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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GEr1sme5Ssnerr8gLbYMhhViLw866V3cdFUp0LIX9D07FsHyDa4dDTUwBbcYx7fo rkbC5pqJvqtO6DPWfi7vLA== 0000950123-03-012731.txt : 20031114 0000950123-03-012731.hdr.sgml : 20031114 20031114130401 ACCESSION NUMBER: 0000950123-03-012731 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEWPOINT CORP CENTRAL INDEX KEY: 0000919794 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 954102687 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27168 FILM NUMBER: 031002394 BUSINESS ADDRESS: STREET 1: 498 SEVENTH AVENUE STREET 2: SUITE 1810 CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 212-201-0800 MAIL ADDRESS: STREET 1: 498 SEVENTH AVENUE STREET 2: SUITE 1810 CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: VIEWPOINT CORP/NY/ DATE OF NAME CHANGE: 20001201 FORMER COMPANY: FORMER CONFORMED NAME: METACREATIONS CORP DATE OF NAME CHANGE: 19970529 FORMER COMPANY: FORMER CONFORMED NAME: HSC SOFTWARE CORP DATE OF NAME CHANGE: 19951019 10-Q 1 y91802e10vq.htm VIEWPOINT CORPORATION VIEWPOINT CORPORATION

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2003


[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to
Commission file number: 0-27168

VIEWPOINT CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		95-4102687
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

498 Seventh Avenue, Suite 1810, New York, NY 10018
(Address of principal executive offices and zip code)

(212) 201-0800
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]

As of November 11, 2003, 49,123,007 shares of $0.001 par value common stock were outstanding.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Consolidated Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II - OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EMPLOYMENT AGREEMENT: AMATO
EMPLOYMENT AGREEMENT: MITCHELL
EMPLOYMENT AGREEMENT: RICE
302 CERTIFICATION
302 CERTIFICATION
906 CERTIFICATION

TABLE OF CONTENTS


			Page

	PART I — FINANCIAL INFORMATION
Item 1.		Consolidated Financial Statements (unaudited)
		Consolidated Balance Sheets – September 30, 2003 and December 31, 2002 (unaudited)		3
		Consolidated Statements of Operations – Three and nine months ended September 30, 2003 and 2002 (unaudited)		4
		Consolidated Statements of Cash Flows – Nine months ended September 30, 2003 and 2002 (unaudited)		5
		Notes to Consolidated Financial Statements (unaudited)		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.		Controls and Procedures		35
	PART II — OTHER INFORMATION
Item 6.		Exhibits and Reports on Form 8-K		37
		Signatures		38

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

VIEWPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(Unaudited)


			September 30,			December 31,
			2003			2002

ASSETS
Current assets:
	Cash and cash equivalents		$	746		$	10,678
	Marketable securities			1,017			890
	Accounts receivable, net			1,218			2,925
	Related party accounts receivable, net			286			838
	Notes receivable, net			—			750
	Prepaid expenses and other current assets			633			599

		Total current assets		3,900			16,680
Restricted cash				455			987
Property and equipment, net				2,111			3,591
Goodwill, net				31,276			31,276
Intangible assets, net				187			165
Other assets				294			653

		Total assets	$	38,223		$	53,352

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	1,994		$	2,962
	Accrued expenses			1,520			759
	Due to related parties, net			2,928			2,920
	Deferred revenues			379			334
	Related party deferred revenues			687			249
	Accrued incentive compensation			545			545
	Current liabilities related to discontinued operations			231			231

		Total current liabilities		8,284			8,000
Convertible notes				3,001			6,712
Warrants to purchase common stock				130			288
Subordinated notes				1,685			—
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $.001 par value; 5,000 shares authorized — no shares issued and outstanding at September 30, 2003 and December 31, 2002				—			—
Common stock, $.001 par value; 75,000 shares authorized – 46,158 shares issued and 45,998 shares outstanding at September 30, 2003 and 41,179 shares issued and 41,019 shares outstanding at December 31, 2002				46			41
Paid-in capital				269,119			267,569
Deferred compensation				(586	)		(4,130	)
Treasury stock at cost; 160 shares at September 30, 2003 and December 31, 2002				(1,015	)		(1,015	)
Accumulated other comprehensive loss				(56	)		(36	)
Accumulated deficit				(242,385	)		(224,077	)

		Total stockholders’ equity		25,123			38,352

		Total liabilities and stockholders’ equity	$	38,223		$	53,352

The accompanying notes are an integral part of these consolidated financial statements.

VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Revenues:
	Licenses	$	317		$	1,633		$	2,166		$	4,129
	Related party licenses		—			2,024			1,060			6,929
	Services		1,508			605			3,705			2,673
	Related party services		693			1,064			4,086			1,757

Total revenues			2,518			5,326			11,017			15,488

Cost of revenues:
	Licenses		21			6			96			251
	Services		1,419			1,125			4,967			2,947

Total cost of revenues			1,440			1,131			5,063			3,198

Gross profit			1,078			4,195			5,954			12,290

Operating expenses:
	Sales and marketing (including non-cash stock-based compensation charges totaling $88 and $552 for the three months ended September 30, 2003 and 2002, respectively, and $467 and $1,992 for the nine months ended September 30, 2003 and 2002, respectively)		1,637			4,068			7,625			11,234
	Research and development (including non-cash stock-based compensation charges totaling $138 and $366 for the three months ended September 30, 2003 and 2002, respectively, and $803 and $1,071 for the nine months ended September 30, 2003 and 2002, respectively)		1,201			1,439			4,125			4,619
	General and administrative (including non-cash stock-based compensation charges totaling $294 and $282 for the three months ended September 30, 2003 and 2002, respectively, and $1,118 and $1,110 for the nine months ended September 30, 2003 and 2002, respectively)		3,133			2,247			8,058			6,846
	Depreciation		383			493			1,305			1,463
	Amortization of intangible assets		1			1			9			664
	Restructuring and impairment charges		674			—			1,885			—
	Impairment of goodwill and other intangible assets		—			—			—			6,275

Total operating expenses			7,029			8,248			23,007			31,101

Loss from operations			(5,951	)		(4,053	)		(17,053	)		(18,811	)

Other income (expense):
	Interest and other income, net		8			44			42			133
	Interest expense		(257	)		—			(743	)		—
	Changes in fair values of warrants to purchase common stock and conversion options of convertible notes		667			—			1,010			—
	Loss on early extinguishment of debt		—			—			(1,682	)		—

Total other income (expense)			418			44			(1,373	)		133

Loss before provision for income taxes			(5,533	)		(4,009	)		(18,426	)		(18,678	)
Provision for income taxes			26			—			39			—

Net loss from continuing operations			(5,559	)		(4,009	)		(18,465	)		(18,678	)
Adjustment to net loss on disposal of discontinued operations			41			9			157			102

Net loss		$	(5,518	)	$	(4,000	)	$	(18,308	)	$	(18,576	)

Basic and diluted net loss per common share:
	Net loss per common share from continuing operations	$	(0.12	)	$	(0.10	)	$	(0.41	)	$	(0.46	)

Net loss per common share		$	(0.12	)	$	(0.10	)	$	(0.41	)	$	(0.46	)

Weighted average number of shares outstanding — basic and diluted			45,987			40,987			44,463			40,677

The accompanying notes are an integral part of these consolidated financial statements.

VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)


					Nine Months Ended
					September 30,

					2003			2002

Cash flows from operating activities:
Net loss					$	(18,308	)	$	(18,576	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Adjustment to net loss on disposal of discontinued operations					—			(102	)
	Non-cash stock-based compensation charges					2,388			4,173
	Restructuring and impairment charges					1,885			—
	Depreciation and amortization					1,314			2,127
	Provision for bad debt					745			570
	Impairment of goodwill and other intangible assets					—			6,275
	Loss on write-off of notes receivable					750			—
	Loss on sale or disposal of equipment					226			45
	Accrued interest income					—			(17	)
	Changes in fair values of warrants to purchase common stock and conversion options of convertible notes					(1,010	)		—
	Loss on early extinguishment of debt					1,682			—
	Amortization of debt discount and issuance costs					320			—
	Changes in operating assets and liabilities:
			Accounts receivable			962			(731	)
			Related party accounts receivable			552			960
			Prepaid expenses and other assets			(339	)		312
			Accounts payable			(215	)		264
			Accrued expenses			(763	)		(37	)
			Due to related parties, net			8			(72	)
			Deferred revenues			45			(434	)
			Related party deferred revenues			438			187
			Net cash provided by discontinued operations			—			128

				Net cash used in operating activities		(9,320	)		(4,928	)
Cash flows from investing activities:
		Proceeds from sales and maturities of marketable securities				1,525			8,725
		Purchases of marketable securities				(1,652	)		(3,507	)
		Net (increase) decrease in restricted cash				499			(2	)
		Purchases of property and equipment				(419	)		(712	)
		Proceeds from sale of property and equipment				7			—
		Purchases of patents and trademarks				(31	)		(47	)

				Net cash provided by (used in) investing activities		(71	)		4,457
Cash flows from financing activities:
		Payment of issuance costs on convertible notes				(576	)		—
		Proceeds from issuance of subordinated notes and common stock net of issuance costs paid of $189				3,311			—
		Repayment of convertible notes				(3,300	)		—
		Restricted cash used to pay interest on convertible notes				33			—
		Proceeds from exercise of stock options				11			1,370

				Net cash provided by (used in) financing activities		(521	)		1,370
Effect of exchange rate changes on cash and cash equivalents						(20	)		(6	)

Net increase (decrease) in cash and cash equivalents						(9,932	)		893
Cash and cash equivalents at beginning of period						10,678			8,054

Cash and cash equivalents at end of period					$	746		$	8,947

The accompanying notes are an integral part of these consolidated financial statements.

VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)


		Nine Months Ended
		September 30,
		2003		2002

Supplemental disclosure of cash flow activities:
	Cash paid during the period for income taxes	$	79	$	151
	Cash paid during the period for interest		161		—
	Supplemental disclosure of non-cash investing and financing activities:
	Unrealized gains on marketable securities	$	—	$	27
	Issuance costs on convertible notes and subordinated notes accrued and not yet paid		12		—
	Issuance of 1,351,351 shares of common stock as partial repayment of convertible notes		1,000		—
	Consideration not yet issued in connection with the acquisition of Viewpoint Digital		—		2,928

The accompanying notes are an integral part of these consolidated financial statements.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, consistent in all material respects with those applied in our Annual Report on Form 10-K/A for the year ended December 31, 2002. The interim financial information is unaudited, but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of Viewpoint Corporation’s (“Viewpoint” or the “Company”) financial position and operating results for the interim periods.

These unaudited consolidated financial statements have been prepared in accordance with the instructions to Rule 10-01 of Regulation S-X and, therefore, do not include all of the information and footnotes normally provided in annual financial statements. As a result, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in Viewpoint’s Annual Report on Form 10-K/A for the year ended December 31, 2002. The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003 or other future periods.

Certain reclassifications have been made to the 2002 consolidated financial statements to conform to the 2003 presentation.

Liquidity

The Company had cash, cash equivalents and marketable securities of $1,763,000 at September 30, 2003. During the nine months ended September 30, 2003 net cash used in operations amounted to $9,320,000. Viewpoint has had significant quarterly and annual operating losses since its inception, and as of September 30, 2003, had an accumulated deficit of $242,385,000. There can be no assurance that Viewpoint will achieve or sustain cash flows from operations or profitability.

The Company believes that its current cash, cash equivalents, and marketable securities balances, cash obtained through a private equity financing and $10,000,000 in cash to be paid by AOL in the fourth quarter will be sufficient to meet its operating cash flow needs and anticipated capital expenditure requirements through at least the next twelve months.

