10KSB

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

(Mark One)
þ	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the fiscal year ended December 31, 2002
	OR
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year from          to

Commission File Number 000-22235

Video Network Communications, Inc.

(Name of Small Business Issuer in Its Charter)

Delaware	54-1707962
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
50 International Drive, Portsmouth, New Hampshire (Address of Principal Executive Offices)	03801 (Zip Code)

(603) 334-6700

(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, Par Value $0.01

Redeemable Common Stock Purchase Warrant

(Title of Class)

      Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this Form, and no disclosure will be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.     o

      State issuer’s revenues for its most recent fiscal year. $824,459

      The aggregate market value of the voting common equity held by non-affiliates as of March 31, 2003, was $9,744,858.

      The number of shares of the issuer’s Common Stock outstanding as of March 31, 2003, was 58,176,919 shares.

      Transitional Small Business Disclosure Format (check one):     Yes o          No þ

TABLE OF CONTENTS

Item			Page
		PART I
	1.	Business		1
	2.	Properties		8
	3.	Legal Proceedings		9
	4.	Submission of Matters to a Vote of Security Holders		9
		PART II
	5.	Market for Common Equity and Related Stockholder Matters		9
	6.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
	7.	Financial Statements		27
	8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		28
		PART III
	9.	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act		28
	10.	Executive Compensation		28
	11.	Security Ownership of Certain Beneficial Owners and Management		28
	12.	Certain Relationships and Related Transactions		28
	13.	Exhibits and Reports on Form 8-K		29
	14.	Controls and Procedures		33
	15.	Signatures		34

DOCUMENTS INCORPORATED BY REFERENCE

      Sections of our definitive proxy statement for our 2003 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission no later than April 15, 2003, are incorporated by reference into Part III of this Form 10-KSB to the extent stated herein.

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PART I

      Unless otherwise indicated, all information in this Form 10-KSB gives effect to a one-for-five reverse stock split of our common stock effective as of February 5, 2002.

      Some of the statements in this Form 10-KSB are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. We have made these statements based on currently available operating, financial and competitive information. However, actual results and future events may differ significantly from the results contemplated in the forward-looking statements because of a number of factors, including product and technology development, customer and market acceptance of our product, demand for our product, the impact of competitive products and pricing and other risks detailed in this Form 10-KSB and in our other Securities and Exchange Commission filings.

      In this Form 10-KSB, we refer to Video Network Communications, Inc., a Delaware corporation, as we, the Company, VNCI or Video Network Communications. We refer to B2BVideo Network, Corp., our wholly owned subsidiary, as B2BVideo Network or B2BVideo.

Item 1.  Business

      Video Network Communications is a Delaware corporation formed in 1993 to design, develop and market full-motion, high resolution, cost-effective video network systems as a state-of-the-art, business collaborative tool. Users of the VidPhone video network system can view broadcast video, collaborate in multi-party videoconferences, and retrieve stored video on demand. Our VidPhone system bypasses the bottleneck of local data networks to distribute video to and from desktop and laptop personal computers and conference rooms configured with VidPhone stations over the same wiring used by the telephone. During 2002, we added numerous features to the VidPhone system to allow it to more seamlessly integrate into managed wide area network video solutions for network carriers and other channel partners.

      On May 16, 2002 Moneyline Networks, LLC (“Moneyline”), a wholly owned subsidiary of Moneyline Telerate Holdings made a majority investment in VNCI. As of March 31, 2003, Moneyline owns approximately 57% of the outstanding common stock of VNCI. See the section entitled “Recent Sales of Unregistered Securities” in Part II for details of this transaction. In connection with this investment, VNCI also acquired B2BVideo Network Corp. (“B2BVideo”) in a merger transaction. See the section entitled “Acquisition of B2BVideo Network” in Part II for details of this transaction. In the first quarter of 2003, VNCI acquired the webcasting assets of Wiltel Communications. This transaction broadened VNCI’s multi-media communications product suite. See the section entitled “Subsequent Events” in this Part I for further details of this transaction.

Industry Background

      VNCI is part of the rich media conferencing and collaboration industry with a strategic emphasis on visual communications. Business demand for visual communications, historically limited primarily to video conferencing, is driven by the desire to achieve the most effective means of communication. Information that is exchanged or presented visually, such as during in-person meetings or video presentations, has a stronger impact on the end-user than non-visual communication. People cannot always exchange or present information in person, and technology limitations and cost constraints have restricted the use of video applications. Consequently, people rely on non-visual forms of communication, such as telephony, voice mail and e-mail. Recent video application developments such as targeted broadcasting and conferencing,

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along with improved data collaboration tools, achieve the effectiveness of face-to-face meetings while retaining the convenience of a telephone call.

      We believe that video enabled networks that fully support video broadcast, video retrieval as well as video conferencing and other collaborative applications, address many of the communications requirements of the business community. Video enabled, collaborative networks can improve worker productivity by facilitating the efficient exchange of information between geographically dispersed parties and reducing travel expenses. In addition, they can enable the use of video material for training and research at the convenience of the user rather than the presenter and permit businesses to access business broadcasts, such as CNN, CNNfn and CNBC, at a desktop or laptop computer. To date, however, infrastructure and transmission constraints, costs and other limitations have precluded business quality video broadcast, retrieval and conferencing applications at individual desktops.

      Currently, most video communications systems are constrained to conference room video conferencing systems. These systems are expensive for most businesses. Most conference room video conferencing systems require substantial capital expenditures and trained personnel for set up and maintenance during video conferencing calls. Most conference room systems also do not provide video quality adequate for video broadcast and retrieval and are frequently limited by distracting latency, transmission delays that result in unsynchronized audio and video. In addition, these systems normally require the use of the public telephone system for all video calls, including those within a building or across a small business campus, thereby incurring telephone usage charges for each call.

      Over the past decade, video conferencing systems have begun to evolve from high cost, low quality, stand-alone conference room systems to small group and desktop systems. However, desktop systems have not yet been widely adopted. We believe that this is primarily because most video network systems, and the wide area networks they connect to, typically produce inadequate video quality and performance for business purposes.

      Most desktop video conferencing systems use either dedicated, premise telephone lines or the local area network (“LAN”) to transmit video data. Some desktop video conferencing systems use dedicated Integrated Services Digital Network (“ISDN”) lines to achieve acceptable video quality (384 KBPS) for business purposes. However, to achieve this quality, a minimum of three dedicated ISDN lines with six associated telephone numbers must be provided to each desktop. The installation costs of these additional lines and line use charges render this approach prohibitively expensive on any significant scale. In addition, these systems require the installation of either expensive and complex hardware coder-decoders (“CODECs”) in each PC, or software CODECs that render the PC unavailable for other applications during video conferencing.

      Some video conferencing systems attempt to use the LAN rather than dedicated telephone lines. These are referred to as IP or H.323 systems. LAN-based systems also require the installation of hardware or software CODECs in each user’s desktop or laptop computer. Data LANs were not designed for isochronous (i.e., time dependent) data such as video and audio. LANs were designed to be shared by individuals using the transmission medium for short periods of time. Most LANs today do not have the intelligence or bandwidth to accommodate the volume or quality of service (“QoS”) of data inherent in full-motion video applications. Consequently, even a single videoconference significantly diminishes the capacity of most LANs to support other users. Information technology managers resist LAN-based video applications because of the additional volume of data and new infrastructure and the associated maintenance required to support them. Although high speed Ethernet and gigabit routing switches may alleviate some of the bandwidth problems resulting from the transmission of video on the LAN, we believe that these new technologies do not adequately address the transmission delay problems plaguing such systems. We do not believe that asynchronous transfer mode (“ATM”) will reach desktop computers due to the high cost.

      We do not expect business users to adopt video applications on any significant scale until premise video systems and the wide area networks they connect to are capable of providing fully integrated, cost-effective, TV-quality video and FM-quality stereo audio service. We believe that our VidPhone video

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network uniquely meets the premise system requirements because it takes advantage of existing telephone wiring and supports high quality two-way video and audio, but it does not interfere with the existing telephone systems or LAN-based computer systems or impede the performance of an individual desktop or laptop computer. Furthermore, VidPhone’s extended software capabilities render it fully integratable with the most advanced IP-based wide area networks that have the requisite QoS to meet the performance demands of the typical business client.

Products and Technology

      Our VidPhone system is a full-motion, high resolution, cost-effective video network system that uses the same wiring as the telephone, which gives it a competitive cost advantage over other types of video network systems. Users of the VNCI video distribution system can view broadcast video, retrieve stored video on demand and participate in multi-party videoconferences from desktop personal computers and conference rooms. In addition, our VidPhone Software was enhanced in 2002 to efficiently integrate best of breed video gateways and directory services to enable the VidPhone system to be seamlessly integrated into a Managed Video Solution over the wide area network.

      The core components of our VidPhone system are as follows:

      VidPhone Switch. The VidPhone switch is the heart of our Video Network System. The switch, similar to a PBX, is a communications server that uses VNCI’s patented technology to deliver full-motion TV-quality video and FM-quality stereo audio throughout a building or campus – and does so over the same single twisted pair of telephone wire that is already part of the telephony infrastructure without disrupting telephone service.

      VidPhone Station. A VidPhone station is a user’s computer enhanced by incorporation of a VidModem, VidPhone station software and some non-proprietary equipment such as speakers, a microphone and a camera. Users at a VidPhone station are capable of utilizing all VidPhone system functionality. VidPhone stations may be located up to 1,250 feet from the VidPhone switch when using category 3 wiring and up to 2,000 feet when using category 5 wiring. We believe that most modern business telephone systems use at least category 3 wire. VidPhone stations do not need terminal-resident ISDN or ATM CODECs. Each station connects directly to the VidPhone switch and CODECs are shared resources available to anyone on the system. VidPhone stations may be modified easily and inexpensively to support VidPhone system functionality in conference rooms. The VidPhone system supports all video network applications in a large screen, multi-party conference room setting.

      VidModem. The VidModem connects individual desktops and conference rooms with the VidPhone switch using the existing telephone wiring. The desktop/conference room and VidPhone switch versions of VidModem incorporate patented VidModem technology that enables distribution of TV-quality video, retrieval of stored video on demand and FM-quality stereo audio and data over the single twisted pair of copper wire that connects the telephone to the PBX or CENTREX. The transmission does not require compression or decompression of data. The connection is transparent to the telephone and the PBX, so the user can use the telephone concurrently with the VidPhone system. The telephone operates independently of all video applications.

      VidPhone Station Software. VidPhone’s Java-based station software supports various desktop operating systems (“OS”), including Windows/ NT, MAC, Sun and SGI. It provides an easy-to-use graphical user interface for all video applications offered by the VidPhone system and transforms each user’s desktop or laptop computer into a VidPhone station as a multi-media, collaborative network interface. The user’s computer is also configured with non-proprietary equipment such as a microphone, speakers and a camera.

      Universal Gateway. Our Universal Gateway is a dual port device that allows a wide variety of third party CODECs (H.320, H.323, MPEG-2 etc.) to connect seamlessly to the VidPhone system. The Universal Gateway provides an interface between the VidPhone switch and stand-alone system CODECs. The Universal Gateway allows users of these third party CODECs to protect and leverage their investment

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in those CODECs by making them available to all users of the VidPhone system to originate or receive WAN calls.

      VidServer. VidServers are shared resources that provide video on demand capabilities to the VidPhone system and individual users. VCR-like controls from the desktop provide users with full control over the video stored on the VidServer – play, pause, stop, skip forward and skip backward – with a single mouse click. These software controls are integrated with our VidPhone station software.

      During 2002, we added numerous features to the VidPhone system to allow it to more seamlessly integrate into managed wide area network video solutions for network carriers and other channel partners. New features include; integration with industry standard CODECs, encoders and gateways, enhanced directory services and call setup, SNMP monitoring, and improved quality to support sharing of video conferencing resources between conference room and desktops.

      During the first quarter of 2003, we took steps to diversify our revenue base, which included the acquisition of a webcasting business of Wiltel Communications. The acquired webcasting business has two product suites, Activcast and Talkpoint. Talkpoint is a self-serve webcasting service that allows users to conduct interactive presentations over the internet incorporating PowerPoint slides and streaming audio. The application includes audience polling, chat, and has self-publishing capabilities for on demand viewing. Activecast is an interactive presentation service that incorporates streaming video, audio, and PowerPoint slides over the Internet. Both services include, secure registration, authentication, pay per view functionality, and customized web based reporting. See the section entitled “Subsequent Events” for additional details on this acquisition.

System Functionality

      The VidPhone system can support three business video and collaborative requirements.

      Broadcast Video. Sources of broadcast video material include, but are not limited to, satellite broadcasts, cable television and narrowcasts over an ATM network. These sources are connected to the VidPhone switch through a specially designed circuit card. The user selects the desired broadcast from a menu using standard point-and-click techniques. The non-blocking architecture of the VidPhone switch permits multiple users to simultaneously access the same broadcast video source without degrading system performance.

      Video Conferencing. The VidPhone system supports two-way and multi-party video conferencing. A VidPhone system user can maintain a telephone directory and contact other VidPhone users using standard point-and-click techniques at any time without prior coordination.

      Retrieval of Stored Video. VidPhone system users can access video material stored on a variety of different types of devices, such as a video server, a VCR and a DVD player. Users access stored video using point-and-click techniques similar to those used to access broadcast video.

Sales and Marketing

      Our sales and marketing strategies are focused on developing channel relationships for our VidPhone system as an integrated component in a managed video service.

      Strategic Alliances. We recognize that we are a small company with limited resources that constrain our ability to market and sell our video network systems. As we evaluate the potential advances in technology and our markets, we interact with other companies that provide technology, information systems integration, network services and other products and services that are complementary to our product and services offerings. Appropriate strategic alliances can have a material positive impact on our business through increased exposure of our products to broader markets, additional financial, technical and personnel resources and a broader established customer base.

      A key alliance for VNCI is between VNCI and Moneyline (see Recent Sales of Unregistered Securities). In addition to having been a critical source of timely investment, this alliance has

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been at the center of VNCI’s efforts to overcome the challenges of scale and name recognition in attempting to commercialize its unique technology. Moneyline is VNCI’s exclusive distributor of equipment to the financial services market.

      Sales. We have senior level, selling and business development resources focused on (i) promoting our video network solutions in the healthcare, government, education, financial services and security and surveillance sectors, (ii) creating reference accounts in major markets and (iii) developing and supporting third-party reseller relationships and opportunities.

      Customer Service and Support. We provide primary level support to end customers and secondary level support to resellers. As our resellers become more familiar with the VidPhone networking system, we expect that they will provide primary customer support for our products to their customers, and that our customer support department will become a secondary customer support, focusing on providing service regarding issues such as software performance and hardware re-engineering requirements.

Customers

      We have a limited customer base and several customers historically provided in excess of 10% of our total revenues. We generally grant uncollateralized credit terms to our customers and have not experienced any credit-related losses. Three customers accounted for 32%, 16%, and 13%, respectively, of our total revenues in the year ended December 31, 2002. Two customers accounted for 50% and 30%, respectively, of our total revenues in the year ended December 31, 2001. Three customers accounted for 74%, 14%, and 12% of our accounts receivable at December 31, 2002, and four customers accounted for 30%, 16%, 13% and 10% of our accounts receivable at December 31, 2001. Failure to diversify this customer concentration could result in our inability to generate revenues sufficient to support operations. As discussed in the section entitled “Subsequent Events,” we took significant steps to diversify our revenue and customer base in the first quarter of 2003.

Product Research and Development

      During 2001 and 2002, our research and development has focused on:

•  adding new features to existing product lines requested by our customers;

•  creating new products in response to customer demand;

•  adding additional user capacity to the VidPhone system;

•  adding conference room support;

•  improving system compatibility with industry standard video conferencing, bridging and reservations equipment and services;

•  lowering production costs; and

•  adding features to allow the VidPhone system to be more seamlessly integrated into managed wide area network video solution for network carriers or other channel partners.

      New features include: integration with industry standard CODECs, encoders and gateways, enhanced directory services and call setup, SNMP monitoring, and improved quality to support sharing of video

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conferencing resources between conference room and desktops. Our engineering staff closely monitors technical developments and works with our customers and partners to assess evolving business video network requirements. We will monitor emerging technologies that support new video and collaborative applications for business and tailor our research and development accordingly. In addition to our internal research and development resources, we engage contract-engineering services when we believe that the use of such services will be efficient. Research and development efforts target both hardware and software enhancements to video network capabilities. Our research and development efforts are complemented by internal quality assurance procedures.

      Our research and development expenditures were approximately $2,774,000 during 2001 and approximately $3,222,800 during 2002. None of these expenditures were borne by our customers.

Intellectual Property

      Our proprietary VidModem transmission technology, incorporated in our VidPhone system, is covered by U.S. Patent No. 5,621,455 issued in April 1997, U.S. Patent No. 5,786,844 issued in July 1998, Taiwan Patent No. NI-098004 issued in November 1998 and Canadian Patent No. 2,206,521 issued in January 2001. These patents relate to a method and apparatus for transmitting video information over telephone wiring. Corresponding patent applications are pending in Mexico, China and Japan.

      We also have obtained U.S. Patent No. 6,147,991, Taiwan Patent No. NI-122636 and Canadian Patent No. 2,303,296 on a scalable high-speed packet switch. Corresponding applications for this invention are pending in Europe.

      We have received notification from the U.S. Patent and Trademark Office that U.S. Patent No. 6,346,964 was issued on February 12, 2002. This patent relates to a broadband switching system.

      Further, we have obtained U.S. Patent No. 6,134,222 and Taiwan Patent No. NI-133136 for a U-channel interface device that permits multiple ISDN lines to be combined for higher bandwidth. Additional applications on this invention are pending in Taiwan, Europe and Canada. We received an initial report from the European Patent Office indicating that the invention meets the criteria for patentability.

      We also received Taiwan Patent No. NI-105797 on an interoffice broadband communication system, issued in 1999. Corresponding patent applications on this invention are pending in the United States, Europe and Japan.

      We cannot predict when we will receive a dispositive ruling from the U.S. Patent and Trademark Office or from foreign patent offices concerning pending patent applications. The success of our products depends in part on our continuing ability to obtain and protect patents, licenses and other intellectual property rights covering our significant hardware and software products. We have registered the trademarks Video Network Communications, VidPhone and VidModem.

      The process of seeking patent and trademark protection can be long and expensive, and there can be no assurance that patents and trademarks will be issued from currently pending or future applications.

Manufacturing

      We outsource the manufacture and assembly of components used in the VidPhone system. In particular, we outsource the production of the VidPhone switch to various contract manufacturers. Several manufacturers are producing smaller sub-assemblies and components for us. We believe we will be able to continue to outsource production and that there are a number of manufacturers qualified to produce components of our VidPhone system because the production process is relatively routine and does not require any unique expertise. Although our products incorporate unique, patented technology, we also believe that all of the components used in our equipment are readily available from commercial suppliers. As a result, we do not believe that we depend on any single manufacturer or supplier to a material extent. All products produced by third-party manufacturers are shipped to us for final assembly, systems

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integration and quality assurance testing. We plan to retain test and quality assurance functions until subcontractors can be certified with respect to quality. Any difficulties encountered with third-party manufacturers could result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis. Any of these difficulties could have a material adverse effect on us.

Competition

      The market for our video network products is new, highly competitive and rapidly evolving. We believe that the principal competitive factors in the markets in which we compete are product performance, price and product support. Our direct competitors in the video network market are Viewcast, FVC.com and Avistar. We also expect to compete with new entrants in the market and with providers supporting IP and LAN-based video networks, including Intel, Microsoft and Cisco. To date, no desktop system has captured any significant portion of the potential market.

      Our video network system permits users to view broadcast video, participate in multi-party videoconferences and retrieve stored video on demand, all from their individual desktops. As a result, we also compete with companies that offer video broadcast and video retrieval products. Competitors in the video broadcast market include cable television and direct satellite broadcast system providers such as DirecTV, TCI and News Network Vision.

      While not truly competitive in the video distribution network market, there are several video conferencing companies that represent competition for the video conferencing application of our network. These video conferencing companies include Polycom, VTel and Tandberg, with Polycom being the market leader. These companies provide point-to-point video conferencing, normally over long distances. They do not provide an enterprise video distribution solution but do represent cost-effective video conferencing for a limited number of endpoints i.e., one to five.

      The competitive landscape in the webcasting business is comprised of two types of companies: Webcasters and Web conferencers. The webcasters include Yahoo Broadcast, On24, and Visual data among others. Over the past few years, the landscape has changed significantly through consolidation and attrition. Companies have focused on specific vertical or geographic markets where they have had success. Web conferencers include companies such as Webex and Placeware. These service offerings are self-serve, less event driven, and focus on smaller user groups.

Government Regulation

      The FCC regulates the operation of telecommunications equipment for use in the United States. The VidModem and VidPhone switch components of the VidPhone system must comply with certain FCC regulations.

      VidModem. The VidModem is a Class A digital device that may be operated without an individual license. Under FCC regulations, we will be required to follow a verification procedure consisting of a self-certification that the radio frequency device complies with applicable regulations. A qualified, independent testing facility tested the VidModem, and it was found to comply with applicable FCC regulations.

      VidPhone. We obtained equipment registration from the FCC for certain VidPhone system components, including the VidPhone switch, that are connected to the public switched telephone network.

      Future government regulations could increase the cost of bringing products to market or adversely affect our ability to market and sell our products or technology.

Employees

      As of December 31, 2002, we had approximately 48 full time employees, including employees of B2BVideo. We also use the services of temporary administrative staff, technical consultants and subcontractors on an as-needed basis. Each employee and consultant has executed a confidentiality agreement. We have employment agreements with Carl Muscari, our Chief Executive Officer, James Cali,

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our Executive Vice President of Sales and Marketing, and Roger Booker, our Senior Vice President of Business Development. In the first quarter of 2003, the Company implemented a restructuring of the VidPhone business. As part of this transaction, 37 employees were terminated and three employees were transferred to Moneyline. The addition of Wiltel’s webcasting business has added 44 employees.

Subsequent Events

      On February 14, 2003, we purchased from Williams Communications, LLC (“WCLLC”) and Williams Communications Procurement, LP (together with WCLLC, the “Sellers”), each a wholly owned subsidiary of Wiltel Communications Group, Inc. (“WCG”), WCLLC’s webcasting business, including certain equipment and other assets used by WCLLC in this business for $750,000 in cash and $850,000 security on the leased space. The purchased webcasting business includes the production and distribution of multimedia presentation materials using streaming media technology.

      The acquisition of the webcasting business will enable us to provide a full suite of interactive multimedia services. The webcasting product suite, including Activecast and Talkpoint, allows for a broader reach within our targeted customers and provides ubiquity with distribution of voice and video over the internet. This service model does not require capital investment by our customers. Users can leverage the services and toolset by using standard internet browsers and media players. In addition to the new technology acquired, the transaction includes active customers, which we plan to leverage to market our legacy service and technology.

      In the first quarter of 2003, we implemented a restructuring of the VidPhone business to right size the expense base to take into account the Company’s anticipation of lower sales. The restructuring included:

•  Termination of 37 employees, primarily in sales, engineering and administrative capacities.

•  Transfer of three employees to Moneyline. Employees transferred are primarily focused on channel management and business development for the managed video service.

•  Remaining employees will focus on operating the webcasting business and supporting the Moneyline Strategic Alliance Agreement. See the section entitled “Sales & Marketing” for additional details on this agreement.

•  Transfer of direct sales responsibility for the VidPhone System to the direct sales team of the webcasting business.

•  Election of Alexander Russo as Chairman of the Board of Directors, the appointment of Nicholas Balletta as President of the Company and his election as a director of the Company, and the appointment of Frank Joanlanne as the Senior Vice President Webcasting Services.

Item 2.  Properties

      We lease a facility in Portsmouth, New Hampshire at a current rental rate of $12.00 per square foot under a lease that expires in March 2008. Rent on the facility increases over the term of the lease from an initial rate of $11.00 per square foot to $15.00 per square foot. That facility consists of approximately 26,000 square feet, of which approximately 13,000 square feet is office space, approximately 6,500 square feet is a research and development laboratory and approximately 6,500 square feet is a production facility used for equipment assembly and testing, customer support and training.

      We lease a facility in Rutherford, New Jersey at a current rental rate of $26.50 per square foot under a lease that expires in May 2005. The facility consists of approximately 5,000 square feet, of which approximately 4,000 square feet is office space, and approximately 1,000 square feet is data center space for a Video Network Operations Center. We are negotiating with the landlord for early termination of this lease as a result of shutting down the B2BVideo business.

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      With the acquisition of Wiltel’s webcasting business, we assumed the lease for a facility in New York City, New York at a current rental rate of $30.00 per square foot under a lease that expires in July 2009. Rent on the facility increases over the term of the lease from the current rate of $30.00 per square foot to $32.00 per square foot. This facility consists of approximately 31,000 square feet, of which approximately 16,000 square feet is office space, approximately 10,000 square feet is a state of the art data center and approximately 5,000 square feet is a production facility used for content acquisition, production, encoding, publishing, hosting and internet distribution.

Item 3.  Legal Proceedings

      The Company is aware of a grand jury investigation being conducted by the Antitrust Division of the United States Department of Justice with respect to funds allocated by the Schools and Libraries Universal Service Fund (“E-Rate Funds”). The Company understands that the Antitrust Division has established a task force to conduct Universal Service Fund investigations comprised of attorneys in each of the Antitrust Division’s seven field offices and the National Criminal Office. The Company has received a grand jury subpoena requiring production of documents to the Department of Justice, and has responded to it in full. The Company has been notified that, at the present time, it is not a target of the investigation. The Company is not in a position to predict the direction or outcome of the investigation and is cooperating with the Department of Justice. We are not party to any other legal proceedings as of the date of filing of this Form 10-KSB.

Item 4.  Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of our security holders during the quarter ended December 31, 2002.

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Market Information

      From May 3, 1999 to November 1, 2001, our common stock traded on The NASDAQ SmallCap Market. Since November 1, 2001, our common stock has been quoted on the OTC. Quotations reflect inter-dealer prices, without retail mark up, mark down or commissions and may not represent actual transactions. The following table sets forth, for the periods indicated, the range of high and low closing sales prices per share reported on such quotation systems. The share prices listed below have been adjusted to reflect a one share for five shares reverse split in our common stock, approved by our stockholders on February 4, 2002 and effected on February 5, 2002:

	As Adjusted
Period Ending	High		Low
March 31, 2001	$	13.750	$	7.500
June 30, 2001		12.500		8.550
September 30, 2001		10.200		1.950
December 31, 2001		7.650		2.050
March 31, 2002		3.230		0.750
June 30, 2002		3.520		2.600
September 30, 2002		2.660		0.960
December 31, 2002		1.100		0.520
March 31, 2003		0.640		0.390

      On March 31, 2003, the last sale price per share of our common stock as reported on the OTC was $0.390 per common share.

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      Our Public Warrants traded on The NASDAQ SmallCap Market from September 1, 1999 to November 1, 2001. Since November 1, 2001, our Public Warrants have been quoted on the OTC. The following table sets forth, for the periods indicated, the range of high and low closing sales prices per warrant as reported on The NASDAQ SmallCap Market and the OTC. The prices listed below for the Public Warrants have been adjusted for the one share for five shares reverse stock split, and the adjusted closing sales prices have been calculated in the same manner as for the common stock (i.e., multiplying each closing sale price by five). The Public Warrants adjust contractually for the one-for-five reverse stock split by reducing the number of underlying shares from one share of common stock per Public Warrant to two-tenths of a share of common stock per Public Warrant.

Period Ending	High		Low
March 31, 2001	$	4.690	$	3.125
June 30, 2001		4.400		3.125
September 30, 2001		3.750		0.800
December 31, 2001		0.450		0.030
March 31, 2002		0.060		0.010
June 30, 2002		0.100		0.050
September 30, 2002		0.070		0.050
December 31, 2002		0.050		0.010
March 31, 2003		0.030		0.010

      On March 31, 2003, the last sale price per Public Warrant as reported on the OTC was $0.010 per warrant.

Holders

      As of March 31, 2003, there were approximately 278 record holders of our common stock.

Dividend Policy

      We have never paid cash dividends on our common stock. We currently intend to retain all earnings generated by our operations for the development and growth of our business and, therefore, do not anticipate paying any cash dividends to our stockholders in the foreseeable future. The payment of future dividends on the common stock and the rate of such dividends, if any, will be determined by our Board of Directors in light of our earnings, financial condition, capital requirements, general economic conditions and other relevant factors.

Recent Sales of Unregistered Securities

      In August 2000, we completed a private placement (the “August 2000 Private Placement”) of 1,760,000 Units (individually, a “Unit” and collectively, the “Units”), each Unit consisting of two-tenths of one share of common stock and one redeemable common stock purchase warrants (individually, a “Warrant” and collectively, the “Warrants”). The Warrants offered in the August 2000 Private Placement entitle the holder to purchase two-tenths on one share of common stock for an initial exercise price of $4.00 per Warrant (an effective price of $20.00 per underlying share of common stock) during the period (the “Exercise Period”) commencing on February 26, 2001, and ending on June 15, 2004, subject to prior redemption. The Warrants are identical to our outstanding Public Warrants to purchase up to 920,000 shares of our common stock at an initial exercise price of $20.00 per share ($4.00 per warrant, two tenths of a share underlying each warrant), which are currently trading on the OTC Bulletin Board under the symbol “VNCIW,” except that the Warrants could not be exercised until February 26, 2001.

      We offered the Units through EarlyBirdCapital, Inc (“EBC”), as the exclusive placement agent, on a “best efforts, all or none” basis. The Units were offered and sold only to persons who qualified as “accredited investors” as defined in Rule 501(a) under the Securities Act. The sale and issuance of the

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Units were affected in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act and Regulation D and Rule 506 promulgated there under. The price per Unit was $1.50.

      As partial compensation to EBC for its services as placement agent, we issued to EBC an option (the “Purchase Option”) to purchase 52,800 shares of common stock and 264,000 Warrants (each two tenths of one share of common stock and one Warrant must be purchased together as a unit) at an exercise price of $10.625 per unit. The sale and issuance of the Purchase Option were affected in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act and Regulation D and Rule 506 promulgated there under.

      Our net proceeds from the August 2000 Private Placement were approximately $2,200,000, after paying commissions, a non-accountable expense allowance, blue sky fees and other offering expenses of approximately $439,000. We used the net proceeds of the August 2000 Private Placement for research and development, product sales and marketing, and customer support operations, to repay a portion of certain debt outstanding to Sanmina and our legal counsel, and for working capital.

      In connection with the August 2000 Private Placement, we agreed to file a registration statement for the offering and resale of the securities issued in the August 2000 Private Placement and to use our best efforts to have such a registration statement declared effective by the Securities and Exchange Commission (the “Commission”) no later than December 23, 2000. In connection with the August 2000 Private Placement, we issued, on December 23, 2000, January 23, 2001 and February 23, 2001, to the purchasers of Units in the August 2000 Private Placement and to EBC, extra warrants (the “Extra Warrants”) to purchase a total of 60,699 shares of common stock at an initial purchase price of $20.00 per share. We were obligated to issue such Extra Warrants because a registration statement covering the offering and resale of the securities issued in the Private Placement had not been declared effective by the Commission by December 23, 2000. The Extra Warrants have the same terms as the Warrants. We were also required to issue Extra Warrants on each monthly anniversary of December 23, 2000 until the earlier of the effective date of a registration statement covering the offering and sale of the securities issued in the Private Placement, or July 23, 2002. We issued the Extra Warrants in reliance on an exemption provided by Section 4(2) of the Securities Act of 1933 and Regulation D and Rule 506 promulgated there under. We have withdrawn this registration statement and have issued additional Extra Warrants through July 2002. In addition to the Extra Warrants issued as noted above, we issued additional Extra Warrants for 77,830 shares of our common stock through December 31, 2001 and additional Extra Warrants for 54,166 shares of our common stock in 2002.

      In September and October 2001, we issued warrants to purchase 400,000 shares of common stock at an exercise price of $2.00 per share in conjunction with our issuance of secured notes with aggregate principal value of $1,000,000. The exercise price of these warrants contractually reset to $0.60 per share in conjunction with our Private Placement and merger transaction completed on May 16, 2002.

      In November and December 2001, we issued warrants to purchase 669,993 shares of common stock at an exercise price of $2.75 per share in conjunction with our issuance of notes with an aggregate principal value of $1,674,982. The exercise price of these warrants was reset to $0.60 per share based on a note conversion agreement between us and the holder that was entered into in connection with our Private Placement and merger transaction that was completed on May 16, 2002.

      In December 2001, we negotiated an extension of the maturity date of the First Bridge Secured Notes and, as consideration, issued the noteholders warrants to purchase 200,000 shares of common stock with an exercise price of $2.00 per share with an aggregate value of $456,000, which was charged to interest expense in 2001. The exercise price of these warrants was reset to $0.60 per share based on a note conversion agreement between us and the holder that was entered into in connection with our Private Placement and merger transaction that was completed on May 16, 2002.

      In January 2002, we issued warrants to purchase 200,000 shares of common stock at an exercise price of $1.30 per share in conjunction with issuance of notes with an aggregate principal value of $500,000. The exercise price of these warrants was reset to $0.60 per share in conjunction a note conversion agreement

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between us and the holder in conjunction with our Private Placement and merger transaction completed on May 16, 2002.

      In March 2002, we issued warrants to purchase 698,000 shares of common stock at an exercise price of $1.30 per share in conjunction with issuance of notes with an aggregate principal value of $349,000. The exercise price of these warrants contractually reset to $0.60 per share in conjunction with the Company’s Private Placement and merger transaction completed on May 16, 2002.

      In April 2002, we issued warrants to purchase 400,000 shares of common stock at an exercise price of $1.30 per share in conjunction with issuance of notes with an aggregate principal value of $200,000. The exercise price of these warrants contractually reset to $0.60 per share in conjunction with our Private Placement and merger transaction completed on May 16, 2002.

      On May 16, 2002, we entered into the Agreement with Moneyline. Pursuant to the Agreement Moneyline purchased 25,000,000 new unregistered shares of common stock (representing approximately 51.4% of the outstanding common stock at May 16, 2002, for aggregate cash consideration of $15,000,000 and received a warrant to purchase an additional 11,250,000 shares of common stock, with an exercise price of $0.60 per share and a cashless exercise mechanism.

      Simultaneously, certain existing and new investors purchased 7,750,000 newly issued unregistered shares of common stock at $0.60 per share, providing aggregate gross proceeds of $4,650,000.

