars on the first day of each month beginning January 1, 1998. All such payments shall be made to Cardone at 240 Larch Lane, Mahwah, New Jersey 07430, or such other place as he or the holder of this Note may designate.
Presentment for payment, notice of dishonor, and protest and notice of protest are hereby waived by VRI and its successor, heirs and/or assigns.
Made this 28th day of October, 1997.
VIRTUAL REALITY, INC.
By: /s/ Martin F. Cardone
---------------------------
Martin F. Cardone
President
Witnessed By:
/s/ [ILLEGIBLE]
---------------------------
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January 15, 2000
PROMISSORY NOTE
Virtual Reality, Inc. (AVRI@), a Nevada corporation with its principal place of business at 333 Meadowlands Parkway, Secaucus, New Jersey 07094, hereby acknowledges a loan to VRI in the amount of One Hundred Thirty Four Thousand ($134,000.00) Dollars for operating capital as yet unpaid, and hereby promises to pay said debt to the order of said Martin F. Cardone, together with interest of 10% per annum, in twelve equal monthly installments of One Thousand ($1,000.00) Dollars on the first day of each month beginning February 1, 2000. All such payments shall be made to Cardone at 116 John Street, New York, New York 10038, or such other place as he or the holder of this Note may designate.
Presentment for payment, notice of dishonor, and protest and notice of protest are hereby waived by VRI and its successor, heirs and/or assigns
Made this 15th day of January, 2000.
VIRTUAL REALITY, INC.
By:/S/ Martin F. Cardone
---------------------
Martin F. Cardone
President
Witnessed By:
/s/ Marcella Devone
-------------------
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