In November 2003, the Company sold 3,125,000 shares of common stock in a private placement to Federal Partners, L.P., an affiliate of The Clarke Estates, Inc. for $2,500,000 or $0.80 per share. Under the terms of the investment, the Company is obliged to file a registration statement covering the resale of the shares within 45 days of the closing date, which occurred on November 12, 2003.

Holders of the Company’s convertible notes (see Note 3 for specific terms and conditions) which were issued on March 25, 2003, may redeem notes in an amount up to 20% of the $2,500,000 received by the Company in the November 12, 2003 private placement. To exercise this right, the noteholders must notify the Company within 10 days of the Company’s public announcement of the closing of the private placement. Additionally, the Company’s convertible notes contain provisions that permit the holders to redeem notes on or after June 30, 2004 if the Company’s common stock trades below the conversion price for 25 consecutive trading days, subject to the terms and conditions of the notes described in Footnote 3.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has contingency plans for the fourth quarter of 2003 and 2004 if expected revenue targets are not achieved. These plans include further workforce reductions as well as reductions in overhead and capital expenditures. The Company may seek additional funds when necessary through public or private equity financing or from other sources to fund our operations and pursue our growth.

We currently have no commitment for additional financing, and we may experience difficulty in obtaining additional financing on favorable terms, if at all. Any financing we obtain may contain covenants that restrict our freedom to operate our business or may have rights, preferences or privileges senior to our common stock and may dilute our current shareholders’ ownership interest in Viewpoint.

Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended, and Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition in Financial Statements.” Per SOP 97-2 and SAB No. 101, the Company recognizes revenue when the following criteria are met: (a) persuasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the Company’s fee is fixed or determinable, and (d) collectibility is reasonably assured.

Viewpoint generates revenues through two sources: (a) software licenses and (b) services. License revenues are generated from licensing the rights to use our products directly to customers and indirectly through Value Added Resellers (“VARs”). Service revenues are generated from fee-based professional services, customer support services (maintenance arrangements), and training services performed for customers that license our products.

License revenues from direct customers include sales of perpetual and term based licenses for broadcasting digital content in the Viewpoint format. License revenues are recognized up-front provided no further significant obligations exist and the resulting receivable is deemed collectible by management. Arrangements with VARs require (i) an up-front, non-refundable payment, (ii) a percentage royalty based on sell through, or (iii) both as consideration for the right to resell our technology. Up-front, non-refundable payments are recognized as license revenues when the VAR’s right to resell our technology begins and the technology has been delivered to the VAR, which is upon contract signing, provided all other revenue recognition criteria are met and no further significant obligations exist. For arrangements that do not call for an up-front, non-refundable payment, revenues are recognized as the royalties are earned, which is upon notification of sell through by the VAR, provided all other revenue recognition criteria are met and no further significant obligations exist.

Fee-based professional services for customized software development are performed on a fixed-fee or time-and-materials basis under separate service arrangements. Revenues for fixed-fee arrangements are recognized over the pattern of performance in accordance with the provisions of SAB No. 101. The pattern of performance for service arrangements is measured principally by the percentage of costs incurred and accrued to date for each contract, which principally consist of direct labor costs, cost of outsourcing, and overhead, to the estimated total cost for each contract at completion. Revenues from customer support services are recognized ratably over the term of the contract. Revenues from training services are recognized as services are performed.

Fees from licenses sold together with fee-based professional services are generally recognized upon delivery of the software, provided that the payment of the license fees are not dependent upon the performance of the services, and the services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or payment of the license fees are dependent upon the performance of the services, both the software license and service fees are recognized in accordance with SOP 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” The percentage of competition method is used for those arrangements in which reasonably dependable estimates are available.

For arrangements involving multiple elements, the Company defers revenue for the undelivered elements based on their relative fair value and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of each undelivered element in multiple element arrangements is based on the price charged when the same element is sold separately. For maintenance and technical support elements, we use renewal rates to determine the price when sold separately. The Company

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

accounts for multiple element arrangements which involve only fee-based professional services in accordance with EITF 00-21.