      Also as part of the above transaction, the following took place:

(a)	payment of $1,100,000 was made to Sanmina Corp. to extinguish a secured promissory note issued to Sanmina by us, with an outstanding principal balance of $2,900,000 and accrued interest of $587,145. We recognized an extraordinary gain of $2,387,145 relating to the extinguishment of this debt;
(b)	payment to Shaw Pittman LLP, a supplier of ours, of $250,000 to settle outstanding invoices of approximately $378,000. We recognized an extraordinary gain or approximately $128,000 relating to the extinguishment of this liability; and
(c)	promissory notes in the aggregate principal amount of $3,723,982 and accrued interest of $143,843 were exchanged for 6,446,376 shares of the Company’s common stock. Warrants to purchase an aggregate of 2,567,992 shares of common stock previously issued to the holders of promissory notes were repriced. The exercise price of such warrants, which ranged from $1.30 to $2.75 per share, was reduced to $0.60 per share. The increase in the fair value of the warrants, in the amount of $4,913,894, was recorded as a deemed dividend.

      We incurred estimated costs and expenses of approximately $3,226,000 in connection with the Agreement and the acquisition of B2BVideo. Fifty percent (50%) of these costs, which are comprised primarily of legal, investment banking and accounting fees, were allocated to the Agreement and fifty percent (50%) were allocated to the acquisition of B2BVideo. The expenses allocated to the Agreement, in the amount of approximately $1,613,000, have been recorded as a reduction of additional paid-in capital.

      Pursuant to the Agreement, Moneyline has the right to appoint a majority of the members of the VNCI’s Board of Directors.

      On July 9, 2002, Moneyline elected to partially exercise its warrant pursuant to the cashless exercise provision. As a result of this cashless exercise Moneyline received 8,189,824 shares of the Company’s common stock. Moneyline retains the right, pursuant to the remaining portion of the warrant, to purchase up to 100,000 shares of common stock at a price of $0.60 per share.

Acquisition of B2BVideo Network

      On May 16, 2002, we acquired B2BVideo Network, which was formed in December 1999 to deliver to business users managed enterprise video services. B2BVideo Network delivers broadcast quality video over an Internet Protocol (“IP”) Multicast network for delivery to the desktop. IP Multicast enables

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B2BVideo Network to provide multiple streams of high quality video to thousands of points on the network. B2BVideo Network offers products and services that enable businesses to integrate all of their video applications onto a single platform for delivery of broadcast quality video to the desktop. B2BVideo Network customers can: (1) distribute their own programming to employees, clients and other audiences over Private Video Networks (PVNs), (2) access a wide range of business programming (i.e. television programs, training videos, industry conferences, etc.), and (3) conduct video calls and videoconferences. As a result of the acquisition, B2BVideo Network became a wholly owned subsidiary of the Company.

      In the past, our core video network technology solution has been utilized to support video collaboration in various vertical markets. Our network technology has been primarily contained within the local business enterprise. Connectivity through the wide area network (“WAN”) has typically been established through less reliable and bandwidth constrained integrated services digital network (ISDN) service connections. While VNCI’s technology has resulted in various high profile customer installations, we recognized the need to enhance its video technology solution into the WAN. In addition, we began to see the strategic advantages of offering a managed service end-to-end video solution. B2BVideo Network’s product offerings focus on delivering highly reliable, high quality end-to-end managed video service that solves the traditional shortcomings of WAN video distribution. The acquisition of B2BVideo Network’s customer and programming guide was intended to accelerate the Company’s capabilities for supporting the WAN requirements of customers and channel partners.

      The following consideration was issued in connection with the acquisition of B2BVideo Network:

(a)	B2BVideo Network’s common and preferred shareholders were issued 3,000,014 shares of our common stock;
(b)	Options to purchase B2BVideo Network’s Series A Preferred Stock were exchanged for options to purchase 139,123 shares of our common stock;
(c)	Options to purchase 2.75 Units of B2BVideo Network, each Unit consisting of (A) 50,000 shares of B2BVideo Network ’s Series B Preferred Stock and (B) warrants to purchase 50,000 shares of B2BVideo Network ’s common stock, were exchanged for options to purchase an aggregate of 192,977 shares of our common stock and warrants to purchase 46,374 shares of our common stock;
(d)	Warrants to purchase 3,176,000 shares of B2BVideo Network ’s common stock issued and outstanding immediately prior to the closing date were exchanged for warrants to purchase 1,214,223 shares of our common stock;
(e)	Warrants to purchase 3,449,000 shares of B2BVideo Network ’s common stock were terminated upon consummation of the acquisition of B2BVideo Network;

(f)  Holders of senior secured promissory notes of B2BVideo Network with an aggregate principal balance of $2,500,000 and accrued interest were exchanged for 4,282,956 shares of our common stock and;

(g)  Options to purchase 681,771 shares of our common stock were issued to employees of B2BVideo Network in exchange for outstanding vested B2BVideo Network options. These options were 100% vested at the date of issuance.

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      The following table sets forth the components of the purchase price:

Common stock issued	$	4,369,782
Options issued to employees		242,185
Warrants issued		461,726
Options issued to non-employees		123,578
Payment for B2BVideo Network liabilities		156,355
Estimated transaction costs		1,612,788
Total purchase price	$	6,966,414

      The consideration issued to holders of B2BVideo’s equity instruments and debt holders in connection with the acquisition of B2BVideo Network was valued as follows:

(a)

VNCI’s Common Stock – The value of our common stock was determined to be $0.60 per share, the price at which we sold our common stock to Moneyline and certain existing and new investors on May 16, 2002;

(b)

Options issued to B2BVideo Network’s employees – All outstanding options held by employees to purchase B2BVideo Network’s common stock have been exchanged for options to purchase 681,771 shares of our common stock. The options have varying exercise prices and were 100% vested at the date of issuance. We valued such stock options using the Black-Scholes option-pricing model at $242,185. The calculation was based on the following assumptions:

Volatility	144%
Expected life	3 years
Risk free interest rate	3.8 %
Dividend Rate	None

(c)	Warrants – Warrants to purchase our common stock issued in connection with the acquisition were also valued using the Black Scholes option-pricing model. The warrants have varying exercise prices. We valued such warrants at $461,726. The calculation was based on the same assumptions as discussed in (b) above; and
(d)	Options issued to non-employees – Options to purchase our common stock issued in connection with the acquisition were valued using the Black Scholes option-pricing model. The options have varying exercise prices. We valued such options at $123,578. The calculation was based on the same assumptions discussed in (b) above.

      During the fourth quarter of 2002, we completed our review of the assets acquired and the liabilities assumed in the acquisition of B2BVideo. This review resulted in the write down of fixed assets by approximately $315,000 and an increase in the amount allocated to goodwill. In addition, an adjustment to reduce depreciation expense to reflect the write down of fixed assets was recorded to the Statement of Operations. The determination was made based upon an independent third party appraisal.

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      The final allocation of purchase price consideration to the assets acquired and liabilities assumed as of the acquisition date is as follows:

Cash and cash equivalents	$	18,334
Accounts receivable		129,466
Inventories		531,662
Other current assets		3,841
Property and equipment, net		662,640
Other noncurrent assets		208,059
Accounts payable		(1,075,063	)
Accrued liabilities		(213,680	)
Capital lease obligations		(45,134	)
Fair value of net assets acquired		220,125
Goodwill		6,746,289
Fair value of net assets acquired and recorded goodwill	$	6,966,414

      During the fourth quarter of 2002, management, with the Board of Directors approval, made a decision to shut down and cease all operations of B2BVideo. This resulted in an asset impairment charge being recorded in December 2002. In addition, we settled certain trade payables and other vendor liabilities during the fourth quarter of 2002 which resulted in an extraordinary gain of $652,000. We have terminated substantially all B2BVideo employees and commenced negotiations with the landlord of the B2BVideo office space to terminate the lease agreement.

Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      Some of the statements in this Form 10-KSB are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. We have made these statements based on currently available operating, financial and competitive information. However, actual results and future events may differ significantly from the results contemplated in the forward-looking statements because of a number of factors, including product and technology development, customer and market acceptance of our product, demand for our products, the impact of competitive products and pricing and other risks detailed in this Form 10-KSB and in our other Securities and Exchange Commission filings.

      You should read the following discussion of our operating results in conjunction with the audited financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-KSB.

Overview

Organization and Business

      Video Network Communications is a Delaware corporation formed in 1993 to design, develop and market full-motion, high resolution, cost-effective video network systems as a state-of-the-art, business collaborative tool. Users of the VidPhone video network system can view broadcast video, collaborate in multi-party videoconferences, and retrieve stored video on demand. Our VidPhone system bypasses the bottleneck of local data networks to distribute video to and from desktop and laptop personal computers and conference rooms configured with VidPhone stations, over the same wiring used by the telephone. At the same time, the VidPhone system software provides the user with seamless access and control to communicate over, or access video content on, private, wide area, IP networks. We believe that the VidPhone system, in combination with suitable IP networks, represents a high performance, end-to-end, collaborative solution for corporate users of video technology and related services.

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      On May 16, 2002, we acquired 100% of the outstanding common stock of B2BVideo Network. B2BVideo Network offered a comprehensive range of services to support business-to-business video communications. B2BVideo Network provided an integrated, scalable platform for the delivery of television quality video to the desktop. Its solution enabled companies to integrate a variety of video applications, such as business television broadcasting, videoconferencing, training, and streaming, onto a single network that uses their existing infrastructure yet does not interfere with existing local or wide area networks (“LANs and WANs”).

      B2BVideo Network’s broadband video platform provided television quality video from any desktop to any desktop on the network and supported a variety of applications including videoconferencing, video broadcasting and access to third party business programming. B2BVideo Network offered its services in certain major cities internationally via its unique Broadband Video IP Multicast Network. The acquisition of B2BVideo Network’s customer and programming guide was intended to accelerate our capabilities for supporting the WAN requirements of customers and channel partners. The acquisition of B2BVideo was intended to accelerate our capabilities for supporting Wide Area Networking requirements of customers and channel partners.

      During the fourth quarter of 2002, B2BVideo’s marquee and only customer terminated its contract with B2BVideo. Based on the cancellation of the contract, the significant capital expenditures deemed necessary to build and maintain the required proprietary network, the required technological changes and the lack of future business prospects, management, with the Board of Directors approval, made a decision to shutdown and cease all operations of B2BVideo. This resulted in a $7,276,000 asset impairment charge recorded in December 2002. In addition, we settled certain trade payables and other vendor liabilities during the fourth quarter of 2002, which resulted in a gain on extinguishment of debt of approximately $652,000. Since our merger with B2BVideo in May 2002, we have terminated 21 B2BVideo employees, four in the fourth quarter. This represents substantially all B2BVideo employees. We have commenced negotiations with the landlord of the B2BVideo office space to terminate the lease agreement. There were no restructuring accruals required or recorded as of December 31, 2002.

      As overall sales continue to be limited by a weak economy, we will continue to focus on identifying new potential customers for whom video and collaborative applications are “mission critical” because we believe these potential customers will be able to realize the most compelling return on their investment or an overall cost savings as the result of an investment in a video network system.

      The tragic events of September 11, 2001 generated significant new interest in our video network products as corporate America and the Federal government evaluates alternatives to business travel and the increased use of video for surveillance and security. We believe this new interest in visual communications will accelerate the adoption of video networks by large, complex organizations. During the second quarter of 2002, we announced the release of EyeNet, a rapidly deployable security network that can integrate key surveillance technologies such as television quality video with digital video recording, two-way video communications, alarm monitoring, emergency response and biometrics such as facial recognition. Ideal applications for EyeNet include airport and mass transit security, highway surveillance, military installation security, and campus monitoring. However, we cannot predict when or if this new interest will result in orders for our products especially given the current weak economic environment.

      In 2003, we intend to intensify our focus on selling and marketing our video network solutions through our Strategic Alliance Agreement with Moneyline. In addition, in the first quarter of 2003, we took significant steps to diversify our revenue base by acquiring the webcasting business of Wiltel Communications. The acquired webcasting business includes two product suites Activecast and Talkpoint. Talkpoint is a self-serve webcasting service that allows users to conduct interactive presentations over the internet incorporating PowerPoint slides and streaming audio. The transaction included a direct sales force with over 70 active customer relationships. See the section entitled “Subsequent Events” for additional detail on this acquisition.

      This operating plan is subject to a number of risks and uncertainties, including our ability to sell and market our product and develop market awareness of our video network system and our ability to obtain financing when required. We have subcontracted all major manufacturing and production activities and

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plan to continue doing so for the foreseeable future, but we will continue to retain test and quality assurance functions until all subcontractors are certified with respect to quality.

      We have suffered recurring losses from operations, have experienced recurring negative cash flow from operations, have had a working capital deficiency and have a significant accumulated deficit. We expect to continue to incur significant operating expenses to sustain our product development while maximizing our sales and marketing opportunities. At this stage, it is difficult to predict with accuracy the level of our sales in future periods, or when marketing initiatives will result in sales. We have required substantial funding through debt and equity financings since our inception to complete our development plans and pursue full-scale operations. These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Accounting Policies and Significant Estimates

      The SEC recently issued disclosure guidance for “critical accounting policies”. The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

      The following listing is not intended to be a comprehensive list of all of our accounting policies. See Note 2 to the Consolidated Financial Statements included in this Annual Report on Form 10-KSB for the year ended December 31, 2002. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

Inventory

      Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory consists primarily of subassembly components. Total charges taken for slow-moving inventory during the year ended December 31, 2002 were approximately $562,000. We reduce the carrying value of our inventory for estimated obsolescence or excess inventory by the difference between the cost of inventory and its estimated net realizable value based upon assumptions about future demand and market conditions. There can be no assurance that we will not have to take additional inventory provisions in the future, based upon a number of factors including: changing business conditions; the introduction of new products and the effect of new technology.

Revenue Recognition

      Revenues from sales of our hardware products are recognized when the equipment has been delivered to the customer, title has passed, the equipment has been accepted by the customer, the collection of the sales price is probable and, no further obligations to the customer exist. Certain sales of equipment include software that enables the customer to utilize network services provided by us. Such sales are deferred and revenue is recognized ratably over the life of the associated network service contract, which is generally two years. Network services revenue is recognized in the period in which the contract services are provided to the customer. Recognition of sales starts at the time of acceptance of the customer, which is 30 days from installation of the equipment. The customer has a right of return within 30 days of installation. The customer is also granted a one-year warranty for the proper functioning of the equipment and software. Any losses on contracted sales are recognized in the period the loss has been determined. Service revenues associated with time and materials consulting projects are recognized at the time the services are rendered, collection is probable, and we have no further obligations to the customer. Revenues from maintenance contracts are recognized ratably over the term of the contract as services are performed. The Company records a liability for product warranty obligations at the time of sale based upon historical warranty experience. The term of the warranty is generally twelve months. The Company also records an additional

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liability for specific warranty matters when they become known and are reasonably estimable. The Company’s product warranty obligations are included in accrued expenses.

Deferred Revenue

      Amounts received prior to the delivery of equipment or contracted services are recognized as a liability and revenue recognition is deferred until such time that all revenue recognition criteria have been met. Revenue recognition for equipment sales is deferred until the equipment has been delivered, title has passed to the customer, collection is probable and the equipment has been accepted by the customer. Deferred revenues related to service contracts are deferred until such time that the services have been performed. Revenues related to sales of equipment and software associated with network services contracts are recognized ratably over the term of the network services contract. We had deferred revenues of $28,263 and $141 at December 31, 2001 and December 31, 2002, respectively.

Impairment of Long-Lived Assets

      Our long-lived assets consist primarily of property and equipment. As described in Note 7 to the Notes to Consolidated Financial Statements, during 2002, we shutdown and ceased all operations of B2BVideo. In connection with this transaction, we recorded an impairment loss of approximately $530,000. Management periodically reviews the future cash flows to be derived from its long lived assets including trademarks, patents, goodwill and fixed assets. When a material change in projected cash flows from long lived assets is apparent, an appropriate impairment of the respective asset(s) is recorded.

Deferred Tax Assets

      We record a valuation allowance against deferred tax assets when we believe that it is more likely than not that these assets will not be realized. Because of our recurring losses and negative cash flows, we have provided a valuation allowance against all deferred taxes as of December 31, 2001 and 2002.

Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates. Significant accounting estimates used in the preparation of our consolidated financial statements include the fair value of acquired assets, purchase price allocations, the realizability of deferred tax assets, the carrying value of inventory and depreciation and amortization.

Recent Accounting Pronouncements

      In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 retains the requirements of SFAS No. 121 to recognize an impairment loss only if the carrying value of a long-lived asset is not recoverable from its estimated undiscounted cash flows and to measure an impairment loss as the difference between the carrying value and fair value of the asset, but it establishes new standards for long-lived assets to be disposed of. In connection with the B2BVideo acquisition and subsequent decision to shut down the B2BVideo operations in the fourth quarter of 2002, we determined that certain assets were impaired. We have recorded an impairment charge of $7,276,000 for the year ended December 31, 2002.

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board (“APB”) No. 30 “Reporting Results of Operations.” Certain provisions of this statement

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will be effective for us for the year ending December 31, 2003, other provisions are effective for transactions occurring after May 15, 2002 or to financial statements issued after May 15, 2002. The extraordinary gains resulting from early extinguishment of debt (see Note 11 of Notes to Consolidated Financial Statements) will be reclassified to a component of other income within the Consolidated Statements of Operations upon adoption on January 1, 2003.

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 will supersede Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that costs associated with an exit or disposal plan be recognized when incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The restructuring activities that management has undertaken in the first quarter of 2003 (see Note 17 of Notes to Consolidated Financial Statements) will be accounted for under SFAS No. 146.

      In November 2002, the FASB issued Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the existing disclosure requirements for most guarantees. FIN 45 requires that at the time a company issues certain guarantees, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. FIN 45’s disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to FIN 45’s scope, including guarantees issued prior to the issuance of FIN 45. The disclosure requirements of FIN 45 are applicable for financial statements of interim or annual periods ending December 31, 2002. We will adopt the recognition and measurement requirements of FIN No. 45 in the first quarter of fiscal year 2003 and have included the new disclosure requirements in the Notes to the Consolidated Financial Statements.

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation, and also amends the disclosure provision of SFAS No. 123 to require disclosure in the summary of significant accounting policies the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The disclosure provision is required for all companies with stock-based employee compensation, regardless of whether the company utilizes the fair value method of accounting described in SFAS No. 123 or the intrinsic value method described in APB Opinion No. 25 Accounting for Stock Issued to Employees. SFAS No. 148’s amendment of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The disclosure requirements for interim financial statements containing condensed consolidated financial statements are effective for interim periods beginning after December 15, 2002. We currently account for stock based compensation utilizing the intrinsic value method of accounting for stock based employee compensation described by APB No. 25. We have complied with the disclosure requirements of SFAS No. 148 in the Notes to the Consolidated Financial Statements.

Results of Operations

Comparison Of The Years Ended December 31, 2002 And December 31, 2001

      Revenues. We recognized approximately $824,000 in revenues during 2002 compared to approximately $12,976,000 recognized in 2001, a decrease of approximately $12,152,000, or 94%. Of these revenues, $554,000 related to product sales in 2002 compared to approximately $3,389,000 in 2001. The decrease in product sales was attributed to a declining number of customers in 2002 compared to 2001;

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approximately 15 in 2002 compared to approximately 25 in 2001 with fewer than five new customers in 2002, as the effects of the recession in the telecommunications sector continued. Revenues related to installation and other services were $270,000 during 2002 compared to $9,587,000 in 2001. Services revenue in 2001 included substantial amounts related to a systems integration project and to management fees that did not recur in 2002. The systems integration project was a unique project undertaken by the Company in 2001 at a customer’s request. Systems integration is not a standard offering or core competency of VNCI. Included in services revenue in 2002 were approximately $74,000 related to the activities of B2BVideo Network. In the fourth quarter of 2002, we decided to shut down and cease the operations of B2BVideo (see Note 4 of Notes to Consolidated Financial Statements).

      Cost of Sales. We recognized approximately $1,820,000 in cost of sales in 2002 compared to approximately $11,343,000 in 2001, a decrease of approximately $9,523,000, or 84%. Of the cost of sales recognized in 2002, approximately $519,000 was related to product sales compared to $2,830,000 in 2001; approximately $739,000 was related to the cost of providing installation and other services in 2002 compared to $5,513,000 in 2001; and approximately $562,000 pertained to the increase in the inventory reserve in 2002 compared to $3,000,000 in 2001.

      Gross Margin on Sales. The overall gross margin on revenues recognized in 2002 was negative $996,000 compared to overall gross margin achieved in 2001 of $1,633,000, or 13%. 2002 gross margin derived from product sales was approximately $35,000; approximately negative $469,000 from service revenues. The overall decline in gross margin percentage in 2002 compared to 2001 is primarily a result of under- absorption of production costs due to the low level of sale activity and the inability to cover fixed costs as a result of decreased sales.

      Research and Development. Research and development costs increased to approximately $3,223,000 in 2002, from $2,774,000 in 2001, representing an increase of approximately $449,000, or 16%. $855,000 of the increase was due to the inclusion of B2BVideo Network during 2002. In the fourth quarter of 2002, we made the decision to shut down and cease the operations of B2BVideo (see Note 4 of Notes to Consolidated Financial Statements). Research and Development spending at VNCI decreased by approximately $406,000 during 2002 relative to the prior year due to reduced engineering staffing, lower depreciation, and lower materials and testing costs.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to approximately $6,628,000 during 2002 from approximately $6,136,000, representing an increase of $492,000, or 8%. Included in selling, general and administrative expense for 2002 is approximately $1,396,000 incurred by B2BVideo Network. In the fourth quarter of 2002, we made the decision to shut down and cease the operations of B2BVideo (see Note 4 of Notes to Consolidated Financial Statements).

      Excluding the effects of B2BVideo Network, sales and marketing expenses at VNCI decreased approximately $1,126,000 in 2002 as compared to 2001. Staffing costs declined by $469,000 as fewer staff were employed in customer support and in the sales department. Travel and entertainment costs declined by approximately $266,000. A write down of certain demonstration equipment of $219,000 was recorded in 2001.

      General and administrative costs increased by approximately $1,068,000 in 2002 compared to 2001. The 2002 results include approximately $847,000 related to B2BVideo Network. Excluding the effects of B2BVideo Network, general and administrative costs at VNCI increased by approximately $221,000. Significantly higher legal and accounting costs during the year were partially offset by reductions in investor relations costs.

      Asset Impairment Charges. Under SFAS No. 142, goodwill impairment occurs if the net book value of a reporting unit exceeds its estimated fair value. Management concluded based upon the cancellation of B2BVideo Network’s only customer contract, the significant capital expenditures associated with building and maintaining a proprietary network, and the result of an extensive review of the B2BVideo Network technology and business prospects, that it was unlikely to derive any net positive cash flow from that business in the future. As a result the book value of the B2BVideo reporting unit exceeded its fair value.

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Upon completion of the annual assessment, we recorded a non-cash impairment charge of $6,746,000 to reduce the carrying value of goodwill to zero.

      During 2002, VNCI recognized impairment losses of approximately $7,276,000 related to the write down of certain B2BVideo assets. The write-down of goodwill associated with the acquisition of B2BVideo in May 2002 accounted for approximately $6,746,000 of the charge. The remaining $530,000 of the charge related to the write-down of the net book value of certain fixed and other assets. The impairment loss was calculated as the difference between the carrying value and fair value of the assets.

      Interest (Income) Expense. We recorded net interest expense of approximately $1,289,000 in 2002 compared to net interest expense recorded in 2001 of approximately $1,579,000. Interest expense in 2002 was approximately $1,357,000 compared to approximately $1,600,000 recorded in 2001. Included in interest expense in 2002 was $1,151,000 related to the amortization of costs assigned to warrants issued in connection with obtaining debt financing. Interest income was approximately $68,000 in 2002 compared to $21,000 recognized in 2001, primarily due to increased cash balances in 2002 offset by declining interest rates.

      Extraordinary Gain. During 2002, we recorded extraordinary gain on the extinguishment of debt in the amount of approximately $3,791,000. This amount is comprised of the extinguishment of the Sanmina debt and related accrued interest in May 2002, which resulted in an extraordinary gain of $2,387,000. The remaining gain of approximately $1,404,000 relates to the settlement of VNCI and B2BVideo vendor payables. The extraordinary gain will be reclassified, to a component of other income within the Consolidated Statements of Operations upon adoption of SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections on January 1, 2003.

      Net Loss. As a result of the foregoing factors, the net loss for 2002 increased to approximately $15,619,000 from $9,025,000 in 2001, an increase of approximately $6,594,000 or 73%.

Liquidity and Capital Resources

      We have an accumulated deficit balance of $83,292,000 from our inception through December 31, 2002. We expect to incur additional operating losses for the foreseeable future, principally as a result of expenses associated with product development efforts and anticipated sales, marketing, and general and administrative expenses. During 2002, we satisfied our cash requirements principally from cash on hand as of December 31, 2001, from the proceeds of bridge financings obtained in early 2002, and from the investments by Moneyline and other investors completed on May 16, 2002.

      We had cash and cash equivalents of $6,498,000 at December 31, 2002 compared to $507,000 at December 31, 2001, an increase of $5,991,000. The increase in cash and cash equivalents was primarily the result of cash from investments by Moneyline and other investors on May 16, 2002.

      Net cash used in operations during 2002 was approximately $10,475,000. The net loss in 2002, reduced by depreciation, amortization, non-cash compensation and other non-cash charges was approximately $5,770,000. Inventory decreased by approximately $286,000 during 2002 due to an increase of approximately $562,000 in the provision for excess inventory reserves and sales of product made during the period, offset by inventory purchases. Accounts receivable decreased by $675,000 during 2002 due to lower sales in 2002 compared to 2001 and as cash was collected from customers. Accounts payable declined by approximately $1,123,000 during 2002 due to repayment of accounts payable with the proceeds from the Moneyline and other investors’ investment and due to reductions in amounts claimed by certain vendors as a result of pre-investment negotiations.

      We used approximately $1,968,000 in investing activities during 2002. Payments of approximately $1,751,000, net of cash acquired, were made to cover costs associated with the acquisition of B2BVideo Network. Capital spending on equipment was approximately $184,000. A further amount of approximately $31,000 was used to acquire and protect the Company’s intellectual property.

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      We generated approximately $18,433,000 in cash from financing activities during 2002. Prior to the investment made in May 2002 by Moneyline and other investors, we raised approximately $1,049,000 by issuing short-term notes, which were subsequently converted to common equity. Moneyline and other investors provided approximately $18,037,000 in cash in connection with their investment in VNCI. Immediately prior to the investment, the Company reached an agreement with Sanmina Corporation to settle the outstanding debt VNCI owed Sanmina whereby Sanmina would accept a one-time payment of $1,100,000 in return for Sanmina’s forgiveness of all other outstanding debt and related accrued interest. This payment was made coincident with the closing of the Moneyline investment and resulted in an extraordinary gain for debt forgiveness of $2,387,000. A consultant to the Company exercised options, which resulted in an inflow of cash of $10,300 to the Company during the year.

      As discussed in Note 17 to the Consolidated Financial Statements, we have a Strategic Alliance Agreement with Moneyline under which we expect to incur significant costs over the next year. Our ability to generate cash from operations will be dependent upon sales we generate as a result of Moneyline acting as our exclusive distributor of our products to the financial services industry. In addition, we may rely on Moneyline for certain administrative support in 2003 which may result in costs being incurred and paid to Moneyline.

      We have fixed contractual obligations under various lease agreements. Our contractual obligations, including obligations associated with our acquisition subsequent to December 31, 2002 are as follows:

	Payments Due By Period (000s)
			<1		1–3		4–6		7–10
Contractual Obligations	Total		Year		Years		Years		Years
Capital lease obligations	$	36,632	$	11,288	$	25,344	$	–	$	–
Operating leases		8,461,319		1,399,331		4,042,301		3,019,687		–
Total contractual cash obligations	$	8,497,951	$	1,410,619	$	4,067,645	$	3,019,687	$	–

Subsequent Events

      On February 14, 2003, the Company purchased from Williams Communications, LLC (“WCLLC”) and Williams Communications Procurement, LP (together with WCLLC, the “Sellers”), each a wholly owned subsidiary of Wiltel Communications Group, Inc. (“WCG”). WCLLC’s webcasting business, including certain equipment and other assets used by WCLLC in this business for $750,000 in cash and $850,000 security on the leased space. The purchased webcasting business includes the production and distribution of multimedia presentation materials using streaming media technology.

      The acquisition of the webcasting business will enable the Company to provide a full suite of interactive multimedia services. The webcasting product suite, including Activecast and Talkpoint, allow for a broader reach within our targeted customers and provides ubiquity with distribution of voice and video over the internet. This service model does not require capital investment by our customers. Users can leverage the services and toolset by using standard internet browsers and media players. In addition to the new technology acquired, the transaction includes active customers, which we plan to leverage to market our legacy service and technology.

      In the first quarter of 2003, the Company implemented a restructuring of the VidPhone business to right size the expense base to take into account the Company’s anticipation of lower sales. The restructuring included:

•  Termination of 37 employees, primarily in sales, engineering and administrative capacities.

•  Transfer of three employees to Moneyline. Employees transferred are primarily focused on channel management and business development for the managed video service.

•  Remaining employees will focus on supporting the Moneyline Strategic Alliance Agreement. See the section entitled “Sales & Marketing” for additional details on this agreement.

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•  Transfer of direct sales responsibility for the VidPhone System to the direct sales team of the webcasting business.

•  Election of Alexander Russo as Chairman of the Board of Directors, and the appointment of Nicholas Balletta as President of the Company and his election as a director of the Company and Frank Joanlanne, who was appointed Senior Vice President Webcasting Services of the Company. We entered into employment agreements with Mr. Balletta and Mr. Joanlanne.

      During the last quarter of 2002, management, with the Board of Directors approval, made a decision to shutdown and cease all operations of B2BVideo. Subsequent to year-end, the Company commenced negotiations with the landlord of the B2BVideo office space to terminate the lease agreement.

      With the restructuring complete and with the integration of the webcasting business, management believes the Company has sufficient cash to fund operations through the fourth quarter of 2003. We intend to pursue financing in the second quarter of 2003 for the continued funding of operations and for the development of new product enhancements and further expansion of both its webcasting and VidPhone businesses. The Company will pursue existing investors as well as outside strategic investors. In the event that additional funding is not available, the company will pursue other strategic alternatives including the sale of the Company, the sales of its assets, or liquidation.

Risk Factors

      The following risk factors should be read in conjunction with the “Subsequent Events” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 16 to the Financial Statements. Subsequent events may have a material effect on some of these risk factors.

A Failure to Obtain Necessary Additional Capital in the Future on Acceptable Terms Could Prevent us from Executing our Business Plan.

      We may need additional capital in the future to fund our operations, finance investments in equipment and corporate infrastructure, expand our network, increase the range of services we offer and respond to competitive pressures and perceived opportunities. Cash flow from operations, and cash on hand may not be sufficient to cover our operating expenses, working capital and capital investment needs. We cannot assure you that additional financing will be available on terms acceptable to us, if at all. A failure to obtain additional funding could prevent us from making expenditures that are needed to allow us to grow or maintain our operations.

      If we raise additional funds by selling equity securities, the relative equity ownership of our existing investors could be diluted or the new investors could obtain terms more favorable than previous investors. If we raise additional funds through debt financing, we could incur significant borrowing costs. The failure to obtain additional financing when required could result in us being unable to grow as required to attain profitable operations.

Dependency upon Moneyline Telerate (“MLT”)

      We are dependent on MLT to build revenue for our video products in the financial services market, which is key to the overall, long-term development of revenue for our video technology. Our dependence has been further increased by our decision in the first quarter of 2003 to limit our sales efforts in other markets. We cannot be assured that MLT will be successful in developing this market. In addition, we are dependent on MLT for certain support activities and our financing needs.

We Will Be Focusing A Significant Amount Of The Company’s Resources On Building A Recently Acquired Business

      As discussed in the section entitled, “Subsequent Events”, we recently right-sized our VidPhone business and acquired a webcasting business. In the future a significant amount of our resources will be focused on developing the webcasting business. While an experienced management team joined us in

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connection with the acquisition, we have limited experience running a webcasting business and do not have a proven track record of operating this type of business profitably. We cannot assure you that we will be successful in operating this webcasting business.

Customers May Not Buy Our Products Due To Concerns Over Our Viability

      Due to our recurring losses from operations and lack of cash, some potential customers may decide not to purchase our video network system because of concerns that we may be unable to service, enhance or upgrade the systems. If we are not able to alleviate concerns about our long-term viability, we may not be able to market and sell our video network system successfully and continue operations.

We Have a Limited Customer Base and Attendant Risk Concentration; We Are Dependent Upon a Few Significant Customers

      We have a limited customer base with several customers providing in excess of 10% of our total revenues. We generally grant uncollateralized credit terms to our customers and have not experienced any credit-related losses. Three customers accounted for 32%, 16%, and 13%, respectively, of our total revenues in the year ended December 31, 2002. Two customers accounted for 50% and 30%, respectively, of our total revenues in the year ended December 31, 2001 Three customers accounted for 74%, 14%, and 12% of our accounts receivable at December 31, 2002 and four customers accounted for 30%, 16%, 13% and 10% of our accounts receivable at December 31, 2001. Failure to diversify this customer concentration could result in our inability to continue to generate revenues sufficient to support operations.

We Have Accumulated a Substantial Deficit; We Have a History of Losses and Limited Revenue and Expect Losses to Continue

      We have incurred substantial losses from operations to date and had an accumulated deficit of $83,292,000 through December 31, 2002. There is substantial doubt about our ability to continue as a going concern.

      We recognized $824,000 in revenues during the year ended December 31, 2002, compared to $12,976,000 during 2001, including approximately $6,500,000 from a data infrastructure project that was not a recurring revenue source, and $8,769,000 in revenues during 2000. Accordingly, there is limited historical basis to expect that we will be able to realize sufficient operating revenues or profits in the future to support continuing operations. We have a limited backlog for revenue, and we cannot predict with accuracy what our revenues will be in the future. Our ability to generate sales and to recognize operating revenues in the future will depend on a number of factors, certain of which are beyond our control, including:

•  customer acceptance of products shipped and installed to date and in the future;

•  our ability to generate new sales of products and secure customer acceptance; and

•  customer payments.