Standard terms for license arrangements require payment within 90 days of the contract date, which typically coincides with delivery. Standard terms for service arrangements, which are typically billed and collected on an installment basis, require final payment within 90 days of completion of the services. Probability of collection is based upon the assessment of the customer’s financial condition through the review of their current financial statements and/or credit reports. For follow-on sales to existing customers, prior payment history is also used to evaluate probability of collection. Our arrangements with customers do not contain product return rights. If the fee is not fixed or determinable, revenue is recognized as payments become due or as cash is received from the customer. If a nonstandard acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period.

The Company periodically enters into nonmonetary arrangements whereby the Company’s licenses or services are exchanged for services of its customers. Nonmonetary revenues are recognized at the estimated fair value of the services received. Generally, nonmonetary revenues equal nonmonetary expenses, however, due to timing, nonmonetary accounts receivable and accounts payable may result.

Notes Receivable

During 2000, the Company loaned $1,500,000 to a former officer of the Company. The loan was non-interest bearing, and was collateralized by 200,000 shares of restricted Company stock, as well as options to purchase 790,000 shares of Company stock. The loan, which was originally due on May 1, 2004, became due 30 days after the officer ceased to be an employee of the Company, which occurred on January 5, 2001. At that date, the Company recorded a reserve against the loan in the amount of $750,000. The Company had commercial litigation to pursue recovery, however, notification of a court judgment in favor of the former officer was received in September 2003. As a result of this unfavorable outcome, a loss of $750,000 was charged to operations to write off the remaining balance of the note.

Stock-Based Compensation

The Company accounts for stock option grants in accordance with Accounting Principals Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, Financial Accounting Standards Board (“FASB”) issued Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25” (FIN 44), and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure.” Under APB Opinion No. 25, compensation expense is recognized over the vesting period based on the difference, if any, at the date of grant between the fair value of the Company’s stock and the exercise price. The Company accounts for stock issued to non-employees in accordance with SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No. 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, as amended by SFAS No. 148, and has been determined as if the Company has accounted for its employee stock option grants under the fair value method of SFAS No. 123. The fair value of options issued to employees was estimated at the date of grant using the Black-Scholes option-pricing model. For purposes of pro forma disclosures, the estimated fair value of the Company’s employee options is amortized to expense over the options’ vesting period. If the Company elected to record stock-based compensation charges in accordance with SFAS 123, the pro forma non-cash stock-based employee compensation charges, net loss and net loss per common share would approximate the following (in thousands, except per share amounts):


		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

Net loss, as reported		$	(5,518	)	$	(4,000	)	$	(18,308	)	$	(18,576	)
Add: Non-cash stock-based employee compensation charges included in reported net loss, net of related tax effects			520			1,184			2,388			3,899
Deduct: Non-cash stock-based employee compensation charges determined under fair value based method for all awards, net of related tax effects			(1,196	)		(2,460	)		(4,990	)		(8,312	)

Pro forma net loss		$	(6,194	)	$	(5,276	)	$	(20,910	)	$	(22,989	)

Net loss per share:
	Basic and diluted as reported	$	(0.12	)	$	(0.10	)	$	(0.41	)	$	(0.46	)

	Basic and diluted pro forma	$	(0.13	)	$	(0.13	)	$	(0.47	)	$	(0.57	)

The effects of applying SFAS No. 123, as amended by SFAS No. 148, in this pro forma disclosure are not indicative of future amounts. The Company anticipates grants of additional awards in the future.

On April 14, 2003, the Company granted 2,300,000 nonstatutory stock options to acquire Company common stock, to certain executives of the Company at an exercise price equal to the fair market value of the Company’s common stock on the date of grant. Twenty-five percent of the options vest on the first anniversary of the date of grant and the remaining options vest at the rate of 1/36th per month thereafter. On July 1, 2003, the Company modified the terms to accelerate the vesting of a grant to one executive. In accordance with FIN 44, no compensation charge has been recorded through September 30, 2003 since the Company believes that this executive will not derive any benefit from the acceleration. If the executive’s employment ends during the original vesting period (prior to modification) then the modification to accelerate vesting would be determined to be beneficial to the executive and a non-cash compensation charge of up to $360,000 would be charged to operations.

In November 2003, the Company will modify the terms of five stock option grants to certain employees and officers to reduce the vesting period from four years to two years. The Company will record a non-cash stock-based compensation charge based upon the difference between the closing price on the day of the modification and the closing price on the date of the grant for any of the 1,125,000 options modified. The weighted average grant price for these options is $0.76. Such charge would be recorded if the executives are expected to derive a benefit from the acceleration. If any executive ceased employment during the original vesting period then the modification to accelerate would be determined to be beneficial.

Basic and Diluted Net Loss Per Common Share

Basic net loss per common share is computed using the weighted average number of common shares outstanding and diluted net loss per common share is computed using the weighted average number of common shares and common equivalent shares outstanding. Common equivalent shares related to stock options and warrants totaling 5,175,000 and 4,491,000 for the three months ended September 30, 2003 and 2002, respectively, and 5,175,000 and 7,540,000 for the nine months ending September 30, 2003 and 2002, respectively, are excluded from the computation of diluted net loss per common share because their effect was antidilutive.

Derivatives

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company accounts for the fair values of the warrants to purchase common stock and conversion options of its convertible notes in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and EITF Issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” which requires the Company to bifurcate and separately account for its embedded derivatives contained in the Company’s convertible notes. The Company is required to carry these embedded derivatives on its balance sheet at fair value and the unrealized changes in the value of these embedded derivatives are reflected in net income as changes in fair values of warrants to purchase common stock and conversion options of convertible notes.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46 “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (FIN 46). FIN 46 provides a new framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. FIN 46 was effective immediately for VIEs created after January 31, 2003. In October 2003, the FASB directed the FASB staff to issue FASB Staff Position No. FIN 46-6 (FSP FIN 46-6). FSP FIN 46-6 defers the effective date of FIN 46 for interests held by public entities in VIEs or potential VIEs dating from before February 1, 2003. The consolidation requirements of FIN 46 for these interests are now scheduled to be effective on December 31, 2003. The consolidation requirements of FIN 46 remain applicable to VIEs created after January 31, 2003 and to VIEs in which an enterprise obtains an interest after that date. The adoption of FIN 46 is not expected to have a material effect on the Company’s financial statements.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the Company’s existing financial instruments effective July 1, 2003, the beginning of the first fiscal period after June 15, 2003. The Company adopted the provisions of SFAS No. 150, which became effective on June 1, 2003. The adoption of this statement did not have a material effect on the Company’s financial statements. On November 7, 2003, the FASB issued a FASB Staff Position No. FAS 150-3, “Effective Date for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FAS 150,” which deferred the effective date of certain provisions of FAS 150 related to Mandatorily Redeemable Noncontrolling Interests. The deferral did not effect the Company’s financial statements.

In November 2002, the Emerging Issues Task Force (“EITF”) issued EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” which addresses revenue recognition accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. EITF 00-21 does not apply to deliverables in arrangements to the extent the accounting for such deliverables is within the scope of other existing higher-level authoritative literature including SOP 97-2. EITF 00-21 is effective for revenue arrangements entered into beginning on July 1, 2003. The adoption of EITF 00-21 did not have an impact on our financial statements.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Goodwill and Intangible Assets

Effective January 1, 2002, the Company completed the adoption of SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. As required by SFAS No. 142, the Company discontinued amortizing the remaining balances of goodwill as of January 1, 2002. All remaining and future acquired goodwill will be subject to impairment tests annually, or earlier if indicators of potential impairment exist, using a fair-value-based approach. When evaluating goodwill for potential impairment, the Company first compares the fair value of the reporting unit, based on market values of the reporting unit or on the present value of estimated future cash flows, with its carrying amount. If the estimated fair value of the reporting unit is less than its carrying amount, an impairment loss calculation is prepared. The impairment loss calculation compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. All other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