We Expect to Continue to Experience Quarterly Fluctuations in our Operating Results

      In the past we have experienced quarterly fluctuations in revenues and operating results as a result of a number of factors, including the fact that the typical cost of our system is relatively high, each purchase of our video network system constitutes a substantial portion of our revenues for the period in which it is accepted by our customer, the timing of our sales and marketing campaigns and the costs associated with those efforts, and our overall expenses during the period. Customers generally pay for our products and services only after they are installed and accepted and we typically incur the costs associated with the sales and installation of our video network systems prior to receipt of any customer payments. We expect these to continue and accordingly, we expect to continue to experience quarterly fluctuations in our revenues and operating results for the foreseeable future.

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We May Not Be Able To Develop Direct Sales And Marketing Capabilities.

      We expect to depend on the marketing efforts of our resellers for the foreseeable future. However, we are developing a small direct marketing capability to promote our video network system and to support our resellers. We cannot assure you that we will be able to create awareness of, and demand for, our products through our marketing efforts, or that the development of our direct marketing capabilities will lead to sales of our products and services. If we cannot successfully develop our own sales and marketing capabilities, we may not succeed in building brand-name recognition of the VidPhone system, and we will remain solely dependent on reseller efforts.

We May Not Be Able to Penetrate the Financial Services Market.

      VNCI and Moneyline have entered into a Strategic Alliance Agreement and certain technology license agreements pursuant to which VNCI will license software and network processes and sell video equipment to Moneyline. Moneyline will be the exclusive distributor of VNCI’s equipment to the financial services market. To assist Moneyline in being successful at selling VNCI hardware, VNCI is making its executives and sales personnel available to Moneyline for prospect calls. Sales to Moneyline are expected to generate a significant part of our future revenues. However, we have sold only a limited number of video network systems and components under this arrangement and to date have recognized minimal revenues from those sales. We currently have limited orders from Moneyline for additional sales of VidPhone systems. If Moneyline fails to market and sell our products, or our products fail to become an accepted part of Moneyline’s product offerings, the value of your investment could be reduced.

The Market for Video Communications Products Is Evolving and May Not Support Our Revenue Expectations; Our Business Has Been Adversely Affected by the General Slowdown in the Economy

      The market for video communications products continues to evolve rapidly, and demand for and market acceptance of new products is unpredictable. As is typical for a new technology, demand for and market acceptance of new products is unpredictable. The cost of video communications systems typically represents a substantial investment by the customer and have tended to be discretionary purchases. Accordingly, we cannot predict whether the renewed interest in video networking products will result in higher overall sales of video communications equipment. If the market for video communications products develops more slowly than expected or is adversely affected by a slow down in the economy, our business and financial condition could be materially and adversely affected.

Our Industry is Subject to Rapid Technological Change; If We Are Not Able to Adequately Respond to Changes, Our Products May Become Obsolete or Less Competitive and Our Operating Results May Suffer

      We may not be able, especially given our lack of financial resources, to respond effectively to the technological requirements of a changing market, including the need for substantial additional capital expenditures that may be required as a result of these changes. The video network systems industry is characterized by rapidly changing technology and continuing process development. The future success of our business will depend in large part upon our ability to maintain and enhance our technological capabilities and successfully anticipate or respond to technological changes on a cost-effective and timely basis. In addition, our industry could in the future encounter competition from new or revised technologies that render existing technology less competitive or obsolete.

The Protection of Our Intellectual Property is Uncertain

      Our success will depend, in part, on our ability to protect our intellectual property rights to our proprietary hardware products. Toward that end, we rely in part on trademark, copyright and trade secret laws to protect our intellectual property in the U.S. and abroad. The degree of protection provided by patents is uncertain and involves largely unresolved complex legal and factual questions.

      The process of seeking patent and trademark protection can be long and expensive, and there is no assurance that any pending or future applications will result in patents and/or registered trademarks.

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Further, although we have some patents on our technology, we cannot assure you that these or any other proprietary rights granted will provide meaningful protection or any commercial advantage to us. We also cannot assure you that claims for infringement will not be asserted or prosecuted against us in the future, although we are not presently aware of any basis for claims. A number of companies have developed and received proprietary rights to technologies that may be competitive with our technologies. Most of these entities are larger and have significantly greater resources than we do. Given the rapid development of technology in the telecommunications industry, we cannot assure you that our products do not or will not infringe upon the proprietary rights of others.

We Are Dependent on Third Parties for Manufacturing

      We outsource the manufacturing and assembly of many of the components of our products. We cannot assure you that our subcontractors will continue to perform under our agreements with them or that we will be able to negotiate continuing arrangements with these manufacturers on acceptable terms and conditions, or at all. If we cannot maintain relationships with our current subcontractors, we may not be able to find other suitable manufacturers. Any difficulties encountered with these manufacturers could cause product defects and/or delays and cost overruns and may cause us to be unable to fulfill orders on a timely basis. Any of these difficulties could materially adversely affect us.

Future Government Regulation Could Adversely Affect Our Marketing and Sales

      Several components of our video network system, including the VidModem and VidPhone Switch, must comply with certain regulations of the Federal Communications Commission (“FCC”). Under FCC regulations, we will be required to follow a verification procedure consisting of a self-certification that the VidModem complies with applicable regulations pertaining to radio frequency devices. A qualified, independent testing facility tested the VidModem, and it was found to comply with FCC regulations. We obtained equipment registrations from the FCC for certain VidPhone system components, including the VidPhone switch that is connected to the public switched telephone network.

      Although we believe that at present the VidPhone system complies with all applicable government regulations, future government regulations could increase the cost of bringing products to market or adversely affect our ability to market and sell our products and technology.

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Item 7.  Financial Statements

	Page
Independent Auditors’ Reports		F-1
Consolidated Balance Sheets as of December 31, 2001 and 2002		F-3
Consolidated Statements of Operations for the years ended December 31, 2001 and 2002		F-4
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2001 and 2002		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2002		F-6
Notes to Consolidated Financial Statements		F-7

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Video Network Communications, Inc.:

We have audited the accompanying balance sheet of Video Network Communications, Inc. (the “Company”) as of December 31, 2001, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2001 financial statements referred to above present fairly, in all material respects, the financial position of Video Network Communications, Inc. at December 31, 2001, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

The accompanying 2001 financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the financial statements, the Company has incurred recurring losses from operations, has negative cash flows from operations, has a working capital deficiency, and has an accumulated deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Manchester, New Hampshire Ernst & Young LLP

April 4, 2002, except for Note 16, as

to which the date is May 17, 2002

F-1

INDEPENDENT AUDITORS’ REPORT

To The Board of Directors and Stockholders of
Video Network Communications, Inc.
Portsmouth, New Hampshire

We have audited the accompanying consolidated balance sheet of Video Network Communications, Inc. and subsidiary (collectively, the “Company”) as of December 31, 2002, and the related statement of operations, stockholders’ equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company for the year ended December 31, 2001 were audited by other auditors whose report, dated April 4, 2002 (except for Note 16, as to which the date is May 17, 2002), expressed an unqualified opinion and included an explanatory paragraph that disclosed uncertainty about the Company’s ability to continue as a going concern.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such 2002 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s recurring losses and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As described in Note 1, in 2002 the Company had significant intercompany activity with its majority investor. The Company is dependent on its majority investor for a significant portion of its sales, certain support activities and its financing needs. The accompanying financial statements may not necessarily be indicative of the conditions that would have existed or the results of operations had the Company operated as an unaffiliated entity.

Deloitte & Touche LLP

Boston, Massachusetts

March 7, 2003

F-2

VIDEO NETWORK COMMUNICATIONS, INC.

Consolidated Balance Sheets

		December 31,			December 31,
		2001			2002
ASSETS
Current assets:
Cash and cash equivalents		$	507,396		$	6,497,643
Accounts receivable			604,921			59,249
Inventories			1,194,749			878,070
Amount due from related party			–			426,971
Other current assets			61,480			79,173
Total current assets			2,368,546			7,941,106
Property and equipment, net			276,729			364,727
Trademarks and patents, less accumulated amortization of $81,888 and $106,621 in 2001 and 2002, respectively			285,435			291,646
Other assets			8,309			2,840
		$	2,939,019		$	8,600,319
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	2,335,933		$	883,128
Deferred revenue			28,263			141
Accrued liabilities			1,200,579			1,201,556
Notes payable			5,095,739			20,000
Current portion of capital lease obligations			20,742			8,432
Total current liabilities			8,681,256			2,113,257
Capital lease obligations, less current portion			29,003			21,344
COMMITMENTS AND CONTINGENCIES
Stockholders’ equity (deficit):
Preferred stock, par value $.01			–			–
	Authorized shares – 2,500,000, no shares issued or outstanding
Common stock, par value $.01			21,336			581,769
	Authorized shares – 30,000,000 and 90,000,000 as of December 31, 2001 and 2002, respectively
	Issued and outstanding shares – 2,133,594 and 58,176,919 as of December 31, 2001 and 2002, respectively
Additional paid-in capital			61,879,866			89,175,653
Accumulated deficit			(67,672,442	)		(83,291,704	)
Total stockholders’ equity (deficit)			(5,771,240	)		6,465,718
		$	2,939,019		$	8,600,319

See Notes to Consolidated Financial Statements.

F-3

VIDEO NETWORK COMMUNICATIONS, INC.

Consolidated Statements of Operations

			For the Years Ended
			December 31,
			2001			2002
Revenues:
	Products		$	3,388,527		$	554,097
	Services			9,587,188			270,362
Total revenues				12,975,715			824,459
Cost of revenues:
	Products			2,829,968			518,910
	Inventory writedowns			3,000,000			561,988
	Services			5,512,979			739,130
Total cost of revenues				11,342,947			1,820,028
Gross margin				1,632,768			(995,569	)
Operating expenses:
Research and development				2,774,336			3,222,763
Selling, general and administrative(1)				6,135,632			6,627,566
Asset impairment charges				168,728			7,275,468
Total operating expenses				9,078,696			17,125,797
Loss from operations				(7,445,928	)		(18,121,366	)
Interest income				21,003			67,990
Interest expense				(1,600,040	)		(1,357,031	)
Loss before extraordinary gain				(9,024,965	)		(19,410,407	)
Extraordinary item – Gain on extinguishment of debt				–			3,791,145
Net loss				(9,024,965	)		(15,619,262	)
Deemed dividend attributable to warrant repricing				–			(405,488	)
Deemed dividend on exercise of warrant				–			(4,913,894	)
Net loss attributable to common shareholders			$	(9,024,965	)	$	(20,938,644	)
Loss per share – basic and diluted
		Loss attributable to common shareholders before extraordinary gain	$	(4.23	)	$	(.69	)
		Extraordinary gain	$	–		$	.11
		Net loss attributable to common shareholders	$	(4.23	)	$	(.58	)
Weighted average shares outstanding – basic and diluted				2,133,594			35,842,949

(1)  Includes $26,180 and $104,434 of noncash amortization of stock-based compensation, for the years ended December 31, 2001 and 2002, respectively.

See Notes to Consolidated Financial Statements.

F-4

VIDEO NETWORK COMMUNICATIONS, INC.

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

for the years ended December 31, 2001 and 2002

					Additional
			Common		paid-in			Accumulated
	Shares		Stock		Capital			Deficit			Total
Balance, January 1, 2001		2,133,594	$	21,336	$	60,196,065		$	(58,647,477	)	$	1,569,924
Issuance of warrants in connection with notes payable		–		–		1,820,824						1,820,824
Costs associated with efforts to register restricted stock		–		–		(163,203	)		–			(163,203	)
Compensation expense related to non-employee options		–		–		26,180			–			26,180
Net loss		–		–		–			(9,024,965	)		(9,024,965	)
Balance, December 31, 2001		2,133,594		21,336		61,879,866			(67,672,442	)		(5,771,240	)
Issuance of common stock in Private Placement, net of expenses		32,750,000		327,500		17,709,712			–			18,037,212
Issuance of warrants in connection with notes payable		–		–		639,208			–			639,208
Conversion of VNCI notes payable to common stock		6,446,376		64,464		3,803,361			–			3,867,825
Conversion of B2BVideo notes payable to common stock		4,282,956		42,830		2,526,944			–			2,569,774
Issuance of common stock to acquire B2BVideo common stock		3,000,014		30,000		1,770,008			–			1,800,008
Issuance of options and warrants in connection with B2BVideo acquisition		–		–		827,459			–			827,459
Issuance of common stock upon cashless conversion of warrants		9,553,979		95,539		(95,539	)		–			–
Compensation expense related to non-employee options		–		–		104,434			–			104,434
Exercise of non-employee options		10,000		100		10,200			–			10,300
Net loss		–		–		–			(15,619,262	)		(15,619,262	)
Balance, December 31, 2002		58,176,919	$	581,769	$	89,175,653		$	(83,291,704	)	$	6,465,718

See Notes to Consolidated Financial Statements.

F-5

VIDEO NETWORK COMMUNICATIONS, INC.

Consolidated Statements of Cash Flows

			For the Years ended December 31,
			2001			2002
Cash flows from operating activities:
Net loss			$	(9,024,965	)	$	(15,619,262	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation			297,889			444,029
	Amortization			23,415			24,733
	Interest expense related to issuance of warrants			1,354,422			1,150,394
	Non-cash compensation expense			26,180			104,434
	Provision for excess and obsolete inventory			3,000,000			561,988
	Gain on forgiveness of debt			–			(3,791,145	)
	Goodwill impairment			–			6,746,289
	Write-off of other assets			–			214,546
	Write-off of fixed assets			168,728			315,079
	Other non-cash charges			159,520			–
Changes in operating assets and liabilities:
	Accounts receivable			2,415,456			675,138
	Amounts due from related party			–			(426,971	)
	Other current assets			121,156			59,628
	Inventories			474,189			286,353
	Accounts payable			848,984			(1,123,379	)
	Deferred revenues			(2,595,040	)		(28,122	)
	Accrued liabilities			(444,937	)		(68,860	)
		Net cash used in operating activities		(3,175,003	)		(10,475,128	)
Cash flows from investing activities:
	Deposits			–			(1,667	)
	Increase in trademarks and patents			(39,821	)		(30,944	)
	Purchase of property and equipment			(28,531	)		(184,306	)
	Purchase of B2BNetwork, net of cash acquired			–			(1,750,839	)
		Net cash used in investing activities		(68,352	)		(1,967,756	)
Cash flows from financing activities:
	Proceeds from the issuance of common stock, net of issuance costs			(163,203	)		18,037,212
	Net proceeds from the issuance of notes payable			2,515,460			1,049,000
	Net proceeds from the exercise of stock options						10,300
	Repayments of notes payable			(247,111	)		(598,278	)
	Principal payments on capital leases			(14,446	)		(65,103	)
		Net cash provided by financing activities		2,090,700			18,433,131
Net increase (decrease) in cash and cash equivalents				(1,152,655	)		5,990,247
Cash and cash equivalents, at beginning of year				1,660,051			507,396
Cash and cash equivalents, at end of year			$	507,396		$	6,497,643
Interest payments			$	5,080		$	205,145
Non cash financing and investing activity (Note 13)

See Notes to Consolidated Financial Statements.

F-6

Notes to Consolidated Financial Statements

      Unless otherwise indicated, all information in the Notes to Consolidated Financial Statements gives retroactive effect to a one-for-five reverse stock split of our common stock approved by Stockholders on February 4, 2002 and effected February 5, 2002.

1.  Nature of Business and Basis of Presentation

Nature of Business:

      Video Network Communications, Inc. (the “Company” or “VNCI”) is a Delaware corporation formed in 1993 to design, develop and market full-motion, high resolution, cost-effective video network systems as a state-of-the-art, business collaborative tool. Users of the VidPhone video network system can view broadcast video, collaborate in multi-party videoconferences, and retrieve stored video on demand. Our VidPhone system bypasses the bottleneck of local data networks to distribute video to and from desktop and laptop personal computers and conference rooms configured with VidPhone stations, over the same wiring used by the telephone. At the same time, the VidPhone system software provides the user with seamless access and control to communicate over, or access video content on, private, wide area, IP networks.

      On May 16, 2002, the Company acquired B2BVideo Network, Corp. (“B2BVideo”) which was formed in December 1999 to deliver to business users managed enterprise video services. B2BVideo delivers broadcast quality video over an Internet Protocol (“IP”) Multicast network for delivery to desktops. IP Multicast positioned B2BVideo to provide multiple streams of high quality video to thousands of points on the network. B2BVideo offered services that would enable businesses to integrate all of their video applications onto a single platform for delivery of broadcast quality video to the desktop. B2BVideo customers could: (1) distribute their own programming to employees, clients and other audiences over private video networks (PVNs), (2) access a wide range of business programming (e.g., television programs, training videos, industry conferences, etc.), and (3) conduct video calls and videoconferences. As a result of the acquisition, B2BVideo became a wholly owned subsidiary of the Company.

      In the past, the Company’s core video network technology solution has been utilized to support video collaboration in various vertical markets. The Company’s network technology has been primarily contained within the local business enterprise. Connectivity through the wide area network (“WAN”) has typically been established through less reliable and bandwidth constrained integrated services digital network (“ISDN”) service connections. While the Company’s technology has resulted in various high profile customer installations, the Company recognized the need to extend its video technology solution into the WAN. In addition, the Company began to see the strategic advantages of offering a managed service end-to-end video solution inherent in B2BVideo’s technology focus. It held the promise of delivering highly reliable, high quality end-to-end managed video service that solved the traditional shortcomings of WAN video distribution. The acquisition of B2BVideo’s marquee customer and programming guide was intended to accelerate the Companies capabilities for supporting the WAN requirements of customers and channel partners.

      The acquisition of B2BVideo was intended to accelerate the Company’s capabilities for supporting Wide Area Networking requirements of customers and channel partners. During the fourth quarter of 2002 B2BVideo’s marquee and only customer terminated its contract with B2BVideo. Based on the cancellation of the contract, the significant capital expenditures deemed necessary to build and maintain the required proprietary network, the required technological changes and the lack of future business prospects, management, with the Board of Directors approval, made a decision to shutdown and cease all operations of B2BVideo (Note 4).

Basis of Presentation:

      As shown in the consolidated financial statements the Company has incurred recurring losses from operations since inception and had net losses of $9,024,965 and $15,619,262 for the years ended

F-7

December 31, 2001 and 2002 respectively. The Company has experienced recurring negative cash flow from operations, and had used cash of $3,175,003 and $10,475,128 during 2001 and 2002 respectively to fund operating activities. In addition, the Company has historically had a working capital deficiency and, has a significant accumulated deficit at December 31, 2002. The Company expects to continue to incur significant operating expenses to sustain its continued product development efforts while maximizing sales and marketing opportunities. At this stage, it is difficult to predict with accuracy the level of its sales in future periods, or when marketing initiatives will result in sales. The Company has required substantial funding through debt and equity financings since inception to complete its development plans and pursue full-scale operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

      The Company continues to evaluate all options regarding the financing of operations. The Company believes that the financing received in May 2002 and the Strategic Alliance Agreement with Moneyline Network, LLC (“Moneyline”), a wholly-owned subsidiary of Moneyline Telerate Holdings, will enable it to significantly enhance its sales and marketing programs required to realize its sales projections and to generate sufficient operating cash flow. However, the Company has recognized that given the general economic slow down, the markets for its VidPhone product line are likely to develop more slowly than originally anticipated. Accordingly, in the first quarter of 2003 the company has taken significant steps to diversify its revenue base by acquiring the webcasting business of Wiltel Communications and right-sizing the expense base of the VidPhone business to match the scaled back revenue expectations. See Note 18, Subsequent Events, for further details of these transactions

      If the Company is not successful in either realizing its sales projections or in securing continued funding from either its majority investors or another party, the Company will be forced to consider alternative methods of maximizing shareholder value, which could include sales of the Company’s assets or a sale of the Company.

      These financial statements are presented under the assumption that the Company will continue as a going concern. They do not contemplate the uncertainties disclosed above nor do they include any adjustments that might result form these uncertainties.

      Since its investment in the Company in May 2002, Moneyline and its affiliates have utilized services of the Company relating to the development of an additional value-added video service to its existing customer base. They also have provided development related to a managed video distribution network services that could accelerate the acceptance of the Company’s video distribution technology. Moneyline and its affiliates have provided certain administrative, sales and management support to the Company. In addition, in conjunction with its investment, Moneyline entered into a Strategic Alliance Agreement (the “Agreement”) with the Company whereby Moneyline has the exclusive right to sell, market and distribute VNCI video equipment to customers in the financial services industry. Transactions with Moneyline are more fully disclosed in Note 17 Related Party Transactions. The accompanying financial statements may not necessarily be indicative of the conditions that would have existed or results of operations had the Company been operated as an unaffiliated entity.

2. Summary of Significant Accounting Policies

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, B2BVideo. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results will differ from those estimates.

F-8

Inventory

      Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory consists primarily of raw materials in the form of components. Total charges taken for slow-moving inventory during the year ended December 31, 2002 were $561,988. Management periodically reviews inventory for excess on hand quantities and obsolescence. Appropriate amounts are reserved to reflect the findings of these reviews.

Revenue Recognition

      Revenues from sales of the Company’s hardware products are recognized when the equipment has been delivered to the customer, title has passed, the equipment has been accepted by the customer, the collection of the sales price is probable, and no further obligations to the customer exist. Certain sales of equipment include software that enables the customer to utilize network services provided by the Company. Such sales are deferred and revenue is recognized ratably over the life of the associated network service contract, which is generally two years. Network services revenue is recognized in the period in which the contract services are provided to the customer. Recognition of sales starts at the time of acceptance by the customer, which is 30 days from installation of the equipment. The customer has a right of return within 30 days of installation. The customer is also granted a one-year warranty for the proper functioning of the equipment and software. Any losses on contracted sales are recognized in the period the loss has been determined. Service revenues associated with time and materials consulting projects are recognized at the time the services are rendered, collection is probable, and the Company has no further obligations to the customer. Revenues from maintenance contracts are recognized ratably over the term of the contract as services are performed. Management fee revenue recognized in 2001 was recognized upon receipt of cash and after an evaluation of any potential refunds of these fees. The royalty revenue from Moneyline will be recognized when earned, collectibility is probable and no future obligations exist.

Deferred Revenue

      Amounts received prior to the delivery of equipment or contracted services are recognized as liability and revenue recognition is deferred until such time that all revenue recognition criteria have been met. Revenue recognition for equipment sales is deferred until the equipment has been delivered, title has passed to the customer, collectibility is reasonably assured and the customer has accepted the equipment. Deferred revenues related to service contracts are deferred until such time that the services have been performed. Revenues related to sales of equipment and software associated with network services contracts are recognized ratably over the term of the network services contract. The Company had deferred revenues of $28,263 and $141 at December 31, 2001 and December 31, 2002, respectively.

Product Warranty Obligation

      The Company records a liability for product warranty obligations at the time of sale based upon historical warranty experience. The term of the warranty is generally twelve months. The Company also records an additional liability for specific warranty matters when they become known and are reasonably estimable. The Company’s product warranty obligations are included in accrued expenses.

      Changes in product warranty obligations for the years ended December 31 are as follows:

	2001			2002
Balance, beginning of year	$	326,098		$	142,318
New warranties		142,318			23,272
Adjustments		(326,098	)		(146,449	)
Balance, end of year	$	142,318		$	19,141

F-9

Costs of Goods and Services Sold

      Costs of goods sold include those expenses directly relating to the delivery and installation of the Company’s hardware and software products. Costs of goods sold related to equipment and software sales made in conjunction with network services contracts are deferred and amortized ratably over the life of the associated network service contract to ensure proper matching against revenues that are deferred. Costs relating to providing network services, primarily consisting of communication costs, are expensed when incurred. Costs of services include those expenses directly relating to providing consulting, implementation and maintenance services to the Company’s customers. At December 31, 2001 and December 31, 2002, the Company did not have any deferred costs of goods or services sold.

Research and Development and Software Development Costs

      Software development costs are included in research and development and are expensed as incurred. The capitalizable costs of computer software to be sold have been insignificant, since the period between achieving technological feasibility and the general availability of such software has been short. Accordingly, the Company has not capitalized any software development costs.

Income Taxes

      Income taxes are accounted for under the asset and liability method pursuant to the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect for the year in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.

Net Income (Loss) Per Share

      The Company computes basic and diluted earnings per share in accordance with SFAS No. 128, Earnings per Share. Net income (loss) per common share is based on the weighted average number of common shares and dilutive common share equivalents outstanding during the periods presented. Basic income (loss) per share is calculated by dividing net income available to common shareholders by the weighted average shares outstanding. Diluted income (loss) per share reflects the dilutive effect of stock options and warrants and is presented only if the effect is not anti-dilutive.

Fair Value of Financial Instruments

      The Company’s financial instruments including cash and cash equivalents, accounts receivable, other current assets, capital leases, accounts payable, and accrued expenses are carried at cost, which approximates fair market value because of the short-term maturity of those instruments. Based on interest rates currently available to the Company for borrowings with similar terms and maturities, the carrying value of the Company’s short-term notes payable approximates its current fair value.

Cash and Cash Equivalents

      Cash and cash equivalents consist of cash and investments with original maturities of three months or less.

Property and Equipment

      Property and equipment are stated at cost. The annual provisions for depreciation have been computed based on the following ranges of estimated useful lives: computer and laboratory equipment, 3 to

F-10

5 years; computer software, 3 years; service bureau equipment, 3 years; furniture and fixtures, 5 years; and office equipment, 5 years (Note 6). Expenditures for maintenance and repairs are charged to expense as incurred. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income.

Trademarks and Patents

      Trademarks and patents are stated at cost and are amortized on a straight-line basis over 15 years. Amortization expense recorded for the years ended December 31, 2001 and 2002 was $23,415 and $24,733, respectively.

      Scheduled amortization expenses of intangible assets over the next five years are as follows:

2003	$	26,551
2004	$	26,551
2005	$	26,551
2006	$	26,551
2007	$	26,551

Impairment of Long-Lived Assets

      The Company’s long-lived assets consist primarily of trademarks and patents, and property and equipment. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective for fiscal 2002, the Company periodically evaluates the net realizable value of long-lived assets and measures the impairment loss, if any, as determined by the difference between the carrying value and fair value of the asset. In connection with the B2BVideo acquisition and subsequent decision to shut down the B2BVideo operations in the fourth quarter of 2002, the Company evaluated the related long-lived assets. As a result of such evaluation in the fourth quarter the Company recorded an impairment charge of approximately $530,000 on fixed and other assets.

Concentration of Credit Risk

      Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash and cash equivalents are held with a U.S. commercial bank. The Company generally grants uncollateralized credit terms to its customers and has not experienced any credit-related losses. Two customers accounted for 50% and 30%, of the Company’s total revenues in the year ended December 31, 2001. Three customers accounted for 32%, 16%, and 13%, of the Company’s total revenues in the year ended December 31, 2002. Four customers accounted for 30%, 16%, 13% and 10% of the Company’s accounts receivable at December 31, 2001 and three customers accounted for 74%, 14%, and 12% of the Company’s accounts receivable at December 31, 2002.

Intangible Assets

      The Company’s intangible assets consist of (1) goodwill, which in accordance with the adoption of SFAS No. 142 is not being amortized commencing in 2002 and beyond; and (2) amortizing intangibles, which consist of patents and trademarks, which are being amortized over their useful lives. All intangible assets are subject to impairment tests on a periodic basis.

      In connection with adoption of SFAS No. 142, Goodwill and Intangible Assets, on January 1, 2002, the Company has an annual impairment methodology that the Company will employ on January 1st of each year in calculating the recoverability of goodwill. This same impairment test will be performed at other times during the course of the year should an event occur which suggests that the recoverability of goodwill may be impacted. Amortizing intangibles are currently evaluated for impairment using the methodology set forth in SFAS No. 144. Recoverability of these assets is assessed only when events have

F-11

occurred that may give rise to an impairment. When a potential impairment has been identified, forecasted undiscounted net cash flows of the operations to which the asset relates are compared to the current carrying value of the long-lived assets present in that operation. If such cash flows are less than such carrying amounts, long-lived assets, including such intangibles, are written down to their respective fair values.

      As a result of the B2BVideo acquisition in May 2002, and subsequent decision to shut down the B2BVideo operations in the fourth quarter of 2002, the Company performed an impairment test. As a result of performing the impairment test, an impairment charge related to the goodwill associated with the B2BVideo acquisition, was recorded for approximately $6,746,000 in the fourth quarter of 2002.

      Prior to 2002, the Company employed the impairment methodologies set forth in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. These methodologies did not differ substantially from SFAS No. 144 as they related to amortizing intangibles.

Advertising Expense

      The Company recognizes advertising expense as incurred. Advertising expenses of $87,437 and $50,010 were incurred in 2001 and 2002, respectively.

Stock-Based Compensation

      The Company accounts for its options granted to employees and directors in accordance with Accounting Principals Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been recognized for the options granted to employees or directors, since the exercise price of the options has been in excess of or equal to the fair value of the options on the date of grant, as determined by the Board of Directors. For options granted to consultants, the Company recognizes an appropriate compensation expense in accordance with Emerging Issues Task Force 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. The Company has disclosed the pro forma net loss and loss per share in accordance with the measurement provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

      Had the compensation cost for the plans been determined based on the fair value at the grant dates for awards under the plans, consistent with the method described in SFAS No. 123, the Company’s net income (loss) and basic and diluted net income (loss) per common share on a pro forma basis would have been:

		For Year Ended December 31,
		2001			2002
Net loss, as reported		$	(9,024,965	)	$	(15,619,262	)
Total stock-based employee compensation expense determined under fair value based method for all awards			(1,575,922	)		(468,013	)
Pro forma net loss		$	(10,600,887	)	$	(16,087,275	)
Earnings (loss) per share:
	Basic and diluted – as reported	$	(4.23	)	$	(.44	)
	Basic and diluted – pro forma	$	(4.97	)	$	(.45	)

      The preceding pro forma results were calculated using the Black-Scholes option-pricing model. The following assumptions were used for the years ended December 31, 2001 and 2002, respectively: (1) risk-free interest rates of 4.1% and 4.29%, respectively; (2) dividend yields of 0.0%; (3) expected lives of 5 and 5 years, respectively; and (4) volatility of 132% and 140%, respectively. Results may vary depending on the assumptions applied within the model.

F-12

Comprehensive Income

      Comprehensive income (loss) as defined, includes all changes in equity (net assets) during a period from non-owner sources. For the years ended December 31, 2001 and 2002 the Company had no comprehensive income other than net loss.

Segment Information

      The Company operates in one business segment; the design, development, and marketing of a video network system.

Reclassifications

      Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 “Reporting Results of Operations.” The relevant provisions of this statement will be effective for the Company for the year ending December 31, 2003. The extraordinary gains resulting from early extinguishment of debt (Note 14) will be reclassified to a component of operating income within the Consolidated Statements of Operations upon adoption of SFAS No. 145 on January 1, 2003.

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 will supersede Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that costs associated with an exit or disposal plan be recognized when incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The restructuring activities that management has undertaken in the first quarter of 2003 (Note 18) will be accounted for under SFAS No. 146.

      In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the existing disclosure requirements for most guarantees. FIN 45 requires that at the time a company issues certain guarantees, the Company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The Company will adopt the recognition and measurement requirements of FIN No. 45 in the first quarter of fiscal year 2003 and have included the new disclosure requirements in the Notes to the Consolidated Financial Statements.

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure requirements of SFAS No. 148 have been implemented and the Company will adopt the interim disclosure requirements in the first quarter of fiscal year 2003.

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3. Stock Purchase Agreement

      On May 16, 2002, the Company entered into a Stock Purchase Agreement (the “Agreement”) with Moneyline. Pursuant to the Agreement Moneyline purchased 25,000,000 new shares of the Company’s common stock (representing approximately 51.4% of the Company’s outstanding common stock at June 30, 2002) for aggregate cash consideration of $15,000,000 and received a warrant to purchase an additional 11,250,000 shares of the Company’s common stock, with an exercise price of $0.60 per share and a cashless exercise mechanism.

      Simultaneously, certain existing and new investors purchased 7,750,000 newly issued shares of the Company’s common stock at $0.60 per share, providing aggregate gross proceeds of $4,650,000 to the Company.

      Also as part of the above transaction, the following took place:

(a)	payment of $1,100,000 was made to Sanmina Corp. (“Sanmina”) to extinguish a secured promissory note issued to Sanmina by the Company, with an outstanding principal balance of $2,900,000 and accrued interest of $587,145. The Company recognized an extraordinary gain of $2,387,145 relating to the extinguishment of this debt, which is included as a component of extraordinary gain in the Consolidated Statement of Operations (Note 14);
(b)	payment to Shaw Pittman LLP, a supplier of the Company, of $250,000 to settle outstanding obligations of approximately $378,000 and recognized an extraordinary gain of approximately $128,000 relating to the extinguishment of this debt, which is included as a component of extraordinary gain in the Consolidated Statement of Operations (Note 14); and,
(c)	promissory notes in the aggregate principal amount of $3,723,982 and accrued interest of $143,843 were exchanged for 6,446,376 shares of the Company’s common stock (Note 11). Warrants to purchase an aggregate of 2,567,992 shares of common stock previously issued to the holders of promissory notes were repriced. The exercise price of such warrants, which ranged from $1.30 to $2.75 per share, was reduced to $0.60 per share. The increase in the fair value of the warrants, in the amount of $4,913,894 was recorded as a deemed dividend.

      The Company incurred estimated costs and expenses of approximately $3,226,000 in connection with the Agreement and the acquisition of B2BVideo (discussed below). Fifty percent (50%) of these costs, which are comprised primarily of legal, investment banking and accounting fees, were allocated to the Agreement and fifty percent (50%) were allocated to the acquisition of B2BVideo. The expenses allocated to the Agreement, in the amount of approximately $1,613,000, have been recorded as a reduction of additional paid-in capital.

      Pursuant to the Agreement, Moneyline has the right to appoint a majority of the members of the Company’s Board of Directors.

4. Acquisition of B2BVideo Network Corp.

      On May 16, 2002, the Company acquired 100% of the common stock of B2BVideo, a Delaware corporation. B2BVideo was formed in December 1999 to deliver to business users managed enterprise video services. B2BVideo delivers broadcast quality video over an Internet Protocol (“IP”) Multicast network for delivery to the desktop. IP Multicast enables B2BVideo to provide multiple streams of high quality video to thousands of points on the network. B2BVideo offers products and services that enable businesses to integrate all of their video applications onto a single platform for delivery of broadcast quality video to the desktop. B2BVideo customers can: (1) distribute their own programming to employees, clients and other audiences over Private Video Networks (PVNs), (2) access a wide range of business programming (i.e. television programs, training videos, industry conferences, etc.), and (3) conduct video calls and videoconferences. As a result of the acquisition, B2BVideo became a wholly owned subsidiary of the Company.

F-14

      In the past, VNCI’s core video network technology solution has been utilized to support video collaboration in various vertical markets. VNCI’s network technology has been primarily contained within the local business enterprise. Connectivity through the wide area network (“WAN”) has typically been established through less reliable and bandwidth constrained integrated services digital network (ISDN) service connections. While VNCI’s technology has resulted in various high profile customer installations, the Company recognized the need to enhance its video technology solution into the WAN. In addition, the Company began to see the strategic advantages of offering a managed service end-to-end video solution. B2BVideo’s product offerings focus on delivering highly reliable, high quality end-to-end managed video service that solve the traditional shortcomings of WAN video distribution. The acquisition of B2BVideo Network’s marquee customer and programming guide was intended to accelerate the Company’s capabilities for supporting the WAN requirements of customers and channel partners.

      The following consideration was issued in connection with the acquisition of B2BVideo:

(a)	B2BVideo’s common and preferred shareholders were issued 3,000,014 shares of VNCI common stock;
(b)	Options to purchase B2BVideo Series A Preferred Stock were exchanged for options to purchase 139,123 shares of VNCI’s common stock at strike prices ranging from $.50 to $5.93;
(c)	Options to purchase 2.75 Units of B2BVideo, each Unit consisting of (A) 50,000 shares of B2BVideo Series B Preferred Stock and (B) warrants to purchase 50,000 shares of B2BVideo’s common stock, were exchanged for options to purchase an aggregate of 182,977 shares of VNCI’s common stock and warrants to purchase 46,374 shares of VNCI’s common stock;
(d)	Warrants to purchase 3,176,000 shares of B2BVideo common stock issued and outstanding immediately prior to the closing date were exchanged for warrants to purchase 1,214,223 shares of VNCI’s common stock at a strike price of $.60 per share;
(e)	Holders of senior secured promissory notes of B2BVideo, with an aggregate principal balance of $2,500,000 plus accrued interest, were exchanged for 4,282,956 shares of VNCI’s common stock and;

(f)  Options to purchase 681,771 shares of VNCI’s common stock were issued to employees of B2BVideo in exchange for outstanding vested B2BVideo options. These options were 100% vested at the date of issuance.

      The following table sets forth in tabular format the information discussed above:

Noncash:
	Common stock issued	$	4,369,782
	Options issued to employees		242,185
	Warrants issued		461,726
	Options issued to non-employees		123,578
Cash:
	Payment for B2BVideo liabilities		156,355
	Estimated transaction costs		1,612,788
Total purchase price		$	6,966,414

      The consideration issued to holders of B2BVideo’s equity instruments and debt holders in connection with the acquisition of B2BVideo was valued as follows:

(a)  VNCI’s Common Stock – The value of VNCI’s common stock was determined to be $0.60 per share, the price at which VNCI sold its common stock to Moneyline and certain existing and new investors on May 16, 2002;

F-15

(b)  Options issued to B2BVideo’s employees – All outstanding options held by employees to purchase B2BVideo’s common stock have been exchanged for options to purchase 681,771 shares of VNCI’s common stock. The options have varying exercise prices and were 100% vested at the date of issuance. The Company valued such stock options using the Black Scholes option-pricing model at $242,185. The calculation was based on the following assumptions:

Volatility	144%
Expected life	3 years
Risk free interest rate	3.8%
Dividend Rate	None

(c)	Warrants – Warrants to purchase the Company’s common stock issued in connection with the acquisition were also valued using the Black Scholes option-pricing model. The warrants have varying exercise prices. The Company valued such warrants at $461,726. The calculation was based on the same assumptions as discussed in b) above; and,
(d)	Options issued to non-employees – Options to purchase the Company’s common stock issued in connection with the acquisition were valued using the Black Scholes option-pricing model. The options have varying exercise prices. The Company valued such options at $123,578. The calculation was based on the same assumptions discussed in b) above.

      During the fourth quarter of 2002, the Company completed its review of the assets acquired and the liabilities assumed in the acquisition of B2BVideo. This review resulted in the reallocation of purchase price between fixed assets and goodwill. In addition, an adjustment to reduce depreciation expense to reflect the write down of fixed assets was recorded in the Statement of Operations. The determination was made based upon an independent third party appraisal received by the Company in the fourth quarter of 2002.

      The final allocation of purchase price consideration to the assets acquired and liabilities assumed as of the acquisition date is as follows:

Cash and cash equivalents	$	18,334
Accounts receivable		129,466
Inventories		531,662
Other current assets		3,841
Property and equipment, net		662,640
Other noncurrent assets		208,059
Accounts payable		(1,075,063	)
Accrued liabilities		(213,680	)
Capital lease obligations		(45,134	)
Fair value of net assets acquired		220,125
Goodwill		6,746,289
Fair value of net assets acquired and recorded goodwill	$	6,966,414

      None of the goodwill associated with the acquisition of B2BVideo will be deductible for tax purposes.

      The results of operations for the year ended December 31, 2002 include the operating results of B2BVideo subsequent to its date of acquisition. Prior to the acquisition of B2BVideo the Company had one reportable segment. The acquisition of B2BVideo did not create a new reportable segment as B2BVideo is also engaged in the design, development, and marketing of video network systems and has economic characteristics similar to VNCI.

F-16

      Prior to its acquisition of B2BVideo the Company held 750,000 shares of B2BVideo’s common stock, which had no carrying value. During the year ended December 31, 2002 the Company recognized revenue of $266,000 for equipment sales to B2BVideo prior to its acquisition by the Company.

      The following unaudited pro forma summary financial information presents the consolidated results of operations of the Company as if the acquisition of B2BVideo had occurred on January 1, 2001. The pro forma results are shown for illustrative purposes only and do not purport to be indicative of the results of the Company that would have been reported had the acquisition actually occurred on January 1, 2001 or indicative of results that may occur in the future.

	(Unaudited)
	Year ended December 31,
	2001			2002
Revenues	$	12,844,979		$	975,375
Loss before extraordinary gain	$	(14,370,383	)	$	(19,099,114	)
Gain on extinguishment of debt		–		$	3,791,145
Net loss	$	(14,370,383	)	$	(15,307,969	)
Deemed dividend		–		$	(5,319,382	)
Net loss attributable to common shareholders	$	(14,370,383	)	$	(20,627,351	)
Income (loss) per share – basic and diluted Loss attributable to common shareholders before extraordinary gain	$	(0.30	)	$	(0.46	)
Extraordinary gain		–			0.07
Net loss attributable to common shareholders	$	(0.30	)	$	(0.39	)

      During the fourth quarter of 2002, management, with the Board of Directors approval, made a decision to shutdown and cease all operations of B2BVideo. This resulted in an asset impairment charge being recorded in December 2002, in addition, the Company settled certain B2BVideo trade payables and other vendor liabilities during the fourth quarter of 2002, which resulted in a gain on extinguishment of debt of $652,000. The Company has terminated substantially all B2BVideo employees and has commenced negotiations with the landlord of the B2BVideo office space to terminate the lease agreement (Note 8).

5.  Inventories

      Inventories, net of allowances, consist of the following at:

	December 31,
	2001			2002
Raw materials	$	5,044,749		$	4,416,579
Allowance for excess and obsolete inventory		(3,850,000	)		(3,538,509	)
	$	1,194,749		$	878,070

      The Company recorded a provision for excess and obsolete inventory of $3,000,000 in 2001 and $561,988 in 2002.

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6. Property and Equipment

      Property and equipment consist of the following at:

	December 31,
	2001			2002
Computer and laboratory equipment	$	3,105,490		$	3,143,880
Computer software		470,426			520,426
Service bureau equipment		–			254,820
Furniture and fixtures		876,322			877,993
Office equipment		205,333			205,333
		4,657,571			5,002,452
Accumulated depreciation and amortization		(4,380,842	)		(4,637,725	)
	$	276,729		$	364,727

      Depreciation expense for the years ended December 31, 2001 and 2002 was $297,889 and $444,029, respectively.

7.  Asset Impairment Charges

      During the fourth quarter of 2002, the Company recognized impairment losses of approximately $7,276,000 related to certain assets of B2BVideo. The write-down of goodwill, associated with the acquisition of B2BVideo in May 2002 accounted for approximately $6,746,000 of the charge. The remaining $530,000 of the charge related to the net book value of certain fixed and other assets. The write down of the assets to fair value was determined based upon undiscounted cash flows of the B2BVideo business. Since the acquisition in May 2002, B2BVideo has lost its only customer and has generated no sales since losing that customer in the third quarter of 2002. In addition, management of VNCI and Moneyline no longer views the private network built by B2BVideo as a useful component of the managed video services offering.

8.  Commitments and Contingencies

      Leases – The Company leases office and manufacturing space and office equipment under various operating and capital leases. Commitments for minimum rentals under non-cancelable leases at December 31, 2002 are as follows:

						Operating
	Capital			Operating		Leases to be
	Leases			Leases		Cancelled(1)
2003	$	11,288		$	335,851	$	133,480
2004		8,448			342,297		133,480
2005		8,448			342,297		55,616
2006		8,448			378,611		–
2007		–			386,775		–
Thereafter		–			80,578		–
Total minimum lease payments	$	36,632		$	1,866,409	$	322,576
Less amount representing interest		(6,856	)
Present value of net minimum lease payments		29,776
Less amount representing current portion		(8,432	)
	$	21,344

(1)  The Company is engaged in active negotiations with the landlord for early termination of this lease obligation. The exact outcome of this negotiation cannot yet be determined.

F-18

      In January 2003, in conjunction with the Wiltel webcasting business acquisition, the Company entered into a lease for a 31,000 square foot facility in New York City, New York at a current monthly rental rate of $30.00 per square foot. The lease expires in July 2009. Rent on the facility increases over the term of the lease from the current rate of $30.00 per square foot going to $32.00 per square foot in March 2007.

      Property and equipment at year-end include the following amounts for capitalized leases:

	2001			2002
Office equipment	$	96,545		$	96,545
Accumulated depreciation		(56,204	)		(76,153	)
	$	40,341		$	20,392

      Rent payments made in 2001 and 2002 were $325,000 and $556,755, respectively.

      The Company has employment agreements with five senior executives that bind the Company to pay an aggregate of up to approximately $744,000, should the employees be terminated for reasons other than for cause. One of these individuals was transferred to an affiliated company early in 2003. Their employment agreement and the potential associated severance pay of $107,688 were transferred to the new employer.

9.  Accrued Liabilities

      Accrued liabilities consisted of the following at:

	December 31,
	2001		2002
Accrued compensation expenses	$	291,385	$	551,136
Accrued legal and audit expenses		30,000		206,182
Accrued rent expense		–		138,057
Accrued warranty expenses		142,318		19,141
Accrued interest		550,165		–
Other accrued expenses		186,711		287,040
	$	1,200,579	$	1,201,556

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10.  Income Taxes

      The components of the Company’s net deferred tax position and the tax effects of the temporary differences giving rise to the Company’s deferred tax assets (liabilities) as of December 31, 2001 and 2002 are as follows:

		2001			2002
Deferred Tax Assets:
	Net operating loss carry forwards	$	20,619,000		$	23,168,000
	Accrued liabilities		149,000			165,000
	Reserves		1,842,000			2,063,000
	Depreciation and amortization		230,000			270,000
	Gross deferred tax asset		22,840,000			25,666,000
	Valuation allowance		(22,820,000	)		(22,663,000	)
			20,000			3,000
Deferred tax liability:
	Allowance for bad debts		(17,000	)		–
	Intangible assets		(3,000	)		(3,000	)
Net deferred tax asset		$	–		$	–

      At December 31, 2002, the Company has available net operating loss carry forwards for federal tax purposes of approximately $63,050,000 that may be available to offset future federal income tax liabilities and expire at various dates through 2021. As of December 31, 2002, a valuation allowance of $22,663,000 has been recorded against total gross deferred tax assets, due to the uncertainty surrounding their realization in the future. Ownership changes, as defined in the Internal Revenue Code Section 382, have significantly limited the amount of net operating loss carry forwards that can be utilized annually to offset future taxable income. Subsequent ownership changes could further effect the limitation in future years.

11.  Notes Payable

      The following table summarizes the Company’s indebtedness:

		12/31/01			12/31/02
Bridge Financings:
	April 2002	$	–		$	–
	March 2002		–			–
	January 2002		–			–
	November/ December 2001		1,674,982			–
	September/ October 2001		1,000,000			–
Sanmina note			2,900,000			–
Other notes			31,943			20,000
Less: Debt discount on notes			(511,186	)		—
Total		$	5,095,739		$	20,000

Sanmina Note

      In January 1999, the Company converted outstanding accounts payable to Sanmina Corporation to a $4,300,000 three-year term note accruing interest at 7% per annum. As consideration for the restructuring of accounts payable balances to a long-term note, the Company issued Sanmina a warrant to purchase

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7,857 shares of its common stock, with an exercise price of $96.25 per share. An independent appraisal assigned a market value of $127,759 to this warrant. The Company recorded the value of the warrant as a debt discount and amortized the value of the warrant over the life of the note. In June of 1999, the Company repaid $1,100,000 of the note principal.

      In January 2000, the Company defaulted on the interest payment due to Sanmina and did not make subsequent interest and principal payments to Sanmina when due through August 2000. In August 2000, the Company renegotiated the terms of the note to Sanmina. Under the amended terms of the note, the Company paid $150,000 on August 25, 2000 and $150,000 in November 2000. Commencing February 2001, the Company was obligated to pay an amount each month equal to a percentage of the accounts receivable that it collected in the previous calendar month, with the percentage ranging from 0% to 5%, based upon the net amount of accounts receivable collected. Any principal and accrued interest thereon remaining on the note was due in full on January 12, 2002. The Sanmina note was collateralized by the Company’s personal property and certain other assets, and as of May 16, 2002, the Company was in default of this note.

      On May 17, 2002, the Company made a payment of $1,100,000 to Sanmina with respect to all its outstanding claims under this note, which claims consisted of an outstanding principal balance of $2,900,000 and accrued interest of $587,145. This payment resulted in a gain on the extinguishment of debt of $2,387,145. Such gain was recognized as an extraordinary gain in the Consolidated Statement of Operations (Note 14).

Bridge Financing

      January 2002 Bridge Financing: On January 24, 2002, the Company completed a private placement of $500,000 of 9% unsecured promissory notes and warrants to purchase 200,000 shares of the Company’s common stock at an exercise price of $1.30 per share. The unsecured notes were due and payable upon the earlier of April 24, 2002 or the date on which the Company completed its next debt or equity financing in which it raised in excess of $2,500,000 in gross proceeds. The holders of the unsecured promissory notes had the right to convert all or any portion of the principal amount of the notes into the securities that the Company issues in its next financing. The holders of the unsecured notes were required to elect to convert by the closing of the financing. If the holders did not elect to convert by the closing date, the right to convert terminated. The notes accrued interest at a rate of 9% per annum. Interest accrued from January 24, 2002 through the date on which the notes become due and payable. In the event the notes were not paid at maturity, the interest rate would increase to 18% until the notes were paid.

      The warrants were exercisable beginning on July 24, 2002 and will be exercisable until July 23, 2007. The initial exercise price for the warrants of $1.30 per share is subject to adjustment in certain limited circumstances. The warrants have a cashless exercise provision. The fair value of the warrants, calculated using the Black Scholes option-pricing model, in the amount of $172,000 was recorded as a debt discount and was amortized over the life of the notes to interest expense. On May 16, 2002 the principal balance of the notes and accrued interest in the aggregate amount of $513,808 were exchanged for 857,292 shares of the Company’s common stock pursuant to the terms and conditions of the Stock Purchase Agreement (Note 3).

      March 2002 Bridge Financing: On March 28, 2002, the Company borrowed the aggregate principal amount of $349,000 pursuant to a 9% unsecured promissory note. In connection with the loan, the Company also issued to the lenders warrants to purchase 698,000 shares of the Company’s common stock at an initial exercise price of $1.30 per share. The fair value of the warrant, calculated using the Black Scholes option-pricing model, in the amount of $299,000 was recorded as a debt discount and was amortized over the life of the note to interest expense. The notes were due and payable on the earlier of June 26, 2002 or the date on which the Company completed its next debt or equity financing in which it raised an aggregate, on a cumulative basis, in excess of $2,500,000 in gross proceeds. The notes accrued interest at a rate of 9% per annum. Interest accrued from March 28, 2002 through the date on which the notes became due and payable. On May 16, 2002 the principal balance of the notes and accrued interest

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in the aggregate amount of $353,217 were exchanged for 588,792 shares of the Company’s common stock pursuant to the terms and conditions of the Agreement (Note 3).

      April 2002 Bridge Financing: On April 25, 2002, the Company borrowed $200,000 pursuant to a 9% unsecured promissory note. In connection with the loan, the Company also issued to the lender a warrant to purchase 400,000 shares of the Company’s common stock at an initial exercise price of $1.30 per share. The fair value of the warrant, calculated using the Black Scholes option-pricing model, in the amount of $167,000 was recorded as interest expense. The note was due and payable on demand or on the date on which the Company completes its next debt or equity financing in which it raises in the aggregate, on a cumulative basis, in excess of $2,500,000 in gross proceeds. The note accrued interest at a rate of 9% per annum. Interest accrued from April 25, 2002, through the date on which the note was payable. In the event the note was not paid at maturity, the interest rate would increase to 18% until the note was paid. On May 16, 2002 the note and accrued interest in the aggregate amount of $201,036 were exchanged for 335,083 shares of the Company’s common stock pursuant to the terms and conditions of the Agreement (Note 3).

      November and December 2001 Bridge Financing: The Company had outstanding at December 31, 2001 $1,674,982 principal amount of notes issued in November and December of 2001. The outstanding principal amount of and accrued interest at the rate of 9% per annum on the notes is due and payable on the earlier of February 19, 2002, or the date on which a financing closes.

      September and October 2001 Bridge Financing: As of December 31, 2001, we had outstanding $1,000,000 principal amount of notes, issued in September and October of 2001, on which the outstanding principal, and interest at the rate of 9% per annum, originally due and payable on December 24, 2001, and extended to the earlier of February 15, 2002, or the date on which a financing closes.

      At May 16, 2002, the Company was in default of the 9% senior secured promissory notes issued in September and October of 2001 and its 9% unsecured promissory notes issued in November and December of 2001. The aggregate principal balance of these notes in default was approximately $2,675,000. Certain of such notes were secured by all of the Company’s assets and intellectual property. These notes and accrued but unpaid interest thereon were exchanged for 4,665,209 shares of the Company’s common stock on May 16, 2002, pursuant to the terms and conditions of the Agreement (Note 3).

12.  Capital Stock Transactions

Common Stock

      At a Special Meeting of Stockholders convened on February 4, 2002, the stockholders approved a resolution to increase the number of authorized shares of common stock from 30,000,000 shares to 90,000,000 shares.

      On May 16, 2002, the Company entered into an Agreement with Moneyline, a wholly owned subsidiary of Moneyline Telerate Holdings. Pursuant to the Agreement Moneyline purchased 25,000,000 shares of the Company’s common stock (representing approximately 51.4% of the Company’s outstanding common stock at June 30, 2002) for aggregate cash consideration of $15,000,000 and received a warrant to purchase an additional 11,250,000 shares of the Company’s common stock, with an exercise price of $0.60 per share and a cashless exercise mechanism.

      Simultaneously, certain existing and new investors purchased 7,750,000 newly issued shares of the Company’s common stock at $0.60 per share, providing aggregate gross proceeds of $4,650,000 to the Company (Note 3).

      On May 16, 2002, the Company acquired B2BVideo, a Delaware corporation. B2BVideo was formed in December 1999 to deliver to business users managed enterprise video services (Note 4).

      In June of 2002, the holders of warrants to purchase 518,044 shares of the Company’s common stock at an exercise price of $0.60 per share elected to exercise their warrants implementing the cashless

F-22

exercise provision in the warrants and these holders were issued 410,864 shares of the Company’s common stock.

      In July of 2002, the holders of warrants to purchase 12,470,172 shares of the Company’s common stock at an exercise price of $0.60 per share elected to exercise their warrants implementing the cashless exercise provision in the warrants and these holders were issued 9,141,686 shares of the Company’s common stock.

      In November of 2002, the holder of warrants to purchase 10,000 shares of the Company’s common stock at an exercise price of $0.60 per share elected to exercise his warrants implementing the cashless exercise provision in the warrants and the holder was issued 1,429 shares of the Company’s common stock.

Warrants

      In connection with the August 2000 Private Placement, the Company issued, on December 23, 2000, January 23, 2001 and February 23, 2001, to the purchasers of Units in the August 2000 Private Placement and to EBC, Extra Warrants to purchase a total of 60,699 shares of Common Stock at an initial purchase price of $20.00 per share. The Company was obligated to issue such Extra Warrants because the SEC had not declared a registration statement, covering the offering and resale of the securities issued in the private placement, effective by the target date. The Extra Warrants have the same terms as the Warrants issued at the time of the August 2000 Private Placement. The Company was also required to issue Extra Warrants on each monthly anniversary of December 23, 2000 until the earlier of the effective date of a registration statement covering the offering and sale of the securities issued in the Private Placement, or July 23, 2002. The Company issued the Extra Warrants in reliance on an exemption provided by Section 4(2) of the Securities Act of 1933 and Regulation D and Rule 506 promulgated there under. The Company has withdrawn this registration statement and has issued additional Extra Warrants through July 2002. In addition to the Extra Warrants issued as noted above, the Company issued 77,380 of additional Extra Warrants through December 31, 2001 and 54,166 additional Extra Warrants in 2002.

      In September and October 2001, the Company issued warrants to purchase 400,000 shares of common stock at an exercise price of $2.00 per share. The exercise price of these warrants was reset to $0.60 per share in conjunction with the Company’s Private Placement and merger transaction completed on May 16, 2002.

      In November and December 2001, the Company issued warrants to purchase 669,993 shares of common stock at an exercise price of $2.75 per share. The exercise price of these warrants was reset to $0.60 per share in conjunction with the Company’s Private Placement and merger transaction completed on May 16, 2002.

      In December 2001, the Company negotiated an extension of the maturity date of the First Bridge Secured Notes and, as consideration, issued the note holders warrants to purchase 200,000 shares of common stock with an exercise price of $2.00 per share with an aggregate value of $456,000, which was charged to interest expense in 2001. The exercise price of these warrants was reset to $0.60 per share in conjunction with the Company’s Private Placement and merger transaction completed on May 16, 2002.

      The aggregate value of the above warrants was approximately $1,821,000, of which $1,312,000 was amortized to interest expense in 2001. The remaining balance of $509,000 was recorded against the face amount of the notes and amortized over the remaining life of the notes, all of which converted into the Company’s common stock on May 16, 2002.

      On January 24, 2002, the Company completed a private placement of $500,000 of 9% unsecured promissory notes and warrants to purchase 200,000 shares of the Company’s common stock at an initial exercise price of $1.30 per share.

      The warrants were exercisable beginning on July 24, 2002 and will be exercisable until July 23, 2007. The $1.30 per share initial exercise price for the warrants is subject to adjustment in certain limited circumstances. The warrants have a cashless exercise provision. The fair value of the warrants, calculated

F-23

using the Black Scholes option-pricing model, in the amount of $172,000 was recorded as a debt discount and was amortized over the life of the notes to interest expense.

      On March 28, 2002, the Company borrowed the aggregate principal amount of $349,000 pursuant to a 9% unsecured promissory note. In connection with the loan, the Company also issued to the lenders warrants to purchase 698,000 shares of the Company’s common stock at an initial exercise price of $1.30 per share. The fair value of the warrant, calculated using the Black Scholes option-pricing model, in the amount of $299,000 was recorded as a debt discount and was amortized over the life of the note to interest expense.

      On April 25, 2002, the Company borrowed $200,000 pursuant to a 9% unsecured promissory note. In connection with the loan, the Company also issued to the lender a warrant to purchase 400,000 shares of the Company’s common stock at an initial exercise price of $1.30 per share. The fair value of the warrant, calculated using the Black Scholes option-pricing model, in the amount of $167,000 was recorded as interest expense. The note was due and payable on demand or on the date on which the Company completes its next debt or equity financing in which it raises in the aggregate, on a cumulative basis, in excess of $2,500,000 in gross proceeds. The note accrued interest at a rate of 9% per annum. Interest accrued from April 25, 2002, through the date on which the note was payable. In the event the note was not paid at maturity, the interest rate would increase to 18% until the note was paid. On May 16, 2002 the note and accrued interest in the amount of $201,036 were exchanged for 335,181 shares of the Company’s common stock pursuant to the terms and conditions of the Agreement (Note 3).

      On May 16, 2002 (i) the Company issued warrants to purchase 11,250,000 shares of the Company’s common stock with an exercise price of $0.60 per common share in conjunction with the Company’s Private Placement (Note 3).

      In conjunction with the merger of the Company with B2BVideo Network, Corp. on May 16, 2002,

(a)	Options to purchase 2.75 Units of B2BVideo, each Unit consisting of (A) 50,000 shares of B2BVideo Series B Preferred Stock and (B) warrants to purchase 50,000 shares of B2BVideo’s common stock, were exchanged for options to purchase an aggregate of 182,977 shares of VNCI’s common stock and warrants to purchase 46,374 shares of VNCI’s common stock;
(b)	Warrants to purchase 3,176,000 shares of B2BVideo common stock issued and outstanding immediately prior to the closing date were exchanged for warrants to purchase 1,214,223 shares of VNCI’s common stock (see Note 4, Acquisition of B2BVideo Network Corp.).

      As a result of the Company’s sale of common stock for $0.60 per share on May 16, 2002, certain warrants issued by the Company in August 1998 underwent both a quantitative and price reset. In total, warrants for 1,532 shares of the Company’s common stock with an exercise price of $93.75 converted into warrants for 6,391 shares of the Company’s common stock with an exercise price of $22.47.

      In June of 2002, the holders of warrants to purchase 518,044 shares of the Company’s common stock at an exercise price of $0.60 per share elected to exercise their warrants implementing the cashless exercise provision in the warrants and these holders were issued 410,864 shares of the Company’s common stock.

      In July of 2002, the holders of warrants to purchase 12,470,172 shares of the Company’s common stock at an exercise price of $0.60 per share elected to exercise their warrants implementing the cashless exercise provision in the warrants and these holders were issued 9,141,686 shares of the Company’s common stock.

      In November of 2002, the holder of warrants to purchase 10,000 shares of the Company’s common stock at an exercise price of $0.60 per share elected to exercise his warrants implementing the cashless exercise provision in the warrants and the holder was issued 1,429 shares of the Company’s common stock.

F-24

      Warrant activity during 2002 is summarized as follows:

Balance, January 1, 2001	2,692,115
Warrants issued in connection with the January 2002 bridge financing	200,000
Warrants issued in connection with the March 2002 bridge financing	698,000
Warrants issued in connection with the April 2002 bridge financing	400,000
Warrants issued to Moneyline in connection with private placement	11,250,000
Warrants issued to B2BVideo in connection with merger	1,214,223
Warrants issued to EBC	54,166
Issuance of other warrants	4,878
Forfeiture of warrants	(1,467	)
Exercise of warrants	(12,998,216	)
Balance, December 31, 2002	(3,513,699	)

      A summary of the number of shares of common stock subject to purchase under all warrant agreements and related exercise prices as of December 31, 2002 is as follows:

Number of Shares		Exercise Price
	7,857	$	96.25
	1,142		92.95
	6,391		22.47
	1,464,310		20.00
	446,881		5.93
	101,180		3.94
	48,894		2.00
	1,437,044		.60
	3,513,699

Stock Options

      On September 9, 1999, stockholders of VNCI approved the Company’s 1999 Stock Incentive Plan (the “Plan”). The Plan authorized the Company to issue options to employees, directors, consultants and others to purchase up to 528,000 shares of common stock. The Company was restricted to having 402,000 of these issued and outstanding prior to June 18, 2000 as a result of an agreement with the Company’s lead investment banker on its June 1999 public offering. At a Special Meeting of Stock Holders held February 4, 2002, the stockholders of VNCI authorized an increase in the maximum number of shares available in the Plan to 8,000,000. However, the Company has only registered 2,528,000 shares under this Plan. The maximum exercise period for options granted under the Plan is ten years. Vesting and exercise periods for each individual grant are delineated in the individual grant agreement. The Company’s 1996 Stock Incentive Plan closed on that date and no additional grants are available through the 1996 Stock Incentive Plan or any of the Company’s other prior stock option plans. Similarly, the maximum exercise period for options granted under the 1996 Stock Incentive Plan was ten years. Vesting and exercise periods for each individual grant were delineated in the individual grant agreement.

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      Stock option activity during the periods indicated is summarized as follows:

	Number of			Weighted Average
	Shares			Exercise Price
2001
Outstanding at beginning of year		477,350		$	26.870
Granted		79,580		$	4.820
Forfeited		(19,120	)	$	16.817
Exercised		–			–
Outstanding at end of year		537,810		$	23.958
Exercisable		312,759		$	31.018
2002
Outstanding at beginning of year		537,810		$	23.958
Granted (Includes 1,003,871 options granted to holders of B2BVideo options upon the Company’s merger with B2BVideo.)		1,258,913		$	2.790
Forfeited		(602,908	)	$	11.517
Exercised		(10,000	)	$	1.030
Outstanding at end of year		1,183,815		$	6.351
Exercisable		1,017,405		$	6.124
Available for grant		6,787,020

      The following table summarizes information about stock options outstanding at December 31, 2002:

						Options Outstanding				Options Exercisable
						Weighted-Average
						Remaining
Range of				Number		Contractual Life		Weighted-Avg.		Number		Weighted-Avg.
Exercise Prices				Outstanding		(years)		Exercise Price		Exercisable		Exercise Price
$	0.499	$	2.001		493,684		7.1	$	1.048		399,417	$	1.027
$	2.699	$	5.941		476,149		4.8	$	4.348		439,447	$	4.362
$	9.529	$	21.876		201,163		1.8	$	13.058		167,007	$	13.145
$	69.999	$	105.001		5,146		1.5	$	72.124		5,146	$	72.124
$	139.990	$	192.501		2,837		1.5	$	143.424		2,837	$	143.424
$	231.874	$	463.751		4,836		1.5	$	315.652		3,551	$	262.060
					1,183,815						1,017,405

      All stock options granted by the Company from its inception through December 31, 2002 were granted with an exercise price per share equal to the fair value of the Company’s common stock on the date of grant. Those options and warrants that became part of the Company’s 1999 Stock Incentive Plan as a result of the merger with B2BVideo on May 16, 2002 have an exercise price as delineated in the Merger Agreement between the two entities.

F-26

      The following table provides a summary of all compensation plan data at December 31, 2002.

	Compensation Plans
	Director Stock		1994 Stock		1996 Stock		1999 Stock
December 31, 2002	Option Plan		Option Plan		Incentive Plan		Incentive Plan		Totals
Outstanding Options and Warrants at end of year		4,433		2,097		6,289		1,170,996		1,183,815
Average Weighted Exercise Price	$	70.00	$	140.00	$	131.35	$	4.45
Available for Grant		–		–		–		6,787,020		6,787,020

13.  Non-cash Financing and Investing Transactions

      The following is a summary of non-cash financing and investing transactions for the years ended December 31, 2001, and 2002:

	2001		2002
Current asset financed by issuance of note payable	$	139,747	$	73,480
Capital lease obligations		32,000		–
Conversion of notes payable, and interest thereon, to common stock		–		3,867,825
Investment in B2BVideo		–		5,197,241
Warrants issued with bridge notes		1,820,866		639,208

14.  Extraordinary Gain from Extinguishment of Debt

      The Company recorded an extraordinary gain from extinguishment of debt during 2002 in the amount of $3,791,145. Approximately, $2,387,145 of the gain relates to the extinguishment of a three year term note (Note 11). The remaining $1,404,000 relates to the settlement of VNCI and B2BVideo vendor payables. The following table presents the components of the extraordinary gain.

Settlement of:
	B2BVideo vendor payables	$	652,000
	VNCI vendor payables		624,000
	Sanmina note		2,387,145
	Shaw Pittman legal expenses		128,000
Total		$	3,791,145

15.  Employee Benefit Plan

      The Company implemented a profit-sharing plan under Section 401(k) of the Internal Revenue Code (the “Code”) covering substantially all employees. The plan allows employees to make contributions up to the maximum allowed by the Code. Until December 2001 the Company contributed one dollar to an employees account for each two dollars contributed by the employee until the employee’s contribution equaled 6% of the employee’s annual salary. The Company contributed $71,000 to employee accounts during 2001. Effective January 1, 2002, the Company no longer provides any 401(k) matching funds.

16.  Foreign Sales

      Revenues were generated geographically as follows:

Year-ended	United States		Other		Total
2001	$	12,905,915	$	69,800	$	12,975,715
2002	$	817,739	$	6,720	$	824,459

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17.  Related Party Transactions

      On May 16, 2002, Company completed a private placement for which EBC acted as placement agent, for which it received a fee of $1,595,000, which was deducted from the transaction proceeds (Note 3).

      On May 16, 2002, the Company acquired B2BVideo, a customer and equity investor of the Company (Note 4).

      On May 16, 2002, the Company entered into a Strategic Alliance Agreement and certain technology license agreements with Moneyline pursuant to which the Company will license software and network processes and sell video equipment to Moneyline. Moneyline will be the exclusive distributor of the Company’s equipment to the financial services market. As of December 31, 2002, the Company transferred $294,729 of demonstration and evaluation equipment to Moneyline. The Company had also incurred, on Moneyline’s behalf, approximately $110,000 in salary expenses relating to activities supporting the development of the Managed Video Services market. Moneyline has agreed to reimburse the Company in 2003 for these costs. Since its investment in the Company, in May 2002, Moneyline provided certain administrative, management and sales support services to the Company. The Chief Financial Officer of Moneyline also serves as the Chief Financial Officer of the Company. Moneyline’s policy has been only to charge back directly allocable costs of providing such support to the Company, as such the charge backs to the Company totaled $63,000 for 2002. Offsetting these charges is a credit of $85,000 relating to amounts previously paid by the Company for certain equipment which was subsequently not purchased.

      As a result of the transactions between Moneyline and the Company outlined in the preceding paragraph, the Company has a receivable from Moneyline as of December 31, 2002 of approximately $427,000.

18.  Subsequent Events

      On February 14, 2003, we purchased from Williams Communications, LLC (“WCLLC”) and Williams Communications Procurement, LP (together with WCLLC, the “Sellers”), each a wholly owned subsidiary of Wiltel Communications Group, Inc. (“WCG”). WCLLC’s webcasting business, including certain equipment and other assets used by WCLLC in this business for $750,000 in cash and $850,000 security on the leased space. The purchased webcasting business includes the production and distribution of multimedia presentation materials using streaming media technology.

      The acquisition of the webcasting business will enable the Company to provide a full suite of interactive multimedia services. The webcasting product suite, including Activecast and Talkpoint, allows for a broader reach within our targeted customers and provides ubiquity with distribution of voice and video over the internet. This service model does not require capital investment by the Company’s customers. Users can leverage the services and tool set by using standard internet browsers and media players. In addition to the new technology acquired, the transaction includes active customers, which the Company plans to leverage to market its legacy service and technology.

      In the first quarter of 2003, the Company implemented a restructuring of the VidPhone business to right size the expense base to take into account the Company’s anticipation of lower sales. The restructuring included:

•  Termination of 37 employees, primarily in sales, engineering and administrative capacities.

•  Transfer of three employees to Moneyline. Employees transferred are primarily focused on business and product development for the managed video service.

•  Remaining employees will solely focus on supporting the Moneyline Strategic Alliance Agreement (Note 17).

•  Transfer of direct sales responsibility for the VidPhone System to the direct sales team of the webcasting business.

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•  Election of Alexander Russo as Chairman of the Board of Directors, the appointment of Nicholas Balletta as President of the Company and his election as a director of the Company, and the appointment of Frank Joanlanne as the Senior Vice President Webcasting Services.

      During the last quarter of 2002, management, with the Board of Directors approval, made a decision to shutdown and cease all operations of B2BVideo. Subsequent to year-end, the Company commenced negotiations with the landlord of the B2BVideo office space to terminate the lease agreement.

F-29

Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

      Effective July 19, 2002, Video Network Communications, Inc. (the “Company”) dismissed Ernst & Young LLP (“E&Y”), as the Company’s independent public accountant. This decision was made by the Company’s board of directors in connection with the majority equity position taken in the Company by Moneyline Telerate Holdings.

      The report of E&Y on the financial statements of the Company since E&Y’s engagement on June 26, 2001 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report of the financial statements as of and for the year ended December 31, 2001 included an explanatory paragraph expressing substantial doubt regarding the Company’s ability to continue as a going concern. In addition, for the year ended December 31, 2001, E&Y identified a reportable condition in the Company’s internal controls relative to its ability to report in a timely manner as required under the Securities Exchange Act of 1934.

      From E&Y’s engagement on June 26, 2001 until their dismissal on July 19, 2002, there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or other auditing scope or procedure, which disagreements if not resolved to the satisfaction of E&Y would have caused them to make reference thereto in their report on the financial statements.

      Effective on July 19, 2002, the Company engaged Deloitte & Touche LLP (“D&T”) as its independent auditors to audit the Company’s financial statements, which engagement was approved by the Company’s board of directors. The Company has not consulted D&T regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-B.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act

      The information required by this Item 9 is incorporated in this report by reference from our definitive proxy statement for our 2003 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission no later than April 15, 2003. You will find our response to this Item 9 in the sections entitled “Directors and Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Election of Directors.”

Item 10.  Executive Compensation

      The information required by this Item 10 is incorporated by reference in this report from the sections of our proxy statement entitled “Executive Compensation” and “Directors and Executive Officers – Director Compensation.”

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The information required by this Item 11 is incorporated by reference in this report from the section of our proxy statement entitled “Security Ownership.”

Item 12.  Certain Relationships and Related Transactions

      The information required by this Item 12 is incorporated by reference in this report from the sections of our proxy statement entitled “Certain Transactions.”

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Item 13.  Exhibits and Reports on Form 8-K

(a) Exhibits

      The following exhibits are filed herewith or are incorporated herein by reference, as indicated.

2.1	Stock Purchase Agreement, dated May 16, 2001, by and among Moneyline Networks, LLC, B2BVideo Network Corp. and the Registrant (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2002 (the “May 2002 8-K”)).
2.2	Asset Purchase Agreement, dated as of January 27, 2003, by and among Video Network Communications, Inc., Williams Communications, LLC and Williams Communications Procurement, LP (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2002 (the “February 2003 8-K”)).
2.3	First Amendment to the Asset Purchase Agreement, dated as of February 14, 2003, by and among Video Network Communications, Inc., Wiltel Communications, LLC (formerly Williams Communications, LLC) and Williams Communications Procurement, LP (Incorporated by reference to Exhibit 2.2 to the February 2003 8-K).
3.1	Fourth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 (the “Third Quarter 1999 Form 10-QSB”) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended).
3.2+	Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation of the Registrant, dated February 5, 2002 (increasing the number of authorized shares).
3.3+	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation of the Registrant, dated February 5, 2002 (effecting a stock split).
3.4+	Amended and Restated Bylaws of the Registrant.
4.1	Form of Warrant for the purchase of shares of common stock, issued in connection with the private placement of $2,000,000 aggregate principal amount of Bridge Notes (Incorporated by reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “1997 SB-2”)).
4.2	Form of Warrant for the purchase of shares of common stock, issued in connection with the private placement of units in June 1995 and August 1996 (Incorporated by reference to Exhibit 3.5 to the 1997 SB-2).
4.3	Form of Warrants for the purchase of 100,000 shares of common stock, issued in connection with the private placement of Series A Convertible Preferred Stock and warrants in December 1996 and January 1997 (Incorporated by reference to Exhibit 3.7 to the 1997 SB-2).
4.4	Form of Option for the purchase of 180,000 shares of common stock, issued to Barington Capital Group, L.P. (Incorporated by reference to Exhibit 3.8 to the 1997 SB-2).
4.5	Form of Stock Option Agreement, dated December 18, 1997, by and between the Registrant and Barington Capital Group, L.P. (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 1997).
4.6	Specimen certificate evidencing shares of common stock of the Registrant (Incorporated by reference to Exhibit 4.2 to the 1997 SB-2).
4.7	Form of Warrant issued in connection with the Series B 5% Cumulative Convertible Preferred Stock of the Registrant (Incorporated by reference to Exhibit 4.11 to the Registrant’s Registration Statement on Form S-3 (File No. 333-62971) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “1998 S-3”).

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4.8	Form of Warrant for the purchase of 275,000 shares of common stock, issued to Sanmina Corporation (Incorporated by reference to Exhibit 4.12 to the 1998 Form 10-KSB).
4.9	Form of Warrant for the purchase of 40,000 shares of common stock, issued to Shaw Pittman (Incorporated by reference to Exhibit 4.13 to the 1998 Form 10-KSB).
4.10	Form of Unsecured Promissory Note, issued on February 4, 1999 to various subscribers in a private placement (Incorporated by reference to Exhibit 4.14 to the Registrant’s Registration Statement on Form SB-2 (File No. 333-72429) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “1999 Form SB-2”)).
4.11	Specimen certificate evidencing Redeemable Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.16 to the 1999 SB-2).
4.12	Form of Warrant Agreement (Incorporated by reference to Exhibit 4.17 to the 1999 Form SB-2).
4.13	Specimen certificate evidencing unit issued in connection with the Registrant’s June 1999 public offering of units (Incorporated by reference to Exhibit 4.18 to the 1999 Form SB-2).
4.14	Form of First Amendment to Warrant Agreement dated August 2000 by and among the Registrant, EarlyBirdCapital, Inc. and Continental Stock Transfer & Trust Company (Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated August 25, 2000 and filed with the Securities and Exchange Commission on August 28, 2000 under the Securities Exchange Act of 1934, as amended (the “August 2000 8-K”)).
4.15	Specimen certificate, as supplemented, evidencing Redeemable Stock Purchase Warrant (Incorporated by reference to Exhibit 4.4 to the August 2000 8-K).
4.16	Form of Placement Agent’s Purchase Option (Incorporated by reference to Exhibit 4.5 to the August 2000 8-K).
4.17	Warrant to Purchase 11,250,000 Shares (Subject to Adjustment) of Common Stock of Video Network Communications, Inc. between Video Network Communications, Inc., a Delaware corporation, and Moneyline Networks, LLC, a Delaware limited liability company, dated as of May 16, 2002 (Incorporated by reference to Exhibit 4.1 to the May 2002 8-K).
10.1*	1994 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the 1997 SB-2).
10.2*	1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to the 1997 SB-2).
10.3	Form of Consulting Agreement by and between the Registrant and Barington Capital Group, L.P. (Incorporated by reference to Exhibit No. 10.4 to the 1997 SB-2).
10.4	Letter Agreement, dated October 7, 1996, between Barington Capital Group and the Registrant (Incorporated by reference to Exhibit 10.5 to the 1997 SB-2).
10.5	Letter Agreement, dated December 5, 1995, by and among PVR Securities, Inc., the Registrant, Steven A. Rogers and John B. Torkelsen (Incorporated by reference to Exhibit 10.6 to the 1997 SB-2).
10.6	Form of Stock Option Agreement, dated December 18, 1997, by and between the Registrant and Barington Capital Group, L.P. (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-KSB, as amended, for the year ended December 31, 1997).
10.7	Strategic Alliance and Marketing Agreement between the Registrant and Unisys Corporation (Incorporated by reference to Exhibit 10.9 to the 1998 Form 10-KSB).
10.8	Agency Agreement, dated as of January 25, 1999, between Southeast Research Partners, Inc. and the Registrant (Incorporated by reference to Exhibit 10.11 to the 1999 Form SB-2).
10.9	Form of Subscription Agreement, dated January 25, 1999, between the Registrant and certain investors (Incorporated by reference to Exhibit 10.12 to the 1999 Form SB-2).

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10.10*	Employment Agreement, dated July 13, 1998, between the Registrant and James F. Bunker (Incorporated by reference to Exhibit 10.13 to the 1999 Form SB-2).
10.11	Letter Agreement dated January 12, 1999, between the Registrant and Sanmina Corporation (Incorporated by reference to Exhibit 10.15 to the 1998 Form 10-KSB).
10.12	Letter Agreement dated January 21, 1999 between the Registrant and Shaw Pittman Potts & Trowbridge (Incorporated by reference to Exhibit 10.16 to the 1998 Form 10-KSB).
10.13	Form of Letter Agreement between the Registrant and the holders of the 5% Convertible Debentures due 2003, dated May 1999 (Incorporated by reference to Exhibit 10.17 to the 1999 Form SB-2).
10.14*	Amendment to Employment and Consulting Agreement by and between the Registrant and James F. Bunker dated as of September 9, 1999 (Incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 1999).
10.15*+	Employment Agreement by and between the Registrant and Carl Muscari dated May 16, 2002.
10.17*+	Employment Agreement by and between the Registrant and Roger Booker dated November 1, 2002.
10.18*+	Employment Agreement by and between the Registrant and Nicholas Balletta dated February 19, 2003.
10.19*+	Employment Agreement by and between the Registrant and Frank Joanlanne, dated February 20, 2003.
10.20*	1999 Stock Incentive Plan (Incorporated by reference to Exhibit 10.15 to the Third Quarter 1999 Form 10-QSB).
10.21	Form of Agency Agreement dated August 2000 by and between the Registrant and EarlyBirdCapital, Inc. (Incorporated by reference to Exhibit 4.0 to the August 2000 8-K).
10.22	Form of Subscription Agreement/ Investor Information Statement dated August 2000 by and among the Registrant and certain Investors (Incorporated by reference to Exhibit 4.1 to the August 2000 8-K).
10.23	Form of Escrow Agreement dated August 2000 by and among the Registrant, EarlyBirdCapital, Inc. and Continental Stock Transfer & Trust Company (Incorporated by reference to Exhibit 4.3 to the August 2000 8-K).
10.24+	Stockholders Agreement, dated May 16, 2003, by and among Moneyline Networks, LLC, the Registrant and the Management Stockholders.
11.1+	Statement re: computation of per share earnings.
16.1	Letter, dated August 8, 2002 from Ernst & Young LLP to the Securities and Exchange Commission (Incorporated by reference to Exhibit 16.1 to the Form 8-K/ A filed with the Securities and Exchange Commission on August 8, 2002).
21+	Subsidiaries of the Registrant.
23.1+	Consent of Deloitte & Touche LLP.
23.2+	Consent of Ernst & Young LLP.
99.1+	Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Management contract or compensatory plan or arrangement.
+	Filed Herewith.

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(b) Reports on Form 8-K:

Current Report on Form 8-K, dated January 24, 2002 and filed with the Securities and Exchange Commission on January 25, 2002 reporting under Item 5 the completion of the Company’s third short-term bridge financing.

Current Report on Form 8-K, dated March 28, 2002 and filed with the Securities and Exchange Commission on April 5, 2002 reporting under Item 5 the completion of the Company’s fourth short-term bridge financing.

Current Report on Form 8-K, dated April 12, 2002 and filed with the Securities and Exchange Commission on April 12, 2002 reporting under Item 5 the delay in the filing of the Company’s Form 10-KSB for 2002 and projecting its submission within thirty days.

Current Report on Form 8-K, dated May 16, 2002 and filed with the Securities and Exchange Commission on May 17, 2002 reporting under Item 5 a copy of a press release announcing Video Network Communications, Inc.’s had entered into a Stock Purchase Agreement with Moneyline Telerate Holdings and an Agreement and Plan of Merger with B2BVideo Network, Corp.

Current Report on Form 8-K, dated May 20, 2002 and filed with the Securities and Exchange Commission on May 20, 2002 reporting under Item 5 (i) a filing with respect to its restructuring and merger transaction, and (ii) that the Company expected to file its Form 10-QSB within five to ten days.

Current Report on Form 8-K, dated May 16, 2002 and filed with the Securities and Exchange Commission on May 28, 2002 reporting under Item 1 (i) the indirect acquisition by Moneyline Telerate Holdings (“Moneyline”) of 25,000,000 newly-issued shares of the Company’s common stock; (ii) the issuance to Moneyline of warrants to purchase an additional 1,250,000 shares of Common Stock.

Current Report on Form 8-K, dated July 19, 2002 and filed with the Securities and Exchange Commission on July 25, 2002 reporting under Item 4 (i) the dismissal of the Company’s independent public accountants, Ernst & Young LLP (“E&Y”); and (ii) the Company’s engagement of Deloitte & Touche LLP (“D&T”) as its independent public accountants.

Current Report on Form 8-K/ A, dated July 19, 2002 and filed with the Securities and Exchange Commission on July 30, 2002 reporting under Item 4 that with respect to the Company’s July 25, 2002 filing regarding the change to the Company’s independent public accountants.

Current Report on Form 8-K/ A, dated July 19, 2002 and filed with the Securities and Exchange Commission on July 30, 2002 reporting under Item 4 with respect to the Company’s July 25, 2002 and July 30, 2002 Current Report on Form 8-K filings regarding the change to the Company’s independent public accountants.

Current Report on Form 8-K, dated May 16, 2002 and filed with the Securities and Exchange Commission on September 4, 2002 reporting under Item 5 (i) audited financial statements for B2BVideo Network Corp. (“B2BVideo”) for the years ended December 31, 2001 and 2000, (ii) B2BVideo’s unaudited financial statements for the three months ended March 31, 2002 and (iii) the Company’s unaudited pro forma condensed combined financial information giving effect to the merger of B2BVideo with and into the Company.

Current Report on Form 8-K/ A, dated May 16, 2002 and filed with the Securities and Exchange Commission on September 9, 2002 reporting under Item 5 the amendment of the Current Report on Form 8-K filed on September 4, 2002 with respect to the Company’s unaudited pro forma condensed combined financial information giving effect to the merger of B2BVideo with and into the Company.

-32-

Item 14.  Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Our senior management team, led by our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) within 90 days of the filing date of this report, has concluded that there were deficiencies in the operation of our internal controls which adversely affected our ability to record, process, summarize and report financial data.

(b)

Changes in Internal Controls. As a result of the conclusions discussed above, under the direction of the Audit Committee and the Board of Directors, we are in the process of determining the appropriate corrective action to strengthen our internal controls and procedures to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and accurately reported, within the time periods specified in the SEC’s rules and forms.

-33-

SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there under duly authorized.

Date: April 11, 2003

VIDEO NETWORK COMMUNICATIONS, INC.

(Registrant)

By:  /s/ CARL MUSCARI

Carl Muscari

Chief Executive Officer

      In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the dates indicated.

Signatures	Title	Date
/s/ ALEXANDER RUSSO Alexander Russo	Chairman of the Board	April 11, 2003
/s/ CARL MUSCARI Carl Muscari	Chief Executive Officer, Director	April 11, 2003
/s/ LAWRENCE KINSELLA Lawrence Kinsella	Chief Financial Officer	April 11, 2003
/s/ CHARLES F. AUSTER Charles F. Auster	Director	April 11, 2003
/s/ NICHOLAS BALLETTA Nicholas Balletta	Director	April 11, 2003
/s/ BERNARD BATTISTA Bernard Battista	Director	April 11, 2003
/s/ EUGENE R. CACCIAMANI Eugene R. Cacciamani	Director	April 11, 2003
/s/ DAVID WALSH David Walsh	Director	April 11, 2003

-34-

CERTIFICATIONS

I, Carl Muscari, Chief Executive Officer of Video Network Communications, Inc. (“VNCI”), certify that:

1.	I have reviewed this annual report on Form 10-KSB of VNCI;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      (a)  Designed such disclosure controls and procedures to ensure that material information relating to the ( registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

      (b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

      (c)  Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

      (a)  All significant deficiencies in the design or operation of internal controls which could adversely ( affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      (b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 11, 2003

/s/ CARL MUSCARI

Name: Carl Muscari

Title: Chief Executive Officer

-35-

I, Lawrence Kinsella, Chief Financial Officer of Video Network Communications, Inc. (“VNCI”), certify that:

1.	I have reviewed this annual report on Form 10-KSB of VNCI;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      (a)  Designed such disclosure controls and procedures to ensure that material information relating to the ( registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

      (b)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

      (c)  Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

      (a)  All significant deficiencies in the design or operation of internal controls which could adversely ( affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

      (b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 11, 2003

/s/ LAWRENCE KINSELLA

Name: Lawrence Kinsella

Title: Chief Financial Officer

-36- EX-3.2 3 w85133exv3w2.htm CERTIFICATE OF AMENDMENT

Exhibit 3.2

CERTIFICATE OF AMENDMENT

OF THE

FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

VIDEO NETWORK COMMUNICATIONS, INC.

(FORMERLY OBJECTIVE COMMUNICATIONS, INC.)

               Video Network Communications, Inc. (the “Corporation”), a corporation duly organized and existing under the General Corporation Law of the State of Delaware, does, by Carl Muscari, its Chairman, President & Chief Executive Officer and attested to by Robert H. Emery, its Chief financial Officer, Vice President, Administration, and Secretary, under its corporate seal, hereby certify that;

        1. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on October 5, 1993.

        2. Pursuant to Sections 141 and 242 of the General Corporation Law of the State of Delaware, by unanimous written consent in lieu of a Special Meeting of the board of Directors of the Corporation dated November 29, 2001, the Board of Directors of the Corporation found that the following proposed amendment of the Certificate of Incorporation of the Corporation (as previously restated and amended) was advisable and in the best interests of the Corporation and directed that the following proposed amendment be submitted for consideration and action thereon by the stockholders of the Corporation:

        Article Fourth of the Certificate of Incorporation of the Corporation (as previously restated and amended) shall be deleted in its entirety and the following paragraph shall be substituted in lieu thereof:

“The total number of shares which the Corporation shall have authority to issue is ninety-two million five hundred thousand (92,500,000) shares of capital stock, of which ninety million (90,000,000) shares shall be common stock, par value of $0.01 per share (“Common Stock”), and two million five hundred thousand (2,500,000) shall be preferred stock, par value $0.01 per share (“Preferred Stock”).

        3. Pursuant to Sections 211 and 242 of the General Corporation Law of the State of Delaware, at a Special Meeting held on February 4, 2002, the holders of a majority of the outstanding shares of capital stock of the Corporation voted in favor of, approved and adopted the foregoing proposed amendment of the Certificate of Incorporation of the Corporation (as previously restated and amended).

        4. The foregoing amendment of the Certificate of Incorporation of the Corporation (as previously restated and amended) was duly adopted in accordance with the provisions of Sections 141, 211, 242(b)(1) and 242(b)(2) of the General Corporation Law of the State of Delaware.

               IN WITNESS WHEREOF, the Corporation ahs caused this Certificate of Amendment to be signed and executed in its corporate name by its Chairman, President & Chief Executive Officer and attested to by its Chief Financial Officer, Vice president, Administration, and Secretary, who declare, affirm, acknowledge and certify, under the penalties of perjury, that this is their free act and deed and that the facts stated herein are true and caused its corporate seal to be hereunto affixed, as of the 5^th day of February, 2002.

Dated: February 5, 2002

ATTEST:	VIDEO NETWORK COMMUNICATIONS, INC
		(formerly Objective Communications, Inc.), a Delaware corporation
/s/ Robert H. Emery	By:    /s/ Carl Muscari
Robert H. Emery Chief Financial Officer, Vice President, Administration, and Secretary		Carl Muscari, Chairman, President & Chief Executive Officer

EX-3.2

exv3w2

EX-3.3

Exhibit 3.3

CERTIFICATE OF AMENDMENT

OF THE

FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

VIDEO NETWORK COMMUNICATIONS, INC.

(FORMERLY OBJECTIVE COMMUNICATIONS, INC.)

     Video Network Communications, Inc. (the “Corporation”), a corporation duly organized and existing under the General Corporation Law of the State of Delaware, does, by Carl Muscari, its Chairman, President & Chief Executive Officer and attested to by Robert H. Emery, its Chief Financial Officer, Vice President, Administration, and Secretary, under its corporate seal, hereby certify that:

     1. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on October 5, 1993.

     2. Pursuant to Sections 141 and 242 of the General Corporation Law of the State of Delaware, at a special telephonic meeting of the Board of Directors of the Corporation duly convened and held on December 26, 2001, the Board of Directors of the Corporation found that the following proposed amendment of the Certificate of Incorporation of the Corporation (as previously restated and amended) was advisable and in the best interests of the Corporation and directed that the following proposed amendment be submitted for consideration and action thereon by the stockholders of the Corporation:

     A new Article Fifth shall be inserted between the current Article Fourth and Article Fifth of the Certificate of Incorporation of the Corporation (as previously restated and amended) and the existing Article Fifth and subsequently numbered Articles shall be renumbered sequentially, such new Article Fifth to read as follows:

“ARTICLE FIFTH

Common Stock

     At the time at which this Fifth Amended and Restated Certificate of Incorporation (the “Amended Certificate”) becomes effective (the “Effective Date”), each five (5) shares of authorized Common Stock issued and outstanding or held in the treasury of the Corporation immediately prior to the Effective Date shall automatically be reclassified and converted into one (1) validly issued, fully paid and non-assessable share of Common Stock of the Corporation, par value $0.01 (a “New Share”). Each holder of record of shares of Common Stock so reclassified and converted

     shall on the Effective Date automatically become the record owner of the number of New Shares as shall result from such reclassification and conversion. Each such record holder shall be entitled to receive, upon the surrender of the certificate or certificates representing the shares of Common Stock so reclassified and converted at the office of the transfer agent of the Corporation in such form and accompanied by such documents, if any, as may be prescribed by the transfer agent of the Corporation, a new certificate or certificates representing the number of New Share of which he, she or it is the record owner after giving effect to the provisions of the Article Fifth. The Corporation shall not issue fractional New Shares. Stockholders entitled to receive fractional New Shares shall receive, in lieu thereof, cash in an amount equal to the product of (a) the number of shares of the Common Stock held by such holder immediately prior to the Effective Date which have not been classified into a whole New Share, (b) multiplied by the closing price per share of the Common Stock as reported on the Over the Counter Bulletin Board (the “OTC”) (or such other quotation or listing system on which the Common Stock may then be listed or quoted) on the last business day prior to the Effective Date on which such closing price was published by the OTC.”

     3. Pursuant to Section 211 and 242 of the General corporation Law of the State of Delaware, at a Special Meeting held on February 4, 2002, the holders of a majority of the outstanding shares of capital stock of the Corporation voted in favor of, approved and adopted the foregoing proposed amendment of the Certificate of Incorporation of the Corporation (as previously restated and amended).

     4. The foregoing amendment of the Certificate of incorporation of the Corporation (as previously restated and amended) was duly adopted in accordance with the provisions of Sections 141, 211, 242(b)(1) and 242 (b)(2) of the General Corporation Law of the State of Delaware.

2

     IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed and executed in its corporate name by its Chairman, President & Chief Executive Officer and attested to by its Chief Financial Officer, Vice President, Administration, and Secretary, who declare, affirm, acknowledge and certify, under the penalties of perjury, that this is their free act and deed and that the facts stated herein are true and caused its corporate seal to be hereunto affixed, as of the 5th day of February, 2002.

Dated: February 5, 2002

ATTEST:	VIDEO NETWORK COMMUNICATIONS, INC (formerly Objective Communication, Inc.) a Delaware corporation
/s/ Robert H. Emery Robert H. Emery Chief Financial Officer, Vice President, Administration, and Secretary	By: /s/ Carl Muscari Carl Muscari Chairman, President & Chief Executive Officer

3 EX-3.4 5 w85133exv3w4.htm AMENDED AND RESTATED BYLAWS

Exhibit 3.4

AMENDED AND RESTATED BY-LAWS
OF
VIDEO NETWORK COMMUNICATIONS, INC.
(the “Corporation”)
EFFECTIVE May 16, 2002

ARTICLE I

OFFICES

     Section 1. Registered Office. The registered office of the Corporation shall be at 1209 Orange Street, Wilmington, Delaware, County of New Castle.

     Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine.

ARTICLE II
MEETINGS OF STOCKHOLDERS

     Section 1. Certain Definitions. For the purposes of these By-Laws:

     "Common Stock” means the Common Stock, par value $.01 per share, of the Corporation, any securities into which such Common Stock shall have been changed or any securities resulting from any reclassification or recapitalization of such Common Stock, and all other securities of any class or classes (however designated), other than any participating preferred stock, of the Corporation the holders of which have the right, without limitation as to amount, after payment on any securities entitled to a preference on dividends or other distributions upon any dissolution, liquidation or winding-up, either to all or to a share of the balance of payments upon such dissolution, liquidation or winding-up;

     "Independent Director” means a director of the Corporation who is not a Moneyline Nominee and who (i) is not an officer, employee or director of any of Moneyline or its Affiliates, and (ii) has no affiliation or compensation, consulting or contractual relationship with Moneyline or its Affiliates such that a reasonable person would regard such director as likely to be unduly influenced by any of such Persons.

     "Management Stockholders” means any director, officer, employee, consultant or agent of the Corporation or any of its subsidiaries which has executed a Restricted Stock Purchase Agreement and a Joinder Agreement, so long as any such Person shall hold Restricted Securities;

     "Moneyline” means Moneyline Networks, LLC, a Delaware limited liability company;

     "Moneyline Stockholders” means Moneyline and each Person to whom Moneyline Transfers any Restricted Securities, so long as any such Person shall hold Restricted Securities;

     "OEP” means One Equity Partners LLC, a Delaware limited liability company;

     "Person” means an individual, partnership, corporation, limited liability company or partnership, trust, unincorporated organization, joint venture, government (or agency or political subdivision thereof) or any other entity of any kind;

     "Restricted Securities” means (i) with respect to Moneyline and OEP, the Common Stock, any other securities exercisable, exchangeable or convertible for or into Common Stock and any securities issued with respect to any of the foregoing as a result of any stock dividend, stock split, reclassification, recapitalization, reorganization, merger, consolidation or similar event or upon the conversion, exchange or exercise

2

thereof and any other securities designated as such by the Board of Directors; and (ii) with respect to the Management Stockholders, any shares of Common Stock issued pursuant to a Restricted Stock Purchase Agreement;

     "Restricted Stock Purchase Agreements” means the Restricted Stock Purchase Agreements entered into, at any time or from time to time on or after the date of the Stockholders Agreement, by the Corporation and any Management Stockholder, as any such agreement may be amended, restated or modified from time to time, and any other agreement designated as such by the Corporation;

     "Stockholders” means each of the Moneyline Stockholders and the Management Stockholders; and

     "Transfer” means, directly or indirectly, any sale, transfer, assignment, hypothecation, pledge or other disposition of any Restricted Securities or any interests therein.

     Section 2. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors.

     Section 3. Annual Meetings. The Annual Meetings of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the Annual Meeting of Stockholders.

     Section 4. Special Meetings. Unless otherwise required by law or by the certificate of incorporation of the Corporation, as amended and restated from time to time

3

(the “Certificate of Incorporation”), Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Chairman, if there be one, or (ii) the President, (iii) any Vice President, if there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be one, and shall be called by any such officer at the request in writing of (i) the Board of Directors, (ii) a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority include the power to call such meetings or (iii) stockholders owning a majority of the capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto).

     Section 5. Notice. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.

     Section 6. Adjournments. Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the

4

adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

     Section 7. Quorum. Unless otherwise required by law or the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 6, until a quorum shall be present or represented.

     Section 8. Voting. Unless otherwise required by law, the Certificate of Incorporation or these By-laws, any question brought before any meeting of stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the capital stock represented and entitled to vote thereat, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, and subject to Section 5 of Article V hereof, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.

5

     Section 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section 9 to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in the state of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written

6

consents signed by a sufficient number of holders to take the action were delivered to the Corporation as provided above in this section.

     Section 10. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

     Section 11. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 10 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

     Section 12. Conduct of Meetings. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to

7

prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.

     Section 13. Significant Transactions. For so long as the Moneyline Stockholders own 25% or more of the shares of Common Stock of the Corporation, the consent of Moneyline shall be required prior to entering into any of the following transactions:

     (a) the authorization, issuance or sale of any capital stock or debt securities or securities exercisable, convertible or exchangeable for or into capital stock or debt securities or any option, warrant or other right to acquire the same, of, or any other interest in, the Corporation or any subsidiary of the Corporation, other than securities issued pursuant to existing option plans, securities issued upon exercise of convertible securities existing as of the date hereof, or any amendment or modification of any security of the Corporation or

8

     any subsidiary of the Corporation, whether or not outstanding as of the date hereof;

     (b) the redemption, purchase or other acquisition of any securities of the Corporation or any subsidiary of the Corporation;

     (c) any amendment to, or modification, repeal or waiver of any provision of, the Certificate of Incorporation or By-laws of the Corporation or any subsidiary of the Corporation;

     (d) the declaration or payment of any dividend or other distribution by the Corporation with respect to the capital stock of the Corporation;

     (e) the entering into, or the adoption of any amendment to or modification, repeal or waiver of, any provision of any compensation plan, arrangement, contract or agreement relating to the compensation of, or other benefits arrangements for, any employee of the Corporation or any subsidiary of the Corporation, in each case, other than ordinary course salary arrangements for non-executive officers;

     (f) the dissolution, liquidation or winding-up of the Corporation or any subsidiary of the Corporation;

     (g) the commencement, initiation, continuation or settlement of any suit, action or proceeding before any court, governmental or regulatory agency or arbitral body, relating to the Corporation or any subsidiary of the Corporation and involving amounts in excess of $250,000;

9

     (h) the appointment or removal of the independent auditors of the Corporation or any subsidiary of the Corporation or modification of significant accounting methods or policies of the Corporation or any subsidiary of the Corporation;

     (i) the adoption of any significant change to the business plan and budget of the Corporation;

     (j) the filing of a voluntary petition in bankruptcy or commencement of a voluntary legal procedure for reorganization, arrangement, adjustment, relief or composition of indebtedness or other similar law now or hereafter in effect, the consent to the entry of an order for relief in an involuntary case under such law or the application for or consent to the appointment of a receiver, liquidator, assignee, custodian or trustee (or similar official) of the Corporation or any subsidiary of the Corporation;

     (k) any merger, consolidation, recapitalization or other business combination to which the Corporation or any subsidiary of the Corporation is a party or any sale of all or substantially all of the assets of the Corporation or any subsidiary of the Corporation;

     (l) the appointment or removal of any executive officer of the Corporation or any subsidiary of the Corporation;

     (m) the establishment of any committee of the Board;

     (n) the acquisition by the Corporation or any subsidiary of the Corporation of any equity securities of any Person or securities convertible into or exercisable or exchangeable for an equity interest in any Person, including,

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     without limitation, any other instrument of Indebtedness issued by any Person, where the aggregate purchase price of such securities, whether in one or a series of related transactions, is greater than $250,000;

     (o) the acquisition of any assets by the Corporation or any subsidiary of the Corporation in a single transaction or series of related transactions having a value in excess of $250,000 in the aggregate; and

     (p) taking any action, directly or indirectly, in contemplation of any of the foregoing.

ARTICLE III

DIRECTORS

     Section 1. Number and Election of Directors; Classified Board.

     The Board of Directors shall consist of seven (7) members; except that, for so long as the Moneyline Stockholders own 25% or more of the shares of Common Stock of the Corporation, if the Moneyline Stockholders request, at any time or from time to time, that the number of individuals constituting the Board of Directors be changed, by written notice delivered to the Corporation, the size of the Board shall be changed to such number.

     For so long as the Moneyline Stockholders own 50% or more of the shares of Common Stock or any other voting securities of the Corporation, each Stockholder shall vote or cause to be voted all shares of Common Stock and any other voting securities of the Corporation over which such Stockholder has voting control, at any regular or special meeting of stockholders called for the purpose of filling positions on the Board, or execute a written consent in lieu of such a meeting of stockholders for the

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purpose of filling positions on the Board, and shall take all actions necessary, to ensure the election to the Board of four (4) individuals to be designated by Moneyline (each, a “Moneyline Nominee”, and collectively, the “Moneyline Nominees”), the Chief Executive Officer of the Corporation (the “CEO”) and two (2) Independent Directors.

     For so long as the Moneyline Stockholders own less than 50% but at least 25% of the shares of Common Stock or any other voting securities of the Corporation owned by Moneyline on the date hereof, each Stockholder shall vote or cause to be voted all shares of Common Stock and any other voting securities of the Corporation over which such Stockholder has voting control, at any regular or special meeting of stockholders called for the purpose of filling positions on the Board, or execute a written consent in lieu of such a meeting of stockholders for the purpose of filling positions on the Board, and shall take all actions necessary, to ensure the election to the Board of three (3) Moneyline Nominees, the CEO and three (3) Independent Directors.

     For so long as the Moneyline Stockholders own less than 25% of the shares of Common Stock or any other voting securities of the Corporation owned by Moneyline on the date hereof, each Stockholder shall vote or cause to be voted all shares of Common Stock and any other voting securities of the Corporation over which such Stockholder has voting control, at any regular or special meeting of stockholders called for the purpose of filling positions on the Board, or execute a written consent in lieu of such a meeting of stockholders for the purpose of filling positions on the Board, and shall take all actions necessary, to ensure the election to the Board of a number of Moneyline Nominees that is proportionate to the number of shares of Common Stock or any other voting securities of the Corporation held by the Moneyline Stockholder, the CEO and

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such number of Independent Directors as is necessary to fill any remaining position on the Board.

     The Board of Directors shall be divided into three classes, as nearly equal in number as the then-authorized number of directors constituting the Board permits, with the term of office of one class expiring each year and with each director serving for a term ending at the third annual meeting of stockholders following the annual meeting at which such director was elected. Members of each class shall hold office until their successors are elected and qualified. At each succeeding annual meeting of the stockholders of the Corporation, the successors of the class of directors whose term expires at the meeting shall be elected by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders.

     Section 2. Vacancies. Unless otherwise required by law, these By-Laws or the Certificate of Incorporation, any vacancy on the Board resulting from the resignation or removal of a director may be filled by the remaining members of the Board of Directors, and the director so chosen shall hold office for the remainder of the full term of the resigning or removed director’s seat. Notwithstanding the foregoing, in the event that a vacancy is created on the Board at any time by the death, disability, retirement, resignation or removal (with or without cause) of a director who is a Moneyline Nominee, the Moneyline Stockholders may designate a new Moneyline Nominee to fill the vacancy.

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     Section 3. Duties and Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders.

     Section 4. Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President, or by any director. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.

     Section 5. Quorum. Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.

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     Section 6. Actions by Written Consent. Unless otherwise provided in the Certificate of Incorporation, or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

     Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided in the Certificate of Incorporation, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting.

     Section 8. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. For so long as a Moneyline Nominee shall be a member of the Board, each committee of the Board, including the executive, audit, nominating and compensation committees, shall include at least one Moneyline Nominee at all times. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting

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and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required.

     Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

     Section 10. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because the director or officer’s vote is counted for such purpose if (i) the material facts as to the director or officer’s

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relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

     Section 11. Removal.

     (a)  No director that is a Moneyline Nominee shall be removed without cause unless the Moneyline Stockholders that designated such Moneyline Nominee pursuant to Article III, Section 1 request, by written notice to the other Stockholders, that such Nominee elected as a director be removed.

     (b)  If at any time a member of the Board resigns or is removed (in accordance with this Article III, Section 11, or otherwise), a new member of the Board shall be designated to replace such member until the next election of directors. If consistent with Article III, Section 1, the replacement director is to be a Moneyline Nominee, the Moneyline Stockholders shall designate the replacement Moneyline Nominee. If the former member was the CEO, the replacement CEO shall be the

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replacement. Except as set forth in Section 11(d) below, if consistent with Article III, Section 1, the replacement director is to be an Independent Director, the remaining members of the Board shall designate the replacement Independent Director.

     (c)  Subject to Section 11(d) below, if at any time the number of Moneyline Nominees entitled to be nominated to the Board in accordance with this Agreement in an election of directors presented to stockholders would decrease, within 10 days thereafter the Moneyline Stockholders shall cause a sufficient number of Moneyline Nominees to resign from the Board so that the number of Moneyline Nominees on the Board after such resignation(s) equals the number of Moneyline Nominees that the Moneyline Stockholders would have been entitled to designate had an election of directors taken place at such time. The Moneyline Stockholders shall also cause a sufficient number of Moneyline Nominees to resign from any relevant committees of the Board so that such committees are comprised in the manner contemplated by Article III, Section 8, after giving effect to such resignations. Any vacancies created by the resignations required by this Section 11(c) shall be filled by Independent Directors.

     (d)  If at any time the percentage of Common Stock or other voting securities of the Corporation held by the Moneyline Stockholders decreases as a result of an issuance of Common Stock or other voting securities of the Corporation, the Moneyline Stockholders may notify the Corporation that the Moneyline Stockholders intend to acquire a sufficient amount of additional shares of Common Stock or other voting securities of the Corporation necessary to maintain the Moneyline Stockholders then current level of Board representation within twenty (20) business days. In such

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event, until the end of such period (and thereafter if the Moneyline Stockholders in fact restore their percentage of Common Stock or other voting securities of the Corporation during such period to maintain the requisite level of ownership of Common Stock or other voting securities in accordance with Article III, Section 1), the Board shall continue to have the number of Moneyline Nominees as prior to such issuance of Common Stock or other voting securities of the Corporation.

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ARTICLE IV

OFFICERS

     Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall include a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law or the Certificate of Incorporation. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.

     Section 2. Election. The Board of Directors, at its first meeting held after each Annual Meeting of Stockholders (or action by written consent of stockholders in lieu of the Annual Meeting of Stockholders), shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.

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     Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.

     Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, unless the Board of Directors designates the President as the Chief Executive Officer, and, except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of

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Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors.

     Section 5. President. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. If there be no Chairman of the Board of Directors, or if the Board of Directors shall otherwise designate, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors.

     Section 6. Vice Presidents. At the request of the President or in the President’s absence or in the event of the President’s inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there is more than one (in the order designated by the Board of Directors), 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. Each Vice President shall

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perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, 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.

     Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer’s signature. The Secretary shall see that all books,

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reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

     Section 8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer’s possession or under the Treasurer’s control belonging to the Corporation.

     Section 9. Assistant Secretaries. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary’s disability

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or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

     Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer’s disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer’s possession or under the Assistant Treasurer’s control belonging to the Corporation.

     Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.

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ARTICLE V

STOCK

     Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation.

     Section 2. Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

     Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or the owner’s legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the

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Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate.

     Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.

     Section 5. Record Date.

     (a)  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;

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providing, however, that the Board of Directors may fix a new record date for the adjourned meeting.

     (b)  In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolutions taking such prior action.

     (c)  In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change,

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conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

     Section 6. Record Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.

ARTICLE VI

NOTICES

     Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person’s address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable.

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     Section 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

ARTICLE VII

GENERAL PROVISIONS

     Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 6 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

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     Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

     Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.

     Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

INDEMNIFICATION

     Section 1. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably

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believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

     Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon

32

application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

     Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

33

     Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.

     Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such

34

indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

     Section 6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII.

     Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity

35

and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.

     Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.

     Section 9. Certain Definitions. For purposes of this Article VIII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a

36

director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII.

     Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

     Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part

37

thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

     Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.

ARTICLE IX

AMENDMENTS

     Section 1. Amendments. Except as otherwise provided in this Article IX, these By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. Those provisions of these By-Laws reflecting the terms of Article III of the Stockholders Agreement, dated as of May 16, 2002, between Moneyline Networks, LLC, and the Company, may not be amended during the term of such agreement without the express written consent of the Moneyline Stockholders.

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     Section 2. Entire Board of Directors. As used in this Article IX and in these By-Laws generally, the term “entire Board of Directors” means the total number of directors which the Corporation would have if there were no vacancies.

* * *

39 EX-10.15 6 w85133exv10w15.htm EMPLOYMENT AGREEMENT-MUSCARI

Exhibit 10.15

May 16, 2002

Dear Carl Muscari:

This Letter Agreement will confirm our offer of employment with Video Network Communications, Inc. (the “Company”) on the following terms and conditions:

1.	Employment. This Letter Agreement will govern the terms and conditions of your employment commencing on the date hereof (the “Effective Date”) until your employment is terminated pursuant to paragraph 7 below. The period during which you are actually employed by the Company is referred to as the “Employment Period”.
2.	Position; Duties. You will be employed by the Company as its Chief Executive Officer. You will report to the Board of Directors of the Company (the “Board”) or such persons as designated by the Board, and shall perform the customary duties of a CEO and such other duties that may from time to time be assigned to the you. You agree to use your best efforts to perform such duties faithfully, to devote all of your working time, attention and energies to the businesses of the Company, and while you remain employed, not to engage in any other business activity that is in conflict with your duties and obligations to the Company. Notwithstanding anything to the contrary contained herein, nothing in this Letter Agreement shall preclude you from participating in the affairs of any governmental, educational or other charitable institution, engaging in professional speaking and writing activities, and serving as a member of the board of directors of a publicly-held corporation so long as the Board, in good faith, does not determine that such activities unreasonably interfere with the business of the Company or diminish your obligations under this Letter Agreement.
3.	Base Salary. You will be paid a base salary (“Base Salary”) at an annual rate of $200,000, payable in accordance with the Company’s normal payroll practices. Your Base Salary will be reviewed at least annually, and may be subject to upward adjustment at the discretion of the Board (or a committee thereof). Your Base Salary shall not be decreased unless there are proportional decreases in salary imposed on all of the Company’s executive employees because the Company’s financial performance dictates such decreases.
4.	Annual Bonus. In addition to the Base Salary, you shall have the opportunity to earn an annual bonus for each fiscal year of the Company that ends during the Employment Period (the “Bonus Award”) of up to 50% of your Base Salary paid during such year based on achievement of targeted level of performance, as established in advance by the Board or a committee thereof. The Board, in its discretion, may award a higher bonus for any year for performance that exceeds

	target levels. To the extent performance goals are based on the achievement of financial targets, the Board (or a committee thereof) shall determine whether such targets are satisfied based on the audited consolidated financial statements of the Company, and the determination by the Board (or a committee thereof) shall be final and binding. In making such determination, the Board (or a committee thereof) may make adjustments to the audited numbers or to the targets themselves to take into account unusual or non-recurring events, including, without limitation, acquisitions and divestitures.
5.	Stock Options. You shall be granted the option to purchase 150,000 shares of VNCI common stock at an exercise price of $0.60 per share pursuant to VNCI’s Stock Option Plan. Notwithstanding any contrary term contained in the Stock Option Plan, 25% of the options granted herein shall vest immediately upon the Effective Date however, the vested shares shall not be exercisable until the one year anniversary of the Agreement.
6.	Benefits. You will be provided with such retirement benefits, fringe benefits and insurance coverages as are made available to officers of the Company generally. In addition, you will be provided with supplemental disability insurance as mutually agreed by you and the Company. You shall be entitled to vacation at the rate of three (3) weeks per year in accordance with the Company’s vacation policy.
7.	Termination.

        (a) General. You will be free to resign from the Company at any time, and the Company will be free to terminate your employment at any time.

        (b) Termination Without Severance Benefits. In the event your employment with the Company is terminated by reason of (i) your resignation without “Good Reason” (as defined below), (ii) your death, (iii) your “Disability” (as defined below), or (iv) your discharge by the Company for “Cause” (as defined below), this Letter Agreement shall terminate including, without limitation, the Company’s obligations to provide any compensation, benefits or severance to you under this Letter Agreement, other than any amounts earned and payable to you but not yet paid.

        (c) Termination With Severance Benefits. In the event the Company terminates your employment other than for Cause, or you terminate this Letter Agreement for Good Reason, then in lieu of any other severance benefits otherwise payable under any Company policy, or any other damages payable in connection with such termination, you will be entitled to receive (i) continued payment of your Base Salary for one (1) year, (ii) at the end of such one year period, a lump sum payment equal to a pro rata share of your Bonus Award (based upon the number of days employed in your final fiscal year of employment

prior to such termination), if any, paid pursuant to paragraph 4 for the fiscal year ending immediately preceding such termination, and (iii) for a period of one (1) year after termination of your employment, direct payment by the Company to the carrier of the premiums due for any health insurance continuation coverage elected by you under the Company’s group health plans.

        (d) Compliance and Release. Your right to the payments in paragraph 7(c) hereof shall be conditional upon (i) your continuing compliance with the restrictive covenants and provisions contained in paragraph 8, and (ii) your execution of a customary and reasonable release of claims in favor of the Company and its Affiliates, in a form prescribed by the Company.

        (e) Liquidated Damages. The Company and you hereby stipulate that the damages which may be incurred by you as a consequence of any termination of employment are not capable of accurate measurement as of the date first written above and that the liquidated damages payments provided for in this Letter Agreement constitute a reasonable estimate under the circumstances of and are in full satisfaction of, all damages sustained as a consequence of any termination of employment.

        (f) Definition of “Cause”. For purposes of this Letter Agreement, “Cause” means an omission, act or action or series of omissions, acts or actions by you which, in the determination of the Company, constitute(s), cause(s) or result(s) in (i) your material dishonesty including, without limitation, theft, fraud, embezzlement, financial misrepresentation or other similar behavior or action in your dealings with or with respect to the Company or any Affiliate thereof or entity with which the Company or any Affiliate thereof, shall be engaged in or be attempting to engage in commerce; (ii) your conviction for, or the your entry of a plea of guilty or nolo contendere to, the commission of a felony; (iii) your willful refusal to follow the lawful directives of the Company with respect to your duties hereunder, which directives shall be consistent with your duties and position as an officer of the Company, as set forth in this Letter Agreement, and which refusal is not cured by you within thirty (30) calendar days after written notice from the Board to you setting forth with reasonable specificity the nature thereof; or (iv) the material breach of any provision of this Letter Agreement which is not cured by you within thirty (30) calendar days after written notice from the Company to you setting forth with reasonable specificity the nature of such breach. For purposes of this Letter Agreement, “Affiliate” shall have the meaning assigned to it in the Stockholders Agreement, dated as of May 16, 2002, by and among VNCI, Moneyline Telerate Holdings and the other signatories thereto (the “Stockholders Agreement”).

        (g) Definition of “Good Reason”. For purposes of this Letter Agreement, “Good Reason” may only be claimed by you following a “Sale of the Company,” except with regard to (iii) below, and means either (i) the assignment to you, without your written approval, of duties or responsibilities materially inconsistent with your position as CEO, (ii) any material reduction in your duties,

responsibilities or authority from those in effect on the date hereof, or (iii) a demand by the Company to relocate your principal place of employment to a location greater than fifty (50) miles from both of (a) your current principal place of employment, and (b) your current residence; provided, however, that the occurrence of any of (i), (ii) or (iii) shall not constitute Good Reason unless written notice from you to the Board setting forth with reasonable specificity the nature of such assignment or reduction is given within 60 calendar days after the date on which such assignment, reduction, or change in location first occurs and such assignment or reduction is not cured or otherwise mutually resolved within 30 calendar days after such written notice is delivered to the Board. For purposes of this Letter Agreement, “Sale of the Company” shall mean a change in control of VNCI exceeding 50% of the voting rights of the Company.

        (h) Definition of “Disability”. For purposes of this Letter Agreement, “Disability” means any physical or mental condition which renders you incapable of performing your essential functions and duties hereunder for a period of 90 consecutive days or any 90 days within a period of 180 consecutive days, as determined in good faith by the Company.

8. Restrictive Covenants.

        (a) Confidential Information. You acknowledge and agree that the information, observations, and data obtained by you while employed by the Company or any of its subsidiaries or any of its Affiliates concerning the business affairs of the Company or any subsidiary or Affiliate of the Company (“Confidential Information”) are the property of the Company, such subsidiary or such Affiliate. Consequently, you agree that, except to the extent required by applicable law, statute, ordinance, rule, regulation or orders of courts or regulatory authorities, you shall not at any time (whether during or after the Employment Period) disclose to any unauthorized person or use for your own account any Confidential Information without the prior written consent of the President, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of your acts or omissions to act or as required by law. You shall deliver to the Company at the termination of your employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) and the business of the Company or any subsidiary or Affiliate of the Company which you may then possess or have under your control.

        (b) Inventions and Patents. You agree that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, and all similar or related information which relates to the Company’s or any of its subsidiaries’ or Affiliates’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by you prior to the date hereof or while employed by the

Company or any of its subsidiaries or Affiliates (“Work Product”) belong to the Company or such subsidiary or Affiliate. You will promptly disclose such Work Product to the President and perform all actions reasonably requested by the President (whether during or after the Employment Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

        (c) Non-competition. You acknowledge that in the course of your employment with the Company and its subsidiaries and Affiliates you have become familiar, and you will become familiar, with the Company’s and its subsidiaries’ and Affiliates’ trade secrets and with other Confidential Information and that your services have been and will be of special, unique and extraordinary value to the Company and its subsidiaries and Affiliates. Therefore, you agree that unless you are terminated by the Company without Cause, or you terminate your employment with the Company for Good Reason, you shall not, during the Restricted Period, directly or indirectly own, operate, manage, control, participate in, consult with, advise, engage in services for any competitor of the Company, its subsidiaries or Affiliates, or in any manner engage in any start up of a business (including by yourself or in association with any person, firm, corporate or other business organization or through any other entity) in competition with the businesses of the Company or its subsidiaries or Affiliates as in existence or in process on the date of termination of your employment (the “Businesses”). Nothing herein shall prohibit you from being a passive owner of not more than 2% of the outstanding stock or equity of an entity which is publicly traded, so long as you have no active participation in the business of such entity. For purposes of this paragraph 8, the Restricted Period means the period during which you are employed by the Company or any of its subsidiaries and the 12-month period following such termination.

        (d) Non-solicitation. During the Restricted Period, you shall not directly, or indirectly through another person or entity use proprietary knowledge or information relating to the Company, its subsidiaries or its Affiliates obtained during the course of your employment with the Company with the intention to, or which a reasonable person would construe to (i) induce or attempt to induce any employee of the Company or any of its subsidiaries or Affiliates to leave the employ of the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between the Company or any of its subsidiaries and Affiliates and any employee thereat, including, without limitation, inducing or attempting to induce any union, employee or group of employees to interfere with the Business or operations of the Company or its subsidiaries or Affiliates, (ii) hire any person who was an employee of the Company or any subsidiary or Affiliate of the Company at any time within the six-month period prior to the date you employ or seek to employ such person, or (iii) induce or attempt to induce any customer, supplier, distributor, franchisee, licensee or other business relation of the Company or any subsidiary or Affiliate of the Company to cease doing business with the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee,

licensee or business relation and the Company or any subsidiary or Affiliate of the Company.

        (e) Non-disparagement. You shall not at any time during or after the Employment Period whether in writing or orally, criticize, disparage, or otherwise demean in any way the Company or its subsidiaries or Affiliates or their respective products, officers, directors, employees or shareholders.

        (f) Future Cooperation. You agree that upon the Company’s reasonable request following your termination of employment, you will use reasonable efforts to assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its Affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its Affiliates, including any proceeding before any arbitral, administrative, regulatory, self-regulatory, judicial, legislative, or other body or agency. You will be entitled only to reimbursement for reasonable out-of-pocket expenses (including travel expenses) incurred in connection with providing such assistance.

        (g) Enforcement. You agree that: (i) the covenants set forth in this paragraph 8 are reasonable in all respects, including, where applicable, geographical and temporal scope, and (ii) the Company would not have entered into this Letter Agreement but for your covenants contained herein, and (iii) the covenants contained herein have been made in order to induce the Company to enter into this Letter Agreement. If, at the time of enforcement of this paragraph 8, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. You recognize and affirm that in the event of your breach of any provision of this paragraph 8, money damages would be inadequate and the Company would have no adequate remedy at law. Accordingly, you agree that in the event of a breach or a threatened breach by you of any of the provisions of this paragraph 8, the Company, in addition and supplementary to other rights and remedies granted by law existing in its favor (including recovery of damages and costs (including reasonable attorneys’ fees)), may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security).

9. Insurance and Indemnification.

        (a) D&O Insurance. The Company shall cause you to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or service in

other capacities at its request. Any coverage provided to you pursuant to this paragraph 9 shall be of the same scope and on the same terms and conditions as the coverage (if any) provided to other officers or directors of the Company and shall continue for so long as you shall be subject to personal liability relating to such service.

        (b) Indemnification. The Company will indemnify and hold you harmless from and against any and all liabilities, suits, claims, actions, causes of actions, and debts arising from and in connection with your employment by the Company and in the performance of your duties for the Company in accordance with the terms of this Letter Agreement. Such indemnification shall not apply to any such liabilities, suits, claims, actions, causes of actions or debts resulting from: (i) any action by you constituting fraud or criminal conduct, (ii) any action by you which is a material violation of the terms of this Letter Agreement or in violation of any written direction given to you, pertaining to any action within the scope of your duties, by the Board, such persons designated by the Board or the Company’s Chief Executive Officer or President, or (iii) any action which is in violation of any laws, rules or regulations applicable to the Company and/or the business of the Company, except to the extent such violation of laws, rules or regulations was unintentional and was performed by you while acting within the scope of your employment.

10.	Key Man Insurance. During the Employment Period, the Company may at any time effect insurance on your life and/or health in such amounts and in such form as the Company may in its sole discretion decide. You will not have any interest in such insurance, but shall, if the Company requests, submit to such medical examinations, supply such information and execute such documents as may be required in connection with, or so as to enable the Company to effect, such insurance.
11.	Withholding. The Company shall have the right to withhold from any amount payable to you hereunder an amount necessary in order for the Company to satisfy any withholding tax obligation it may have under applicable law.
12.	Governing Law. The terms of this Letter Agreement, and any action arising thereunder, shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
13.	Waiver. This Letter Agreement may not be released, changed or modified in any manner, except by an instrument in writing signed by you and the Company. The failure of either party to enforce any of the provisions of this Letter Agreement shall in no way be construed to be a waiver of any such provision. No waiver of any breach of this Letter Agreement shall be held to be a waiver of any other or subsequent breach.

14.	Assignment. This Letter Agreement is personal to you. You shall not assign this Letter Agreement or any of your rights and/or obligations under this Letter Agreement to any other person. The Company may, without your consent, assign this Letter Agreement to any successor to its business.
15.	Dispute Resolution. To benefit mutually from the time and cost savings of arbitration over the delay and expense of the use of the federal and state court systems, all disputes involving this Letter Agreement (except, at the election of the Company, for injunctive relief with respect to disputes arising out of an alleged breach or threatened breach of the covenants contained in paragraph 8), including claims of violations of federal or state discrimination statutes or public policy, shall be resolved pursuant to binding arbitration in New York, New York. In the event of a dispute, a written request for arbitration shall be submitted to the New York office of the American Arbitration Association. The award of the arbitrators shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Except as otherwise provided above, this procedure shall be the exclusive means of settling any disputes that may arise under this Letter Agreement. All fees and expenses of the arbitrators and all other expenses of the arbitration, except for attorneys’ fees and witness expenses, shall be shared equally by you and the Company. Each party shall bear its own witness expenses and attorneys’ fees.
16.	Survival. Notwithstanding anything contained herein to the contrary, the provisions of paragraphs 8, 9, 12, 15 and 16 shall survive termination of your employment with the Company and its subsidiaries.
17.	Entire Agreement. This Letter Agreement supersedes all previous and contemporaneous communications, agreements and understandings, whether oral or written, between you, on the one hand, and the Company or any of its Affiliates, on the other hand, and constitutes the sole and entire agreement between you and the Company pertaining to the subject matter hereof.
18.	Counterparts. This Letter Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered to the other party.

* * * *

     If the foregoing is acceptable to you, kindly sign and return to us one copy of this letter.

Sincerely yours,
VNCI
By:	/s/ Alexander Russo Name: Alexander Russo

AGREED TO AND ACCEPTED BY:

/s/ Carl Muscari
Carl Muscari

EX-10.17 7 w85133exv10w17.htm EMPLOYMENT AGREEMENT- BOOKER

Exhibit 10.17

November 1, 2002

Dear Mr. Booker:

This Letter Agreement will confirm our offer of continuing employment with Video Network Communications (the “Company”) on the following terms and conditions:

1.	Employment. This Letter Agreement will govern the terms and conditions of your continuing employment commencing on November 1, 2002 (the “Effective Date”) until your employment is terminated pursuant to paragraph 7 below. The period during which you are further employed by the Company is referred to as the “Employment Period”.
2.	Position; Duties. You will be employed by the Company as its Senior Vice President, Corporate Development. You will report to the Chief Executive Officer of the Company or such persons as designated by its Board of Directors (the “Board”) and shall perform the customary duties of a Senior Vice President, Corporate Development of a video networking company and such other duties that may from time to time be assigned to you by the Company. You agree to use your best efforts to perform such duties faithfully, to devote all of your working time, attention and energies to the businesses of the Company, and while you remain employed, not to engage in any other business activity that is in conflict with your duties and obligations to the Company.
3.	Base Salary. You will be paid a base salary (“Base Salary”) at an annual rate of $168,000, payable in accordance with the Company’s normal payroll practices. Your Base Salary will be reviewed at least annually, and may be subject to upward adjustment at the discretion of the Board (or a committee thereof). Your Base Salary shall not be decreased unless there are proportional decreases in salary imposed on all of the Company’s executive employees because the Company’s financial performance dictates such decreases.
4.	Annual Bonus. In addition to the Base Salary, you shall have the opportunity to earn an annual bonus for each fiscal year of the Company that ends during the Employment Period (the “Bonus Award”) based on achievement of targeted levels of performance, as established in advance by the Board or a committee thereof. The Board, in its discretion, may award a higher bonus for any year for performance that exceeds target levels. To the extent performance goals are based on the achievement of financial targets, the Board (or a committee thereof) shall determine whether such targets are satisfied based on the audited consolidated financial statements of the Company, and the determination by the Board (or a committee thereof) shall be final and binding. In making such determination, the Board (or a committee thereof) may make adjustments to the audited numbers or to the targets themselves to take into account unusual or non-recurring events, including, without limitation, acquisitions and divestitures.

5.	Stock Option Award. You will be granted the option to purchase shares of common stock of the Company in an amount and at an exercise price to be determined by the Company. Part or all of such stock option grants may be performance based. The terms and conditions of such purchase are set forth in the Stock Option Agreement which shall be provided to you in a timely fashion.
6.	Benefits. You will be provided with such retirement benefits, fringe benefits and insurance coverages as are made available to officers of the Company generally. In addition, you will be provided with supplemental disability insurance as mutually agreed by you and the Company.
7.	Termination.

        (a) General. You will be free to resign from the Company at any time, and the Company will be free to terminate your employment at any time.

        (b) Termination Without Severance Benefits. In the event your employment with the Company is terminated by reason of (i) your resignation without “Good Reason” (as defined below), (ii) your death, (iii) your “Disability” (as defined below), or (iv) your discharge by the Company for “Cause” (as defined below), this Letter Agreement shall terminate including, without limitation, the Company’s obligations to provide any compensation, benefits or severance to you under this Letter Agreement, other than any amounts earned and payable to you but not yet paid.

        (c) Termination With Severance Benefits. In the event the Company terminates your employment other than for Cause, or you terminate this Agreement for Good Reason, then in lieu of any other severance benefits otherwise payable under any Company policy, or any other damages payable in connection with such termination, you will be entitled to receive (i) continued payment of your Base Salary for six (6) months and (ii) for a period of one (1) year after termination of your employment, direct payment by the Company to the carrier of the premiums due for any health insurance continuation coverage elected by you under the Company’s group health plans.

        (d) Compliance and Release. Your right to the payments in paragraph 7(c) hereof shall be conditional upon (i) your continuing compliance with the restrictive covenants and provisions contained in paragraph 8, and (ii) your execution of a customary release of claims in favor of the Company and its Affiliates, in a form reasonably prescribed by the Company.

        (e) Liquidated Damages. The Company and you hereby stipulate that the damages which may be incurred by you as a consequence of any such termination of employment are not capable of accurate measurement as of the date first written above and that the liquidated damages payments provided for in this Letter Agreement constitute a reasonable estimate under the circumstances of and are in full satisfaction of, all damages sustained as a consequence of any such termination of employment.

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        (f) Definition of “Cause”. For purposes of this Letter Agreement, “Cause” means an omission, act or action or series of omissions, acts or actions by you which, in the determination of the Company, constitute(s), cause(s) or result(s) in (i) your material dishonesty including, without limitation, theft, fraud, embezzlement, financial misrepresentation or other similar behavior or action in your dealings with or with respect to the Company or any Affiliate thereof or entity with which the Company or any Affiliate thereof, shall be engaged in or be attempting to engage in commerce; (ii) your conviction for, or the your entry of a plea of guilty or nolo contendere to, the commission of a felony; (iii) your willful refusal to follow the lawful directives of the Company with respect to your duties hereunder, which directives shall be consistent with your duties and position as an officer of the Company, as set forth in this Letter Agreement, and which refusal is not cured by you within thirty (30) calendar days after written notice from the Company to you setting forth with reasonable specificity the nature thereof; or (iv) the material breach of any provision of this Letter Agreement which is not cured by you within thirty (30) calendar days after written notice from the Company to you setting forth with reasonable specificity the nature of such breach. For purposes of this Letter Agreement, “Affiliate” shall have the meaning assigned to it in the Stockholders Agreement, dated as of October 17, 2001, by and among TM Acquisition Holdings, Inc. and its stockholders (the “Stockholders Agreement”)).

        (g) Definition of “Good Reason”. For purposes of this Letter Agreement, “Good Reason” may only be claimed by you following a “Sale of the Company” and means either (i) the assignment to you, without your written approval, of duties or responsibilities materially inconsistent with your position as described in Paragraph 2 above, or (ii) any material reduction in your duties, responsibilities or authority from those in effect on the date hereof; provided, however, that the occurrence of any of (i) or (ii) shall not constitute Good Reason unless written notice from you to the Board setting forth with reasonable specificity the nature of such assignment or reduction is given within 60 calendar days after the date on which such assignment or reduction first occurs and such assignment or reduction is not cured or otherwise mutually resolved within 30 calendar days after such written notice is delivered to the Board. For purposes of this Letter Agreement, “Sale of the Company” shall have the meaning assigned to it in the Stockholders Agreement.

        (h) Definition of “Disability”. For purposes of this Letter Agreement, “Disability” means any physical or mental condition which renders you incapable of performing your essential functions and duties hereunder for a period of 90 consecutive days or any 90 days within a period of 180 consecutive days, as determined in good faith by the Company.

8. Restrictive Covenants.

        (a) Confidential Information. You acknowledge and agree that the information, observations, and data obtained by you while employed by the Company or any of its subsidiaries or any of its Affiliates concerning the business affairs of the Company or any subsidiary or Affiliate of the Company (“Confidential Information”) are

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the property of the Company, such subsidiary or such Affiliate. Consequently, you agree that, except to the extent required by applicable law, statute, ordinance, rule, regulation or orders of courts or regulatory authorities, you shall not at any time (whether during or after the Employment Period) disclose to any unauthorized person or use for your own account any Confidential Information without the prior written consent of the President, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of your acts or omissions to act or as required by law. You shall deliver to the Company at the termination of your employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) and the business of the Company or any subsidiary or Affiliate of the Company which you may then possess or have under your control.

        (b) Inventions and Patents. You agree that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, and all similar or related information which relates to the Company’s or any of its subsidiaries’ or Affiliates’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by you prior to the date hereof or while employed by the Company or any of its subsidiaries or Affiliates (“Work Product”) belong to the Company or such subsidiary or Affiliate. You will promptly disclose such Work Product to the President and perform all actions reasonably requested by the President (whether during or after the Employment Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

        (c) Non-competition. You acknowledge that in the course of your employment with the Company and its subsidiaries and Affiliates you have become familiar, and you will become familiar, with the Company’s and its subsidiaries’ and Affiliates’ trade secrets and with other Confidential Information and that your services have been and will be of special, unique and extraordinary value to the Company and its subsidiaries and Affiliates. Therefore, you agree that unless you are terminated by the Company without Cause, or you terminate your employment with the Company for Good Reason, you shall not, during the Restricted Period, directly or indirectly own, operate, manage, control, participate in, consult with, advise, engage in services for any competitor of the Company, its subsidiaries or Affiliates, or in any manner engage in any start up of a business (including by yourself or in association with any person, firm, corporate or other business organization or through any other entity) in competition with the businesses of the Company or its subsidiaries or Affiliates as in existence or in process on the date of termination of your employment (the “Businesses”). Nothing herein shall prohibit you from being a passive owner of not more than 2% of the outstanding stock or equity of an entity which is publicly traded, so long as you have no active participation in the business of such entity. For purposes of this paragraph 8, the Restricted Period means the period during which you are employed by the Company or any of its subsidiaries and the 6-month period following such termination.

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        (d) Non-solicitation. During the Restricted Period, you shall not directly, or indirectly through another person or entity use proprietary knowledge or information relating to the Company, its subsidiaries or its Affiliates obtained during the course of your employment with the Company with the intention to, or which a reasonable person would construe to (i) induce or attempt to induce any employee of the Company or any of its subsidiaries or Affiliates to leave the employ of the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between the Company or any of its subsidiaries and Affiliates and any employee thereat, including, without limitation, inducing or attempting to induce any union, employee or group of employees to interfere with the Business or operations of the Company or its subsidiaries or Affiliates, (ii) hire any person who was an employee of the Company or any subsidiary or Affiliate of the Company at any time within the six-month period prior to the date you employ or seek to employ such person, or (iii) induce or attempt to induce any customer, supplier, distributor, franchisee, licensee or other business relation of the Company or any subsidiary or Affiliate of the Company to cease doing business with the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and the Company or any subsidiary or Affiliate of the Company.

        (e) Non-disparagement. You shall not at any time during or after the Employment Period whether in writing or orally, criticize, disparage, or otherwise demean in any way the Company or its subsidiaries or Affiliates or their respective products, officers, directors, employees or shareholders.

        (f) Future Cooperation. You agree that upon the Company’s reasonable request following your termination of employment, you will use reasonable efforts to assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its Affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its Affiliates, including any proceeding before any arbitral, administrative, regulatory, self-regulatory, judicial, legislative, or other body or agency. You will be entitled only to reimbursement for reasonable out-of-pocket expenses (including travel expenses) incurred in connection with providing such assistance.

        (g) Enforcement. You agree that: (i) the covenants set forth in this paragraph 8 are reasonable in all respects, including, where applicable, geographical and temporal scope, and (ii) the Company would not have entered into this Letter Agreement but for your covenants contained herein, and (iii) the covenants contained herein have been made in order to induce the Company to enter into this Letter Agreement. If, at the time of enforcement of this paragraph 8, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. You recognize and affirm that in the event of your breach of any provision of this paragraph 8, money damages would be inadequate and the

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Company would have no adequate remedy at law. Accordingly, you agree that in the event of a breach or a threatened breach by you of any of the provisions of this paragraph 8, the Company, in addition and supplementary to other rights and remedies granted by law existing in its favor (including recovery of damages and costs (including reasonable attorneys’ fees)), may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security).

9. Insurance and Indemnification.

        (a) D&O Insurance. The Company shall cause you to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or service in other capacities at its request. Any coverage provided to you pursuant to this paragraph 9 shall be of the same scope and on the same terms and conditions as the coverage (if any) provided to other officers or directors of the Company and shall continue for so long as you shall be subject to personal liability relating to such service.

        (b) Indemnification. The Company will indemnify and hold you harmless from and against any and all liabilities, suits, claims, actions, causes of actions, and debts arising from and in connection with your employment by the Company and in the performance of your duties for the Company in accordance with the terms of this Letter Agreement. Such indemnification shall not apply to any such liabilities, suits, claims, actions, causes of actions or debts resulting from: (i) any action by you constituting fraud or criminal conduct, (ii) any action by you which is a material violation of the terms of this Letter Agreement or in violation of any written direction given to you, pertaining to any action within the scope of your duties, by the Board, such persons designated by the Board or the Company’s Chief Executive Officer or President, or (iii) any action which is in violation of any laws, rules or regulations applicable to the Company and/or the business of the Company, except to the extent such violation of laws, rules or regulations was unintentional and was performed by you while acting within the scope of your employment.

10.	Key Man Insurance. During the Employment Period, the Company may at any time effect insurance on your life and/or health in such amounts and in such form as the Company may in its sole discretion decide. You will not have any interest in such insurance, but shall, if the Company requests, submit to such medical examinations, supply such information and execute such documents as may be required in connection with, or so as to enable the Company to effect, such insurance.
11.	Withholding. The Company shall have the right to withhold from any amount payable to you hereunder an amount necessary in order for the Company to satisfy any withholding tax obligation it may have under applicable law.
12.	Governing Law. The terms of this Letter Agreement, and any action arising thereunder, shall be governed by and construed in accordance with the domestic laws of the State of

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	New Hampshire, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Hampshire or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Hampshire.
13.	Waiver. This Letter Agreement may not be released, changed or modified in any manner, except by an instrument in writing signed by you and the Company. The failure of either party to enforce any of the provisions of this Letter Agreement shall in no way be construed to be a waiver of any such provision. No waiver of any breach of this Letter Agreement shall be held to be a waiver of any other or subsequent breach.
14.	Assignment. This Letter Agreement is personal to you. You shall not assign this Letter Agreement or any of your rights and/or obligations under this Letter Agreement to any other person. The Company may, without your consent, assign this Letter Agreement to any successor to its business.
15.	Dispute Resolution. To benefit mutually from the time and cost savings of arbitration over the delay and expense of the use of the federal and state court systems, all disputes involving this Letter Agreement (except, at the election of the Company, for injunctive relief with respect to disputes arising out of an alleged breach or threatened breach of the covenants contained in paragraph 8), including claims of violations of federal or state discrimination statutes or public policy, shall be resolved pursuant to binding arbitration in New York, New York. In the event of a dispute, a written request for arbitration shall be submitted to the New York office of the American Arbitration Association. The award of the arbitrators shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Except as otherwise provided above, this procedure shall be the exclusive means of settling any disputes that may arise under this Letter Agreement. All fees and expenses of the arbitrators and all other expenses of the arbitration, except for attorneys’ fees and witness expenses, shall be shared equally by you and the Company. Each party shall bear its own witness expenses and attorneys’ fees.
16.	Survival. Notwithstanding anything contained herein to the contrary, the provisions of paragraphs 8, 9 and 15 shall survive termination of your employment with the Company and its subsidiaries.
17.	Entire Agreement. This Letter Agreement supersedes all previous and contemporaneous communications, agreements and understandings, whether oral or written, between you, on the one hand, and the Company or any of its Affiliates, on the other hand, and constitutes the sole and entire agreement between you and the Company pertaining to the subject matter hereof.
18.	Counterparts. This Letter Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered to the other party.

* * * *

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If the foregoing is acceptable to you, kindly sign and return to us one copy of this letter.

Sincerely yours,
VIDEO NETWORK COMMUNICATIONS INC.
By:	/s/ Carl Muscari
	Name: Carl Muscari             Chairman & CEO

AGREED TO AND ACCEPTED BY:

/s/ Roger Booker
Roger Booker

8 EX-10.18 8 w85133exv10w18.htm EMPLOYMENT AGREEMENT-BALLETTA

Exhibit 10.18

February 19, 2003

Dear Nick Balletta:

This Letter Agreement will confirm our offer of employment with Video Network Communications, Inc. (the “Company”) on the following terms and conditions:

1.	Employment. This Letter Agreement will govern the terms and conditions of your employment commencing on the date hereof (the “Effective Date”) until your employment is terminated pursuant to paragraph 7 below. The period during which you are actually employed by the Company is referred to as the “Employment Period”.
2.	Position; Duties. You will be employed by the Company as its President. You will report to the Board of Directors of the Company (the “Board”) or such persons as are designated by the Board, and shall perform the customary duties of a President and such other duties that may from time to time be assigned to the you. You agree to use your best efforts to perform such duties faithfully, to devote all of your working time, attention and energies to the businesses of the Company, and while you remain employed, not to engage in any other business activity that is in conflict with your duties and obligations to the Company.
3.	Base Salary. You will be paid a base salary (“Base Salary”) at an annual rate of $225,000, payable in accordance with the Company’s normal payroll practices. Your Base Salary will be reviewed at least annually, and may be subject to upward adjustment at the discretion of the Board (or a committee thereof). Your Base Salary shall not be decreased unless there are proportional decreases in salary imposed on the Company’s executive employees because the Company’s financial performance dictates such decreases.
4.	Annual Bonus. In addition to the Base Salary, you shall have the opportunity to earn an annual bonus for each fiscal year of the Company that ends during the Employment Period (the “Bonus Award”) of up to 50% of your Base Salary paid during such year based on achievement of targeted level of performance, as established in advance by the Board or a committee thereof. The Board, in its discretion, may award a higher bonus for any year for performance that exceeds target levels. To the extent performance goals are based on the achievement of financial targets, the Board (or a committee thereof) shall determine whether such targets are satisfied based on the audited consolidated financial statements of the Company, and the determination by the Board (or a committee thereof) shall be final and binding. In making such determination, the Board (or a committee thereof) may make adjustments to the audited numbers or to the targets themselves to take into account unusual or non-recurring events, including,

	without limitation, acquisitions and divestitures. In connection with the Bonus Award described above, you and the Company may agree on a bonus plan based on Company revenue and/or EBITDA to establish targets and better define your Bonus Award opportunity. Such plan will include a facility for paying Employee a pro-rata share of any Bonus Award due on a quarterly basis.
5.	Stock Options. You shall be granted the option to purchase 750,000 shares of VNCI common stock at an exercise price based upon the market price on the date of issuance pursuant to VNCI’s Stock Option Plan.
6.	Benefits. You will be provided with such retirement benefits, fringe benefits and insurance coverages as are made available to officers of the Company generally, except that in lieu of the Company’s standard medical benefits, the Company will pay the cost of your Cobra coverage during your employment for a period of eighteen (18) months. In addition, you will be provided with supplemental disability insurance as mutually agreed by you and the Company. You shall be entitled to vacation at the rate of three (3) weeks per year in accordance with the Company’s vacation policy.
7.	Termination.

        (a) General. You will be free to resign from the Company at any time, and the Company will be free to terminate your employment at any time.

        (b) Termination Without Severance Benefits. In the event your employment with the Company is terminated by reason of (i) your resignation without “Good Reason” (as defined below), (ii) your death, (iii) your “Disability” (as defined below), or (iv) your discharge by the Company for “Cause” (as defined below), this Letter Agreement shall terminate including, without limitation, the Company’s obligations to provide any compensation, benefits or severance to you under this Letter Agreement, other than any amounts earned and payable to you but not yet paid.

        (c) Termination With Severance Benefits. In the event the Company terminates your employment other than for Cause, or you terminate this Letter Agreement for Good Reason, then in lieu of any other severance benefits otherwise payable under any Company policy, or any other damages payable in connection with such termination, you will receive those severance benefits to which you are entitled under the Williams Communications Group, Inc. Change in Control Severance Protection Plan 2, as Amended and Restated on April 18, 2002 (the “Plan”), provided, however, that the amount of severance payable to you under the Plan shall be capped at a maximum of 52 weeks benefit. Notwithstanding Section 3.02 of the Plan, you shall remain eligible for participation in the Plan with regard to severance for so long as you are employed by the Company. No other term or clause in the Plan, other than the clause

regarding the calculation and payment schedule of the amount of any severance benefits, shall apply, and the provisions of this Letter Agreement shall control instead.

        (d) Compliance and Release. Your right to the payments in paragraph 7(c) hereof shall be conditional upon (i) your continuing compliance with the restrictive covenants and provisions contained in paragraph 8, and (ii) your execution of a customary and reasonable release of claims in favor of the Company and its Affiliates, in a form prescribed by the Company.

        (e) Liquidated Damages. The Company and you hereby stipulate that the damages which may be incurred by you as a consequence of any termination of employment are not capable of accurate measurement as of the date first written above and that the liquidated damages payments provided for in this Letter Agreement constitute a reasonable estimate under the circumstances of and are in full satisfaction of, all damages sustained as a consequence of any termination of employment.

        (f) Definition of “Cause”. For purposes of this Letter Agreement, “Cause” means an omission, act or action or series of omissions, acts or actions by you which, in the determination of the Company, constitute(s), cause(s) or result(s) in (i) your material dishonesty including, without limitation, theft, fraud, embezzlement, financial misrepresentation or other similar behavior or action in your dealings with or with respect to the Company or any Affiliate thereof or entity with which the Company or any Affiliate thereof, shall be engaged in or be attempting to engage in commerce; (ii) your conviction for, or the your entry of a plea of guilty or nolo contendere to, the commission of a felony; (iii) your willful refusal to follow the lawful directives of the Company with respect to your duties hereunder, which directives shall be consistent with your duties and position as an officer of the Company, as set forth in this Letter Agreement, and which refusal is not cured by you within thirty (30) calendar days after written notice from the Board to you setting forth with reasonable specificity the nature thereof; or (iv) the material breach of any provision of this Letter Agreement which is not cured by you within thirty (30) calendar days after written notice from the Company to you setting forth with reasonable specificity the nature of such breach. For purposes of this Letter Agreement, “Affiliate” shall have the meaning assigned to it in the Stockholders Agreement, dated as of May 16, 2002, by and among VNCI, Moneyline Telerate Holdings and the other signatories thereto (the “Stockholders Agreement”).

        (g) Definition of “Good Reason”. For purposes of this Letter Agreement, “Good Reason” may only be claimed by you following a “Sale of the Company,” and means either (i) the assignment to you, without your written approval, of duties or responsibilities materially inconsistent with your position as President, (ii) any material reduction in your duties, responsibilities or authority from those in effect on the date hereof, or (iii) a demand by the Company to relocate your principal place of employment to a location greater than fifty (50)

miles from your current principal place of employment; provided, however, that the occurrence of any of (i), (ii) or (iii) shall not constitute Good Reason unless written notice from you to the Board setting forth with reasonable specificity the nature of such assignment or reduction is given within 60 calendar days after the date on which such assignment, reduction, or change in location first occurs and such assignment or reduction is not cured or otherwise mutually resolved within 30 calendar days after such written notice is delivered to the Board. For purposes of this Letter Agreement, “Sale of the Company” shall mean a change in control of VNCI exceeding 50% of the voting rights of the Company.

        (h) Definition of “Disability”. For purposes of this Letter Agreement, “Disability” means any physical or mental condition which renders you incapable of performing your essential functions and duties hereunder for a period of 90 consecutive days or any 90 days within a period of 180 consecutive days, as determined in good faith by the Company.

8. Restrictive Covenants.

        (a) Confidential Information. You acknowledge and agree that the information, observations, and data obtained by you while employed by the Company or any of its subsidiaries or any of its Affiliates concerning the business affairs of the Company or any subsidiary or Affiliate of the Company (“Confidential Information”) are the property of the Company, such subsidiary or such Affiliate. Consequently, you agree that, except to the extent required by applicable law, statute, ordinance, rule, regulation or orders of courts or regulatory authorities, you shall not at any time (whether during or after the Employment Period) disclose to any unauthorized person or use for your own account any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of your acts or omissions to act or as required by law. You shall deliver to the Company at the termination of your employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) and the business of the Company or any subsidiary or Affiliate of the Company which you may then possess or have under your control.

        (b) Inventions and Patents. You agree that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, and all similar or related information which relates to the Company’s or any of its subsidiaries’ or Affiliates’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by you prior to the date hereof or while employed by the Company or any of its subsidiaries or Affiliates (“Work Product”) belong to the Company or such subsidiary or Affiliate. You will promptly disclose such Work Product to the Board or its designee and perform all actions reasonably requested

by the Board or its designee (whether during or after the Employment Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

        (c) Non-competition. You acknowledge that in the course of your employment with the Company and its subsidiaries and Affiliates you have become familiar, and you will become familiar, with the Company’s and its subsidiaries’ and Affiliates’ trade secrets and with other Confidential Information and that your services have been and will be of special, unique and extraordinary value to the Company and its subsidiaries and Affiliates. Therefore, you agree that unless you are terminated by the Company without Cause, or you terminate your employment with the Company for Good Reason, you shall not, during the Restricted Period, directly or indirectly own, operate, manage, control, participate in, consult with, advise, engage in services for any competitor of the Company, its subsidiaries or Affiliates, or in any manner engage in any start up of a business (including by yourself or in association with any person, firm, corporate or other business organization or through any other entity) in competition with the businesses of the Company or its subsidiaries or Affiliates as in existence or in process on the date of termination of your employment (the “Businesses”). Nothing herein shall prohibit you from being a passive owner of not more than 2% of the outstanding stock or equity of an entity which is publicly traded, so long as you have no active participation in the business of such entity. For purposes of this paragraph 8, the Restricted Period means the period during which you are employed by the Company or any of its subsidiaries and the 12-month period following such termination.

        (d) Non-solicitation. During the Restricted Period, you shall not directly, or indirectly through another person or entity use proprietary knowledge or information relating to the Company, its subsidiaries or its Affiliates obtained during the course of your employment with the Company with the intention to, or which a reasonable person would construe to (i) induce or attempt to induce any employee of the Company or any of its subsidiaries or Affiliates to leave the employ of the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between the Company or any of its subsidiaries and Affiliates and any employee thereat, including, without limitation, inducing or attempting to induce any union, employee or group of employees to interfere with the Business or operations of the Company or its subsidiaries or Affiliates, (ii) hire any person who was an employee of the Company or any subsidiary or Affiliate of the Company at any time within the six-month period prior to the date you employ or seek to employ such person, or (iii) induce or attempt to induce any customer, supplier, distributor, franchisee, licensee or other business relation of the Company or any subsidiary or Affiliate of the Company to cease doing business with the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and the Company or any subsidiary or Affiliate of the Company.

        (e) Non-disparagement. You shall not at any time during or after the Employment Period whether in writing or orally, criticize, disparage, or otherwise demean in any way the Company or its subsidiaries or Affiliates or their respective products, officers, directors, employees or shareholders.

        (f) Future Cooperation. You agree that upon the Company’s reasonable request following your termination of employment, you will use reasonable efforts to assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its Affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its Affiliates, including any proceeding before any arbitral, administrative, regulatory, self-regulatory, judicial, legislative, or other body or agency. You will be entitled only to reimbursement for reasonable out-of-pocket expenses (including travel expenses) incurred in connection with providing such assistance.

        (g) Enforcement. You agree that: (i) the covenants set forth in this paragraph 8 are reasonable in all respects, including, where applicable, geographical and temporal scope, and (ii) the Company would not have entered into this Letter Agreement but for your covenants contained herein, and (iii) the covenants contained herein have been made in order to induce the Company to enter into this Letter Agreement. If, at the time of enforcement of this paragraph 8, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. You recognize and affirm that in the event of your breach of any provision of this paragraph 8, money damages would be inadequate and the Company would have no adequate remedy at law. Accordingly, you agree that in the event of a breach or a threatened breach by you of any of the provisions of this paragraph 8, the Company, in addition and supplementary to other rights and remedies granted by law existing in its favor (including recovery of damages and costs (including reasonable attorneys’ fees)), may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security).

9. Insurance and Indemnification.

        (a) D&O Insurance. The Company shall cause you to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or service in other capacities at its request. Any coverage provided to you pursuant to this paragraph 9 shall be of the same scope and on the same terms and conditions as the coverage (if any) provided to other officers or directors of the Company and

shall continue for so long as you shall be subject to personal liability relating to such service.

        (b) Indemnification. The Company will indemnify and hold you harmless from and against any and all liabilities, suits, claims, actions, causes of actions, and debts arising from and in connection with your employment by the Company and in the performance of your duties for the Company in accordance with the terms of this Letter Agreement. Such indemnification shall not apply to any such liabilities, suits, claims, actions, causes of actions or debts resulting from: (i) any action by you constituting fraud or criminal conduct, (ii) any action by you which is a material violation of the terms of this Letter Agreement or in violation of any written direction given to you, pertaining to any action within the scope of your duties, by the Board, such persons designated by the Board or the Company’s Chief Executive Officer, or (iii) any action which is in violation of any laws, rules or regulations applicable to the Company and/or the business of the Company, except to the extent such violation of laws, rules or regulations was unintentional and was performed by you while acting within the scope of your employment.

10.	Key Man Insurance. During the Employment Period, the Company may at any time effect insurance on your life and/or health in such amounts and in such form as the Company may in its sole discretion decide. You will not have any interest in such insurance, but shall, if the Company requests, submit to such medical examinations, supply such information and execute such documents as may be required in connection with, or so as to enable the Company to effect, such insurance.
11.	Withholding. The Company shall have the right to withhold from any amount payable to you hereunder an amount necessary in order for the Company to satisfy any withholding tax obligation it may have under applicable law.
12.	Governing Law. The terms of this Letter Agreement, and any action arising thereunder, shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
13.	Waiver. This Letter Agreement may not be released, changed or modified in any manner, except by an instrument in writing signed by you and the Company. The failure of either party to enforce any of the provisions of this Letter Agreement shall in no way be construed to be a waiver of any such provision. No waiver of any breach of this Letter Agreement shall be held to be a waiver of any other or subsequent breach.
14.	Assignment. This Letter Agreement is personal to you. You shall not assign this Letter Agreement or any of your rights and/or obligations under this Letter

	Agreement to any other person. The Company may, without your consent, assign this Letter Agreement to any successor to its business.
15.	Dispute Resolution. To benefit mutually from the time and cost savings of arbitration over the delay and expense of the use of the federal and state court systems, all disputes involving this Letter Agreement (except, at the election of the Company, for injunctive relief with respect to disputes arising out of an alleged breach or threatened breach of the covenants contained in paragraph 8), including claims of violations of federal or state discrimination statutes or public policy, shall be resolved pursuant to binding arbitration in New York, New York. In the event of a dispute, a written request for arbitration shall be submitted to the New York office of the American Arbitration Association. The award of the arbitrators shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Except as otherwise provided above, this procedure shall be the exclusive means of settling any disputes that may arise under this Letter Agreement. All fees and expenses of the arbitrators and all other expenses of the arbitration, except for attorneys’ fees and witness expenses, shall be shared equally by you and the Company. Each party shall bear its own witness expenses and attorneys’ fees.
16.	Survival. Notwithstanding anything contained herein to the contrary, the provisions of paragraphs 8, 9, 12, 15 and 16 shall survive termination of your employment with the Company and its subsidiaries.
17.	Entire Agreement. This Letter Agreement supersedes all previous and contemporaneous communications, agreements and understandings, whether oral or written, between you, on the one hand, and the Company or any of its Affiliates, on the other hand, and constitutes the sole and entire agreement between you and the Company pertaining to the subject matter hereof.
18.	Counterparts. This Letter Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered to the other party.

* * * *

If the foregoing is acceptable to you, kindly sign and return to us one copy of this letter.

Sincerely yours,
VNCI
By:	/s/ Alexander Russo Name: Alexander Russo

AGREED TO AND ACCEPTED BY:

   /s/ Nicholas Balletta
Nicholas Balletta

EX-10.19 9 w85133exv10w19.htm EMPLOYMENT AGREEMENT-JOANLANNE

Exhibit 10.19

February 20, 2003

Dear Frank Joanlanne:

This Letter Agreement will confirm our offer of employment with Video Network Communications, Inc. (the “Company”) on the following terms and conditions:

1.	Employment. This Letter Agreement will govern the terms and conditions of your employment commencing on the date hereof (the “Effective Date”) until your employment is terminated pursuant to paragraph 7 below. The period during which you are actually employed by the Company is referred to as the “Employment Period”.
2.	Position; Duties. You will be employed by the Company as its Senior Vice-President Webcasting. You will report to the President of the Company and such other persons as are designated by the Board of Directors of the Company (the “Board”), and shall perform the customary duties of a Senior Vice-President and such other duties that may from time to time be assigned to the you. You agree to use your best efforts to perform such duties faithfully, to devote all of your working time, attention and energies to the businesses of the Company, and while you remain employed, not to engage in any other business activity that is in conflict with your duties and obligations to the Company.
3.	Base Salary. You will be paid a base salary (“Base Salary”) at an annual rate of $165,000, payable in accordance with the Company’s normal payroll practices. Your Base Salary will be reviewed at least annually, and may be subject to upward adjustment at the discretion of the Board (or a committee thereof). Your Base Salary shall not be decreased unless there are proportional decreases in salary imposed on the Company’s executive employees because the Company’s financial performance dictates such decreases.
4.	Annual Bonus. In addition to the Base Salary, you shall have the opportunity to earn an annual bonus for each fiscal year of the Company that ends during the Employment Period (the “Bonus Award”) of up to 50% of your Base Salary paid during such year based on achievement of targeted level of performance, as established in advance by the Board or a committee thereof. The Board, in its discretion, may award a higher bonus for any year for performance that exceeds target levels. To the extent performance goals are based on the achievement of financial targets, the Board (or a committee thereof) shall determine whether such targets are satisfied based on the audited consolidated financial statements of the Company, and the determination by the Board (or a committee thereof) shall be final and binding. In making such determination, the Board (or a committee thereof) may make adjustments to the audited numbers or to the targets

	themselves to take into account unusual or non-recurring events, including, without limitation, acquisitions and divestitures. In connection with the Bonus Award described above, you and the Company may agree on a variable compensation plan to establish targets and better define your Bonus Award opportunity. Such plan will include a facility for paying Employee a pro-rata share of any Bonus Award due on a quarterly basis.
5.	Stock Options. You shall be granted the option to purchase 400,000 shares of VNCI common stock at an exercise price based upon the market price on the date of issuance pursuant to VNCI’s Stock Option Plan.
6.	Benefits. You will be provided with such retirement benefits, fringe benefits and insurance coverages as are made available to officers of the Company generally. In addition, you will be provided with supplemental disability insurance as mutually agreed by you and the Company. You shall be entitled to vacation at the rate of three (3) weeks per year in accordance with the Company’s vacation policy.
7.	Termination.

        (a) General. You will be free to resign from the Company at any time, and the Company will be free to terminate your employment at any time.

        (b) Termination Without Severance Benefits. In the event your employment with the Company is terminated by reason of (i) your resignation without “Good Reason” (as defined below), (ii) your death, (iii) your “Disability” (as defined below), or (iv) your discharge by the Company for “Cause” (as defined below), this Letter Agreement shall terminate including, without limitation, the Company’s obligations to provide any compensation, benefits or severance to you under this Letter Agreement, other than any amounts earned and payable to you but not yet paid.

        (c) Termination With Severance Benefits. In the event the Company terminates your employment other than for Cause, or you terminate this Letter Agreement for Good Reason, then in lieu of any other severance benefits otherwise payable under any Company policy, or any other damages payable in connection with such termination, you will receive those severance benefits to which you are entitled under the Williams Communications Group, Inc. Change in Control Severance Protection Plan 2, as Amended and Restated on April 18, 2002 (the “Plan”), provided, however, that the amount of severance payable to you under the Plan shall be capped at a maximum of 26 weeks benefit. Notwithstanding Section 3.02 of the Plan, you shall remain eligible for participation in the Plan with regard to severance for so long as you are employed by the Company. No other term or clause in the Plan, other than the clause regarding the calculation and payment schedule of the amount of any severance

benefits, shall apply, and the provisions of this Letter Agreement shall control instead.

        (d) Compliance and Release. Your right to the payments in paragraph 7(c) hereof shall be conditional upon (i) your continuing compliance with the restrictive covenants and provisions contained in paragraph 8, and (ii) your execution of a customary and reasonable release of claims in favor of the Company and its Affiliates, in a form prescribed by the Company.

        (e) Liquidated Damages. The Company and you hereby stipulate that the damages which may be incurred by you as a consequence of any termination of employment are not capable of accurate measurement as of the date first written above and that the liquidated damages payments provided for in this Letter Agreement constitute a reasonable estimate under the circumstances of and are in full satisfaction of, all damages sustained as a consequence of any termination of employment.

        (f) Definition of “Cause”. For purposes of this Letter Agreement, “Cause” means an omission, act or action or series of omissions, acts or actions by you which, in the determination of the Company, constitute(s), cause(s) or result(s) in (i) your material dishonesty including, without limitation, theft, fraud, embezzlement, financial misrepresentation or other similar behavior or action in your dealings with or with respect to the Company or any Affiliate thereof or entity with which the Company or any Affiliate thereof, shall be engaged in or be attempting to engage in commerce; (ii) your conviction for, or the your entry of a plea of guilty or nolo contendere to, the commission of a felony; (iii) your willful refusal to follow the lawful directives of the Company with respect to your duties hereunder, which directives shall be consistent with your duties and position as an officer of the Company, as set forth in this Letter Agreement, and which refusal is not cured by you within thirty (30) calendar days after written notice from the Board to you setting forth with reasonable specificity the nature thereof; or (iv) the material breach of any provision of this Letter Agreement which is not cured by you within thirty (30) calendar days after written notice from the Company to you setting forth with reasonable specificity the nature of such breach. For purposes of this Letter Agreement, “Affiliate” shall have the meaning assigned to it in the Stockholders Agreement, dated as of May 16, 2002, by and among VNCI, Moneyline Telerate Holdings and the other signatories thereto (the “Stockholders Agreement”).

        (g) Definition of “Good Reason”. For purposes of this Letter Agreement, “Good Reason” may only be claimed by you following a “Sale of the Company,” and means either (i) the assignment to you, without your written approval, of duties or responsibilities materially inconsistent with your position as President, (ii) any material reduction in your duties, responsibilities or authority from those in effect on the date hereof, or (iii) a demand by the Company to relocate your principal place of employment to a location greater than fifty (50) miles from your current principal place of employment; provided, however, that

the occurrence of any of (i), (ii) or (iii) shall not constitute Good Reason unless written notice from you to the Board setting forth with reasonable specificity the nature of such assignment or reduction is given within 60 calendar days after the date on which such assignment, reduction, or change in location first occurs and such assignment or reduction is not cured or otherwise mutually resolved within 30 calendar days after such written notice is delivered to the Board. For purposes of this Letter Agreement, “Sale of the Company” shall mean a change in control of VNCI exceeding 50% of the voting rights of the Company.

        (h) Definition of “Disability”. For purposes of this Letter Agreement, “Disability” means any physical or mental condition which renders you incapable of performing your essential functions and duties hereunder for a period of 90 consecutive days or any 90 days within a period of 180 consecutive days, as determined in good faith by the Company.

8. Restrictive Covenants.

        (a) Confidential Information. You acknowledge and agree that the information, observations, and data obtained by you while employed by the Company or any of its subsidiaries or any of its Affiliates concerning the business affairs of the Company or any subsidiary or Affiliate of the Company (“Confidential Information”) are the property of the Company, such subsidiary or such Affiliate. Consequently, you agree that, except to the extent required by applicable law, statute, ordinance, rule, regulation or orders of courts or regulatory authorities, you shall not at any time (whether during or after the Employment Period) disclose to any unauthorized person or use for your own account any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of your acts or omissions to act or as required by law. You shall deliver to the Company at the termination of your employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) and the business of the Company or any subsidiary or Affiliate of the Company which you may then possess or have under your control.

        (b) Inventions and Patents. You agree that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, and all similar or related information which relates to the Company’s or any of its subsidiaries’ or Affiliates’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by you prior to the date hereof or while employed by the Company or any of its subsidiaries or Affiliates (“Work Product”) belong to the Company or such subsidiary or Affiliate. You will promptly disclose such Work Product to the Board or its designee and perform all actions reasonably requested by the Board or its designee (whether during or after the Employment Period) to

establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

        (c) Non-competition. You acknowledge that in the course of your employment with the Company and its subsidiaries and Affiliates you have become familiar, and you will become familiar, with the Company’s and its subsidiaries’ and Affiliates’ trade secrets and with other Confidential Information and that your services have been and will be of special, unique and extraordinary value to the Company and its subsidiaries and Affiliates. Therefore, you agree that unless you are terminated by the Company without Cause, or you terminate your employment with the Company for Good Reason, you shall not, during the Restricted Period, directly or indirectly own, operate, manage, control, participate in, consult with, advise, engage in services for any competitor of the Company, its subsidiaries or Affiliates, or in any manner engage in any start up of a business (including by yourself or in association with any person, firm, corporate or other business organization or through any other entity) in competition with the businesses of the Company or its subsidiaries or Affiliates as in existence or in process on the date of termination of your employment (the “Businesses”). Nothing herein shall prohibit you from being a passive owner of not more than 2% of the outstanding stock or equity of an entity which is publicly traded, so long as you have no active participation in the business of such entity. For purposes of this paragraph 8, the Restricted Period means the period during which you are employed by the Company or any of its subsidiaries and the 12-month period following such termination.

        (d) Non-solicitation. During the Restricted Period, you shall not directly, or indirectly through another person or entity use proprietary knowledge or information relating to the Company, its subsidiaries or its Affiliates obtained during the course of your employment with the Company with the intention to, or which a reasonable person would construe to (i) induce or attempt to induce any employee of the Company or any of its subsidiaries or Affiliates to leave the employ of the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between the Company or any of its subsidiaries and Affiliates and any employee thereat, including, without limitation, inducing or attempting to induce any union, employee or group of employees to interfere with the Business or operations of the Company or its subsidiaries or Affiliates, (ii) hire any person who was an employee of the Company or any subsidiary or Affiliate of the Company at any time within the six-month period prior to the date you employ or seek to employ such person, or (iii) induce or attempt to induce any customer, supplier, distributor, franchisee, licensee or other business relation of the Company or any subsidiary or Affiliate of the Company to cease doing business with the Company or such subsidiary or Affiliate, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and the Company or any subsidiary or Affiliate of the Company.

        (e) Non-disparagement. You shall not at any time during or after the Employment Period whether in writing or orally, criticize, disparage, or otherwise demean in any way the Company or its subsidiaries or Affiliates or their respective products, officers, directors, employees or shareholders.

        (f) Future Cooperation. You agree that upon the Company’s reasonable request following your termination of employment, you will use reasonable efforts to assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Company or its Affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its Affiliates, including any proceeding before any arbitral, administrative, regulatory, self-regulatory, judicial, legislative, or other body or agency. You will be entitled only to reimbursement for reasonable out-of-pocket expenses (including travel expenses) incurred in connection with providing such assistance.

        (g) Enforcement. You agree that: (i) the covenants set forth in this paragraph 8 are reasonable in all respects, including, where applicable, geographical and temporal scope, and (ii) the Company would not have entered into this Letter Agreement but for your covenants contained herein, and (iii) the covenants contained herein have been made in order to induce the Company to enter into this Letter Agreement. If, at the time of enforcement of this paragraph 8, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. You recognize and affirm that in the event of your breach of any provision of this paragraph 8, money damages would be inadequate and the Company would have no adequate remedy at law. Accordingly, you agree that in the event of a breach or a threatened breach by you of any of the provisions of this paragraph 8, the Company, in addition and supplementary to other rights and remedies granted by law existing in its favor (including recovery of damages and costs (including reasonable attorneys’ fees)), may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security).

9. Insurance and Indemnification.

        (a) D&O Insurance. The Company shall cause you to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or service in other capacities at its request. Any coverage provided to you pursuant to this paragraph 9 shall be of the same scope and on the same terms and conditions as the coverage (if any) provided to other officers or directors of the Company and

shall continue for so long as you shall be subject to personal liability relating to such service.

        (b) Indemnification. The Company will indemnify and hold you harmless from and against any and all liabilities, suits, claims, actions, causes of actions, and debts arising from and in connection with your employment by the Company and in the performance of your duties for the Company in accordance with the terms of this Letter Agreement. Such indemnification shall not apply to any such liabilities, suits, claims, actions, causes of actions or debts resulting from: (i) any action by you constituting fraud or criminal conduct, (ii) any action by you which is a material violation of the terms of this Letter Agreement or in violation of any written direction given to you, pertaining to any action within the scope of your duties, by the Board, such persons designated by the Board or the Company’s Chief Executive Officer, or (iii) any action which is in violation of any laws, rules or regulations applicable to the Company and/or the business of the Company, except to the extent such violation of laws, rules or regulations was unintentional and was performed by you while acting within the scope of your employment.

10.	Key Man Insurance. During the Employment Period, the Company may at any time effect insurance on your life and/or health in such amounts and in such form as the Company may in its sole discretion decide. You will not have any interest in such insurance, but shall, if the Company requests, submit to such medical examinations, supply such information and execute such documents as may be required in connection with, or so as to enable the Company to effect, such insurance.
11.	Withholding. The Company shall have the right to withhold from any amount payable to you hereunder an amount necessary in order for the Company to satisfy any withholding tax obligation it may have under applicable law.
12.	Governing Law. The terms of this Letter Agreement, and any action arising thereunder, shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.
13.	Waiver. This Letter Agreement may not be released, changed or modified in any manner, except by an instrument in writing signed by you and the Company. The failure of either party to enforce any of the provisions of this Letter Agreement shall in no way be construed to be a waiver of any such provision. No waiver of any breach of this Letter Agreement shall be held to be a waiver of any other or subsequent breach.
14.	Assignment. This Letter Agreement is personal to you. You shall not assign this Letter Agreement or any of your rights and/or obligations under this Letter

	Agreement to any other person. The Company may, without your consent, assign this Letter Agreement to any successor to its business.
15.	Dispute Resolution. To benefit mutually from the time and cost savings of arbitration over the delay and expense of the use of the federal and state court systems, all disputes involving this Letter Agreement (except, at the election of the Company, for injunctive relief with respect to disputes arising out of an alleged breach or threatened breach of the covenants contained in paragraph 8), including claims of violations of federal or state discrimination statutes or public policy, shall be resolved pursuant to binding arbitration in New York, New York. In the event of a dispute, a written request for arbitration shall be submitted to the New York office of the American Arbitration Association. The award of the arbitrators shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Except as otherwise provided above, this procedure shall be the exclusive means of settling any disputes that may arise under this Letter Agreement. All fees and expenses of the arbitrators and all other expenses of the arbitration, except for attorneys’ fees and witness expenses, shall be shared equally by you and the Company. Each party shall bear its own witness expenses and attorneys’ fees.
16.	Survival. Notwithstanding anything contained herein to the contrary, the provisions of paragraphs 8, 9, 12, 15 and 16 shall survive termination of your employment with the Company and its subsidiaries.
17.	Entire Agreement. This Letter Agreement supersedes all previous and contemporaneous communications, agreements and understandings, whether oral or written, between you, on the one hand, and the Company or any of its Affiliates, on the other hand, and constitutes the sole and entire agreement between you and the Company pertaining to the subject matter hereof.
18.	Counterparts. This Letter Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered to the other party.

* * * *

If the foregoing is acceptable to you, kindly sign and return to us one copy of this letter.

Sincerely yours,
VNCI
By:	/s/ Alexander Russo Name: Alexander Russo

AGREED TO AND ACCEPTED BY:

   /s/ Frank Joanlanne
Frank Joanlanne

EX-10.24 10 w85133exv10w24.htm STOCKHOLDERS AGREEMENT

Exhibit 10.24

STOCKHOLDERS AGREEMENT,

dated as of May 16, 2002

by and among

MONEYLINE NETWORKS, LLC,

VIDEO NETWORK COMMUNICATIONS, INC.

and

THE MANAGEMENT STOCKHOLDERS

Table of Contents

			Page
ARTICLE I CERTAIN DEFINITIONS				2
	1.1	Defined Terms		2
ARTICLE II TRANSFERS OF RESTRICTED SECURITIES				5
	2.1	Restrictions Generally; Securities Act		5
	2.2	Legend		6
	2.3	Sale of the Company		7
ARTICLE III PREEMPTIVE RIGHTS				7
	3.1	Preemptive Rights		7
	3.2	Notice		7
	3.3	Exercise		7
	3.4	Limitations		8
ARTICLE IV CORPORATE GOVERNANCE				8
	4.1	Significant Transactions		8
	4.2	Board of Directors		8
	4.3	Removal		10
	4.4	Vacancies		10
	4.5	By-Laws		11
ARTICLE V CERTAIN COVENANTS OF THE PARTIES				11
	5.1	Holdback Obligations		11
ARTICLE VI MISCELLANEOUS				11
	6.1	Governing Law		11
	6.2	Entire Agreement; Amendments		11
	6.3	Term		12
	6.4	Certain Actions		12
	6.5	Inspection		12
	6.6	Recapitalization, Exchanges, Etc., Affecting Restricted Securities		13
	6.7	Waiver		13
	6.8	Successors and Assigns		13
	6.9	Remedies		13
	6.10	Invalid Provisions		13
	6.11	Headings		14
	6.12	Further Assurances		14
	6.13	Gender		14
	6.14	Counterparts		14
	6.15	Notices		14

i

EXHIBITS

Exhibit A – Form of Joinder Agreement

Exhibit B – Form of Amended and Restated By-Laws

ii

     STOCKHOLDERS AGREEMENT, dated as of May 16, 2002 (the “Effective Date”), by and among MONEYLINE NETWORKS, LLC, a Delaware limited liability company (“Moneyline”), and Video Network Communications, Inc., a Delaware corporation (the “Company”). Capitalized terms used and not otherwise defined herein have the respective meanings ascribed thereto in Article I.

RECITALS

     WHEREAS, Moneyline, B2BVideo Network Corp. (“B2B”) and the Company are parties to a Stock Purchase Agreement dated May 16, 2002 (the “Stock Purchase Agreement”), and the Company and B2B are parties to an Agreement and Plan of Merger dated May 16, 2002 (the “Merger Agreement”) and, concurrently with this Agreement, have consummated the transactions contemplated therein (the “Transactions”), whereby (i) B2B Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, has merged with and into B2B with B2B surviving; and (ii) Moneyline beneficially owns 36,250,000 shares of Common Stock (as defined below);

     WHEREAS, OEP has provided the funding to Moneyline in connection with the Transactions;

     WHEREAS, pursuant to the Stock Purchase Agreement, the Board (as defined below), as of the date hereof, consists of six (6) individuals, 3 of whom are Affiliates (as defined below) of Moneyline or OEP;

     WHEREAS, the Company will file within one day of the date of this Agreement all filings required by Rule 14f-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the Commission (as defined below), and upon the expiration of the ten day period from such filing, will appoint Charles Auster to the Board;

     WHEREAS, the parties hereto wish to further establish the nature of their relationship and set forth their agreement concerning the governance of the Company following consummation of the Transactions as well as certain matters relating to the ownership of Common Stock by Moneyline.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1

ARTICLE I
CERTAIN DEFINITIONS

                 1.1    Defined Terms  The following capitalized terms, when used in this Agreement, have the respective meanings set forth below:

        “Affiliate” means, with respect to any Person, any other Person that controls, is controlled by or is under common control with such Person. For the purposes of this definition, “control” (including, with its correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of securities, by contract or otherwise.

        “Agreement” means this Stockholders Agreement and the exhibits hereto, as the same may be amended, modified, supplemented or restated from time to time in accordance with the terms hereof.

        “Board” means the Board of Directors of the Company.

        “Closing Date” means the date of the closing of the purchase and sale of shares of Common Stock pursuant to the Stock Purchase Agreement.

        “Commission” means the Securities and Exchange Commission.

        “Common Stock” means the Common Stock, par value $.01 per share, of the Company, any securities into which such Common Stock shall have been changed or any securities resulting from any reclassification or recapitalization of such Common Stock, and all other securities of any class or classes (however designated), other than any participating preferred stock, of the Company the holders of which have the right, without limitation as to amount, after payment on any securities entitled to a preference on dividends or other distributions upon any dissolution, liquidation or winding-up, either to all or to a share of the balance of payments upon such dissolution, liquidation or winding-up.

        “Diluted Basis” means, with respect to the calculation of the number of shares of Common Stock, all shares of Common Stock outstanding at the time of determination and all shares issuable upon the exercise, conversion or exchange, as applicable, of all outstanding securities exercisable, convertible or exchangeable for or into shares of Common Stock.

        “Independent Director” means a director of the Company who is not a Moneyline Nominee and who (i) is not an officer, employee or director of any of Moneyline or its Affiliates, and (ii) has no affiliation or compensation, consulting or contractual relationship with Moneyline or its Affiliates such that a reasonable person would regard such director as likely to be unduly influenced by any of such Persons.

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        “Joinder Agreement” means a Joinder Agreement substantially in the form attached hereto as Exhibit A.

        “Management Stockholders” means any director, officer, employee, consultant or agent of the Company or any of its subsidiaries which has executed a Stock Option Purchase Agreement and a Joinder Agreement, so long as any such Person shall hold Restricted Securities.

        “Moneyline Stockholders” means Moneyline and each Person to whom Moneyline Transfers any Restricted Securities, so long as any such Person shall hold Restricted Securities.

        “OEP” means One Equity Partners LLC, a Delaware limited liability company.

        “Person” means an individual, partnership, corporation, limited liability company or partnership, trust, unincorporated organization, joint venture, government (or agency or political subdivision thereof) or any other entity of any kind.

        “Pro Rata” means, with respect to one or more Stockholders, in proportion to the number of shares of Common Stock on a Diluted Basis owned by such Stockholder or Stockholders.

        “Restricted Securities” means (i) with respect to Moneyline and OEP, the Common Stock, any other securities exercisable, exchangeable or convertible for or into Common Stock and any securities issued with respect to any of the foregoing as a result of any stock dividend, stock split, reclassification, recapitalization, reorganization, merger, consolidation or similar event or upon the conversion, exchange or exercise thereof and any other securities designated as such by the Board; and (ii) with respect to the Management Group, any shares of Common Stock issued pursuant to a Stock Option Purchase Agreement.

        “Sale of the Company” means the sale of the Company (whether by merger, consolidation, recapitalization, reorganization, sale of securities, sale of assets or otherwise) in one transaction or series of related transactions to a Person or Persons not an Affiliate, directly or indirectly, of any Moneyline Stockholder pursuant to which such Person or Persons (together with its Affiliates) acquires (i) securities representing at least a majority of the voting power of all securities of the Company, assuming the conversion, exchange or exercise of all securities convertible, exchangeable or exercisable for or into voting securities, or (ii) all or substantially all of the Company’s assets on a consolidated basis.

        “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.

        “Significant Transaction” means:

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                                             (i) the authorization, issuance or sale of any capital stock or debt securities or securities exercisable, convertible or exchangeable for or into capital stock or debt securities or any option, warrant or other right to acquire the same, of, or any other interest in, the Company or any subsidiary of the Company, other than securities issued pursuant to existing option plans, securities issued upon exercise of convertible securities existing as of the date hereof, or any amendment or modification of any security of the Company or any subsidiary of the Company, whether or not outstanding as of the date hereof;

                                             (ii) the redemption, purchase or other acquisition of any securities of the Company or any subsidiary of the Company;

                                             (iii) any amendment to, or modification, repeal or waiver of any provision of, the Certificate of Incorporation or By-laws of the Company or any subsidiary of the Company;

                                             (iv) the declaration or payment of any dividend or other distribution by the Company with respect to the capital stock of the Company;

                                             (v) the entering into, or the adoption of any amendment to or modification, repeal or waiver of, any provision of any compensation plan, arrangement, contract or agreement relating to the compensation of, or other benefits arrangements for, any employee of the Company or any subsidiary of the Company, in each case, other than ordinary course salary arrangements for non-executive officers;

                                             (vi) the dissolution, liquidation or winding-up of the Company or any subsidiary of the Company;

                                             (vii) the commencement, initiation, continuation or settlement of any suit, action or proceeding before any court, governmental or regulatory agency or arbitral body, relating to the Company or any subsidiary of the Company and involving amounts in excess of $250,000;

                                             (viii) the appointment or removal of the independent auditors of the Company or any subsidiary of the Company or modification of significant accounting methods or policies of the Company or any subsidiary of the Company;

                                             (ix) the adoption of any significant change to the business plan and budget of the Company;

                                             (x) the filing of a voluntary petition in bankruptcy or commencement of a voluntary legal procedure for reorganization, arrangement, adjustment, relief or composition of indebtedness or other similar law now or hereafter in effect, the consent to the entry of an order for relief in an involuntary case under such law or the application for or consent to the appointment of a receiver, liquidator, assignee, custodian or trustee (or similar official) of the Company or any subsidiary of the Company;

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                                             (xi) any merger, consolidation, recapitalization or other business combination to which the Company or any subsidiary of the Company is a party or any sale of all or substantially all of the assets of the Company or any subsidiary of the Company;

                                             (xii) the appointment or removal of any executive officer of the Company or any subsidiary of the Company;

                                             (xiii) the establishment of any committee of the Board;

                                             (xiv) the acquisition by the Company or any subsidiary of the Company of any equity securities of any Person or securities convertible into or exercisable or exchangeable for an equity interest in any Person, including, without limitation, any other instrument of Indebtedness issued by any Person, where the aggregate purchase price of such securities, whether in one or a series of related transactions, is greater than $250,000;

                                             (xv) the acquisition of any assets by the Company or any subsidiary of the Company in a single transaction or series of related transactions having a value in excess of $250,000 in the aggregate; and

                                             (xvi) taking any action, directly or indirectly, in contemplation of any of the foregoing.

        “Stockholders” means each of the Moneyline Stockholders and the Management Stockholders.

        “Stock Option Purchase Agreements” means the Stock Option Purchase Agreements entered into, at any time or from time to time on or after the date hereof, by the Company and any Management Stockholder, as any such agreement may be amended, restated or modified from time to time, and any other agreement designated as such by the Company.

        Transfer” means, directly or indirectly, any sale, transfer, assignment, hypothecation, pledge or other disposition of any Restricted Securities or any interests therein.

                              (b) Unless otherwise provided herein, all accounting terms used in this Agreement shall be interpreted in accordance with United States generally accepted accounting principles as in effect from time to time, applied on a consistent basis.

ARTICLE II
TRANSFERS OF RESTRICTED SECURITIES

                 2.1      Restrictions Generally; Securities Act  Each Management Stockholder agrees that it will not, directly or indirectly, Transfer any Restricted Securities in violation of this Agreement. Any attempt by any Management Stockholder to Transfer any Restricted Securities in violation of

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this Agreement shall be null and void and neither the issuer of such securities nor any transfer agent of such securities shall give any effect to such attempted Transfer in its stock records.

                              (b) Each Management Stockholder agrees that it will not Transfer any Restricted Securities except pursuant to an effective registration statement under the Securities Act, or, unless waived by the Board, upon receipt by the Company of an opinion of counsel to the Stockholder reasonably satisfactory to the Company or, if agreed by the Board, counsel to the Company, or a no-action letter from the Commission addressed to the Company, to the effect that no registration statement is required because of the availability of an exemption from registration under the Securities Act.

                 2.2    Legend Each certificate representing Restricted Securities shall be endorsed with the following legends and such other legends as may be required by applicable state securities laws:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT, DATED AS OF MAY 16, 2002, AS SUCH AGREEMENT MAY BE AMENDED, RESTATED OR MODIFIED FROM TIME TO TIME, AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS THEREOF AND ANY TRANSFEREE OF THESE SECURITIES SHALL BE SUBJECT TO THE TERMS OF SUCH AGREEMENT. COPIES OF THE FOREGOING AGREEMENT ARE MAINTAINED WITH THE CORPORATE RECORDS OF THE ISSUER AND ARE AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICES OF THE ISSUER.”

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER OR UNDER APPLICABLE STATE SECURITIES LAWS.”

                              (b) Any certificate issued at any time in exchange or substitution for any certificate bearing such legends (except a new certificate issued upon the completion of a Transfer pursuant to a registered public offering under the Securities Act and made in accordance with the Securities Act) shall also bear such legends, unless in the opinion of counsel for the Company, the Restricted Securities represented thereby are no longer subject to the provisions of this Agreement or the restrictions imposed under the Securities Act or state securities laws, in which case the applicable legend (or legends) may be removed.

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                 2.3    Sale of the Company If the Moneyline Stockholders desire to effect a Sale of the Company, such Moneyline Stockholders shall notify each the Management Stockholders, in writing, of such desire and the terms and conditions of such proposed sale. Notwithstanding any other provision of this Agreement, each such Management Stockholder shall take all necessary and desirable actions reasonably requested by such Moneyline Stockholders in connection with the consummation of such Sale of the Company, and if such transaction is structured as a sale of Restricted Securities, within ten (10) business days of the receipt of such notice (or such longer period of time as such Moneyline Stockholders shall designate in such notice) such other Stockholders shall cause all of their respective Restricted Securities to be sold to the designated purchaser on the same terms and conditions, for the same per share consideration and at the same time as the Restricted Securities being sold by such Moneyline Stockholders. In furtherance of, and not in limitation of the foregoing, in connection with a Sale of the Company, each Management Stockholder will, (a) consent to and raise no objections against the Sale of the Company or the process pursuant to which it was arranged, (b) waive any dissenter’s rights and other similar rights and (c) execute all documents containing such terms and conditions as those executed by such Moneyline Stockholders as directed by such Moneyline Stockholders. All Management Stockholders will bear their Pro Rata share of the costs and expenses incurred for the benefit of all Stockholders and not otherwise paid by the Company or the purchaser in connection with a Sale of the Company. Costs incurred by any Management Stockholder on its own behalf will not be shared by the Moneyline Stockholders.

ARTICLE III
PREEMPTIVE RIGHTS

                 3.1    Preemptive Rights If, at any time after the Closing Date for so long as the Moneyline Stockholders shall be entitled to designate at least one Moneyline Nominee (as defined below) for election to the Board, the Company proposes to issue and sell shares of Common Stock or any other voting securities of the Company to any Person, the Moneyline Stockholders shall have the right to purchase from the Company a number of shares of Common Stock or any other voting securities of the Company sufficient to maintain following such transaction the same Pro Rata interest in the shares of Common Stock or any other voting securities of the Company as immediately prior to such transaction. Such purchase by the Moneyline Stockholders shall be on the same terms and conditions as such purchase by such Person. Each such issuance and sale to any Person shall be subject to the rights set forth in this Article III.

                 3.2    Notice If the Company proposes to issue shares of Common Stock or any other voting securities of the Company in accordance with this Article III, it shall give the Moneyline Stockholders written notice of such issuance, describing the price and terms upon which the Company intends to issue the same and the amount eligible to be purchased by the Moneyline Stockholders.

                 3.3    Exercise Upon receipt by the Moneyline Stockholders of the written notice of the Company pursuant to Section 3.2 above, the Moneyline Stockholders shall have ten (10)

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business days during which to exercise the right pursuant to Section 3.1 above to purchase the proportionate share of Common Stock or any other voting securities of the Company proposed to be issued and sold for the price and upon the terms specified in such notice. If the Money Stockholders fail to notify the Company of its exercise of such rights within such twenty (20) business day period, the Money Stockholders shall have no further rights with regard to such purchase by such Person at the price and upon the terms specified in the notice, subject to Section 3.4 below.

                 3.4    Limitations If the Company has not sold the shares of Common Stock or any other voting securities of the Company identified in the notice given pursuant to Section 3.2 within ninety (90) days following the expiration of the twenty (20) business day period referred to in Section 3.3 above, the Company shall not thereafter issue or sell any such shares to such Person without also offering the same to the Money Stockholders in the manner provided above.

ARTICLE IV
CORPORATE GOVERNANCE

                 4.1    Significant Transactions For so long as the Moneyline Stockholders own 25% or more of the shares of Common Stock of the Company, the consent of Moneyline shall be required prior to entering into any Significant Transaction.

                 4.2    Board of Directors Number of Directors. From and after the date hereof, each Stockholder shall vote or cause to be voted all shares of Common Stock and any other voting securities of the Company over which such Stockholder has voting control, or execute a written consent in lieu of such a meeting of stockholders, and shall take all actions necessary, to ensure the election to the Board of at least seven (7) individuals. For so long as the Moneyline Stockholders own 25% or more of the shares of Common Stock of the Company, if the Moneyline Stockholders request that the number of individuals constituting the Board be changed, by written notice delivered to the Company, the size of the Board shall be changed to such number and each Stockholder hereby agrees to vote all shares of Common Stock owned by such Stockholder and other securities over which such Stockholder has voting control to effect such change in the size of the Board or to consent in writing to effect such change in the size of the Board upon such request.

                              (b) Election of Moneyline Directors.

                                             (i) For so long as the Moneyline Stockholders own 50% or more of the shares of Common Stock or any other voting securities of the Company owned by Moneyline on the date hereof, each Stockholder shall vote or cause to be voted all shares of Common Stock and any other voting securities of the Company over which such Stockholder has voting control, at any regular or special meeting of stockholders called for the purpose of filling positions on the Board, or execute a written consent in lieu of such a meeting of stockholders for the purpose of filling positions on the Board, and shall take all actions necessary, to ensure the election to the Board of four (4) individuals to be designated by Moneyline (each, a “Moneyline

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     Nominee”, and collectively, the “Moneyline Nominees”), the Chief Executive Officer of the Company (the “CEO”) and two (2) Independent Directors.

                                             (ii) For so long as the Moneyline Stockholders own less than 50% but at least 25% of the shares of Common Stock or any other voting securities of the Company owned by Moneyline on the date hereof, each Stockholder shall vote or cause to be voted all shares of Common Stock and any other voting securities of the Company over which such Stockholder has voting control, at any regular or special meeting of stockholders called for the purpose of filling positions on the Board, or execute a written consent in lieu of such a meeting of stockholders for the purpose of filling positions on the Board, and shall take all actions necessary, to ensure the election to the Board of three (3) Moneyline Nominees, the CEO and three (3) Independent Directors.

                                             (iii) For so long as the Moneyline Stockholders own less than 25% of the shares of Common Stock or any other voting securities of the Company owned by Moneyline on the date hereof, each Stockholder shall vote or cause to be voted all shares of Common Stock and any other voting securities of the Company over which such Stockholder has voting control, at any regular or special meeting of stockholders called for the purpose of filling positions on the Board, or execute a written consent in lieu of such a meeting of stockholders for the purpose of filling positions on the Board, and shall take all actions necessary, to ensure the election to the Board of a number of Moneyline Nominees that is proportionate to the number of shares of Common Stock or any other voting securities of the Company held by the Moneyline Stockholder, the CEO and such number of Independent Directors as is necessary to fill any remaining position on the Board.

                              (c) Replacements. If prior to his or her election to the Board pursuant to Section 3.2(b), any Moneyline Nominee shall be unable or unwilling to serve as a director of the Company, the Moneyline Stockholders that nominated such Moneyline Nominee shall nominate a replacement who shall then be a Moneyline Nominee for purposes of Section 3.2(b).

                              (d) Committees.

                                             (i) For so long as a Moneyline Nominee shall be a member of the Board, each committee of the Board, including the executive, audit, nominating and compensation committees, shall include at least one Moneyline Nominee at all times.

                                             (ii) From and after the date hereof and until the appointment of Charles Auster to the Board in accordance with Section 4.2(e), no committee of the Board shall take any action and the consent of the majority of the Board (other than Charles Auster) shall be required to approve and adopt any action for or on behalf of the Company.

                                   (e) Composition of Board as of the Date Hereof. Pursuant to the Stock Purchase Agreement and contemporaneously with the date hereof, the Board consists of the following six (6) individuals (i) David Walsh, (ii) Alexander Russo, (iii) Jonathan Robson, (iv) Carl Muscari, (v) Richard S. Friedland, and (vi) Eugene R. Cacciamani. Upon the expiration of

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the ten day period following the date of filing of all forms required by Rule 14f-1 of the Exchange Act with the Commission, the Company, the Board and each Stockholder shall take all action necessary to appoint Charles Auster to the Board.

                 4.3    Removal (a) If the Moneyline Stockholders that designated a Moneyline Nominee pursuant to Section 4.2(b) request, by written notice to the other Stockholders, that such Moneyline Nominee elected as a director be removed (with or without cause), such director shall be removed and each Stockholder hereby agrees to vote all shares of Common Stock owned by such Stockholder and other securities over which such Stockholder has voting control to effect such removal or to consent in writing to effect such removal upon such request. No director that is a Moneyline Nominee shall be removed without cause except as provided in this Section 4.3.

                 (b) If at any time a member of the Board resigns or is removed (in accordance with this Section 4.3 or otherwise), a new member of the Board shall be designated to replace such member until the next election of directors. If consistent with Section 4.2(b), the replacement director is to be a Moneyline Nominee, the Moneyline Stockholders shall designate the replacement Moneyline Nominee. If the former member was the CEO, the replacement CEO shall be the replacement. Except as set forth in Section 4.3(d) below, if consistent with Section 4.2(b), the replacement director is to be an Independent Director, the remaining members of the Board shall designate the replacement Independent Director.

                 (c) Subject to Section 4.3(d) below, if at any time the number of Moneyline Nominees entitled to be nominated to the Board in accordance with this Agreement in an election of directors presented to stockholders would decrease, within 10 days thereafter the Moneyline Stockholders shall cause a sufficient number of Moneyline Nominees to resign from the Board so that the number of Moneyline Nominees on the Board after such resignation(s) equals the number of Moneyline Nominees that the Moneyline Stockholders would have been entitled to designate had an election of directors taken place at such time. The Moneyline Stockholders shall also cause a sufficient number of Moneyline Nominees to resign from any relevant committees of the Board so that such committees are comprised in the manner contemplated by Section 4.02(d) after giving effect to such resignations. Any vacancies created by the resignations required by this Section 4.3(c) shall be filled by Independent Directors.

                 (d) If at any time the percentage of Common Stock or other voting securities of the Company held by the Moneyline Stockholders decreases as a result of an issuance of Common Stock or other voting securities of the Company, the Moneyline Stockholders may notify the Company that the Moneyline Stockholders intend to acquire a sufficient amount of additional shares of Common Stock or other voting securities of the Company necessary to maintain the Moneyline Stockholders then current level of Board representation within twenty (20) business days. In such event, until the end of such period (and thereafter if the Moneyline Stockholders in fact restore their percentage of Common Stock or other voting securities of the Company during such period to maintain the requisite level of ownership of Common Stock or other voting securities in accordance with Section 4.2(b)), the Board shall continue to have the number of Moneyline Nominees as prior to such issuance of Common Stock or other voting securities of the

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Company.

                  4.4    Vacancies In the event that a vacancy is created on the Board at any time by the death, disability, retirement, resignation or removal (with or without cause) of a director who is a Moneyline Nominee, the Moneyline Stockholders may designate a new Moneyline Nominee to fill the vacancy.

                  4.5    By-Laws The Company shall cause the amendment of its by-laws (the “By-Laws”) to reflect the provisions of Article IV of this Agreement (other than Section 4.2(d)(ii)) and such other matters as the parties hereto may reasonably agree. The form of such amended By-Laws is attached hereto as Exhibit B. Those provisions of the By-Laws reflecting the terms of Article IV of this Agreement shall not be amended during the term of this Agreement without the express written consent of the Moneyline Stockholders. The Company and the Moneyline Stockholders shall each take or cause to be taken all lawful action necessary to ensure at all times that the Company’s certificate of incorporation and the By-Laws are not at ant times inconsistent with the provisions of this Agreement.

ARTICLE V
CERTAIN COVENANTS OF THE PARTIES

                 5.1    Holdback Obligations Unless otherwise agreed to by the Moneyline Stockholders, each Management Stockholder agrees (a) not to effect any sale or distribution of equity securities of the Company, or any securities convertible, exchangeable or exercisable for or into such securities, during the seven (7) days prior to, and the 180-day period beginning on, the effective date of any underwritten public offering of Common Stock registered under the Securities Act (except as part of such underwritten registration), unless the managing underwriters of the registered public offering otherwise agree and (b) to enter into such standstill agreements and related agreements as such managing underwriters may request.

ARTICLE VI
MISCELLANEOUS

                 6.1    Governing Law The corporate laws of the State of Delaware will govern all questions concerning the relative rights of the Company and its stockholders hereunder. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

                 6.2    Entire Agreement; Amendments This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may be amended, modified or supplemented only by a written instrument duly executed by the Company and the Moneyline Stockholders, except that any amendment, modification or supplement that materially, adversely and disproportionately affects, as a group, the Management Stockholders shall require the

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consent of the holders representing more than fifty percent (50%) of the total number of shares of Restricted Securities on a Diluted Basis then held by the Management Stockholders. In the event of an amendment, modification or supplement of this Agreement in accordance with its terms, the Stockholders hereby agree to vote their shares of Common Stock to approve any necessary amendments to the Certificate of Incorporation and By-Laws of the Company resulting therefrom.

                 6.3    Term This Agreement shall terminate upon the earliest to occur of (a) the tenth anniversary of the Closing Date and (b) a Sale of the Company.

                 6.4    Certain Actions Unless otherwise expressly provided herein, whenever any action is required under this Agreement by: the Moneyline Stockholders, it shall be by the affirmative vote of the holders representing more than fifty percent (50%) of the total number of shares of Restricted Securities on a Diluted Basis then held by the Moneyline Stockholders as a group, or as otherwise agreed in writing by the Moneyline Stockholders as a group.

                 6.5    Inspection For so long as this Agreement shall remain in effect, this Agreement shall be made available for inspection by any Stockholder at the principal executive offices of the Company.

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                 6.6     Recapitalization, Exchanges, Etc., Affecting Restricted Securities The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Restricted Securities, to any and all shares of the Company capital stock or any successor or assign of the Company (whether by merger, consolidation, sale of assets, or otherwise, including shares issued by a parent corporation in connection with a triangular merger) which may be issued in respect of, in exchange for, or in substitution of, Restricted Securities and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, reclassifications and the like occurring after the date hereof.

                 6.7    Waiver No waiver by any party of any term or condition of this Agreement, in one or more instances, shall be valid unless in writing, and no such waiver shall be deemed to be construed as a waiver of any subsequent breach or default of the same or similar nature.

                 6.8    Successors and Assigns Except as otherwise expressly provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns (including, without limitation, transferees of Restricted Securities); provided, however, that (a) nothing contained herein shall be construed as granting any Management Stockholder the right to Transfer any Restricted Securities except in accordance with this Agreement, and (b) unless otherwise provided in the terms of the Transfer, none of the provisions of this Agreement, other than those set forth in Sections 2.1 and 2.2 to the extent those Sections require compliance with the Securities Act, delivery of opinions of counsel and placement of Securities Act (or state securities laws) legends or other legends, shall apply to any Transfer of Restricted Securities (or to the transferee thereof) subsequent to a Transfer of those securities pursuant to a registered public offering under the Securities Act made in accordance with the Securities Act.

                 6.9    Remedies In the event of a breach by any party to this Agreement of its obligations under this Agreement, any party injured by such breach, in addition to being entitled to exercise all rights granted by law, including recovery of damages and costs (including reasonable attorneys’ fees), will be entitled to specific performance of its rights under this Agreement. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived.

                 6.10    Invalid Provisions If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this

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Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

                 6.11    Headings The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

                 6.12    Further Assurances Each party hereto shall cooperate and shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement.

                 6.13    Gender Whenever the pronouns “he” or “his” are used herein they shall also be deemed to mean “she” or “hers” or “it” or “its” whenever applicable. Words in the singular shall be read and construed as though in the plural and words in the plural shall be construed as though in the singular in all cases where they would so apply.

                 6.14    Counterparts This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

                 6.15    Notices All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by facsimile transmission or mailed by prepaid first class mail, return receipt requested, or mailed by overnight courier prepaid to the parties at the following addresses or facsimile numbers:

(a) If to Moneyline:

Moneyline Networks, LLC
233 Broadway
New York, NY 10279
Facsimile No.: 212-553-2598
Attn: Alexander Russo

with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036
Facsimile No.: 917-777-3050
Attn: Joseph A. Coco, Esq.

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(b) If to OEP, to:

One Equity Partners LLC
320 Park Avenue, 18th Floor
New York, NY 10022
Attn: Richard M. Cashin, Jr.

(c) If to the Company, to:

Video Network Communications, Inc.
50 International Drive
Portsmouth, New Hampshire 03801
Facsimile No.: (603) 334-6742
Attn: Robert Emery, Chief Financial Officer

with a copy to:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
666 Third Avenue, 25th Floor
New York, NY 101017
Facsimile No.: 212-983-3115
Attn: Kenneth Koch, Esq.

                                                     (d) If to a Stockholder other than a Moneyline Stockholder, to the address of such Person set forth in the stock records of the Company.

All such notices, requests and other communications will (w) if delivered personally to the address as provided in this Section 6.15 be deemed given upon delivery, (x) if delivered by facsimile transmission to the facsimile number as provided in this Section 6.15 be deemed given upon facsimile confirmation, and (y) if delivered by mail in the manner described above to the address as provided in this Section 6.15 upon the earlier of the third business day following mailing or upon receipt and (z) if delivered by overnight courier to the address as provided in this Section 6.15, be deemed given on the earlier of the first business day following the date sent by such overnight courier or upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section 6.15). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto.

15

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written.

COMPANY:
VIDEO NETWORK COMMUNICATIONS, INC
By:
	Name:
	Title:
MONEYLINE STOCKHOLDERS:
MONEYLINE NETWORKS, LLC
By:
	Name:
	Title:

Exhibit A

Form of Joinder Agreement

Video Network Communications, Inc.
50 International Drive
Portsmouth, New Hampshire 03801

Attn: President

Gentlemen:

In consideration of the issuance to the undersigned of ______shares of Common Stock, par value $0.01 per share, of Video Network Communications, Inc., a Delaware corporation (the “Company”), the undersigned agrees that, as of the date written below, [he] [she] [it] shall become a party to that certain Stockholders Agreement dated as of May 16, 2002, as such agreement may have been or may be amended from time to time (the “Agreement”), among the Company and the persons named therein, and shall be fully bound by, and subject to, the provisions of the Agreement as though an original party thereto and shall be deemed a Management Stockholder for purposes thereof.

     Executed as of the    day of          ,        .

NAME:

Address:

Exhibit B

Form of Amended and Restated By-Laws

[Attached hereto] EX-11.1 11 w85133exv11w1.htm COMPUTATION OF EARNINGS

EXHIBIT 11.1

STATEMENT RE: COMPUTATION OF PER SHARE LOSS

Information regarding the computation of per share loss is presented in the notes to the Registrant’s financial statements included in this Form 10-KSB.

EX-21 12 w85133exv21.htm SUBSIDIARIES

EXHIBIT 21

SUBSIDIARIES

B2BVideo Network, Corp.

EX-23.1 13 w85133exv23w1.htm CONSENT OF DELOITTE TOUCHE

Exhibit 23.1

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in the Registration Statement of Video Network Communications, Inc. on Form S-8 No. 333-95799 of our report dated March 7, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph that discloses the uncertainty about the Company’s ability to continue as a going concern and an emphasis of matter paragraph concerning its dependence on its majority investor), appearing in and incorporated by reference in the Annual Report on Form 10-KSB of Video Network Communications, Inc. for the year ended December 31, 2002.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 11, 2003

EX-23.2 14 w85133exv23w2.htm CONSENT OF ERNST & YOUNG

Exhibit 23.2

Consent of Ernst & Young LLP, Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-95799) pertaining to the 1999 Stock Incentive Plan of Video Network Communications, Inc. of our report dated April 4, 2002, except for Note 16, as to which the date is May 17, 2002, with respect to the financial statements of Video Network Communications, Inc. included in the Annual Report (Form 10-KSB) for the year ended December 31, 2002.

/s/  Ernst & Young LLP Ernst & Young LLP

Manchester, New Hampshire
April 8, 2003

EX-99.1 15 w85133exv99w1.htm CERTIFICATION OF CEO AND CFO

EXHIBIT 99.1

Certification of CEO and CFO
Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-KSB of Video Network Communications, Inc. (the “Company”) for the annual period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Carl Muscari, as Chief Executive Officer of the Company, and Lawrence Kinsella, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

     (1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Carl Muscari
Name: Carl Muscari
Title: Chief Executive Officer
Date: April 11, 2003

/s/ Lawrence Kinsella
Name: Lawrence Kinsella
Title: Chief Financial Officer
Date: April 11, 2003

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