In conjunction with the implementation of SFAS No. 142, the Company completed a goodwill impairment review as of January 1, 2002 and found no impairment on that date. The fair value of the Viewpoint Digital reporting unit was determined to exceed its carrying value using the expected present value of future cash flows, a discount rate of 15% and a terminal value based on a multiple of EBITDA. The fair value of the Company was determined to exceed its carrying value by comparison to its market capitalization on that date, less the fair value of the Viewpoint Digital reporting unit.

The Company recorded $2,928,000 of additional goodwill during the first quarter of 2002 in connection with a contingent promissory note due Computer Associates on April 30, 2002 for the acquisition of Viewpoint Digital. As of March 31, 2002, due to the persistence of unfavorable economic conditions along with lower-than-expected revenues generated to date and reduced estimates of future performance of the Viewpoint Digital reporting unit, the Company performed an additional impairment analysis on the goodwill and other intangible asset balances recorded upon the acquisition of Viewpoint Digital. In accordance with the provisions of SFAS No. 142 and SFAS No. 144, the Company recorded impairment charges totaling $6,275,000 for the three months ended March 31, 2002. The fair value of the Viewpoint Digital reporting unit was estimated using the expected present value of future cash flows. The assumptions supporting the cash flows, including the discount rate of 20%, were determined using the Company’s best estimates as of the date the impairment was recorded.

In accordance with the provisions of SFAS No. 142, the Company completed a goodwill impairment review as of January 1, 2003 and found no impairment on that date. The fair value of the Company was determined to exceed its carrying value by comparison to its market capitalization on that date.

During the three months ended March 31, 2003, the market value of the Company’s equity securities declined below the Company’s carrying value indicating the existence of a potential goodwill impairment. In accordance with SFAS No. 142, the Company performed the first step of the goodwill impairment test as of March 31, 2003. The fair value of the Company was determined to exceed its carrying value using a market-based approach with selected multiples ranging from 1.5 to 2.0 times revenues and 1.8 to 2.5 times gross profit. In accordance with SFAS No. 142, the second step of the impairment test was unnecessary, and no goodwill impairment charges were recorded. Subsequent to March 31, 2003, the market value of the Company recovered and did not decline below the Company’s carrying value, therefore, no impairment existed through September 30, 2003.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in the carrying amounts of goodwill and intangible assets during the nine months ended September 30, 2003, are as follows (in thousands):


		Goodwill		Intangible Assets			Total

Balance as of January 1, 2003		$	31,276	$	165		$	31,441
	Additions during period		—		11			11
	Amortization		—		(1	)		(1	)

Balance as of March 31, 2003			31,276		175			31,451
	Additions & adjustments during period		—		(8	)		(8	)
	Amortization		—		(7	)		(7	)

Balance as of June 30, 2003			31,276		160			31,436
	Additions during period		—		28			28
	Amortization		—		(1	)		(1	)

Balance as of September 30, 2003		$	31,276	$	187		$	31,463

The changes in the carrying amounts of goodwill and intangible assets for the nine months ended September 30, 2002, are as follows (in thousands):


		Goodwill			Intangible Assets			Total

Balance as of January 1, 2002		$	33,042		$	2,361		$	35,403
	Additions during period		2,928			24			2,952
	Impairment losses		(4,694	)		(1,581	)		(6,275	)
	Amortization		—			(661	)		(661	)

Balance as of March 31, 2002			31,276			143			31,419
	Additions during period		—			3			3
	Amortization		—			(2	)		(2	)

Balance as of June 30, 2002			31,276			144			31,420
	Additions during period		—			20			20
	Amortization		—			(1	)		(1	)

Balance as of September 30, 2002		$	31,276		$	163		$	31,439

As of September 30, 2003 and December 31, 2002, the Company’s intangible assets and related accumulated amortization consisted of the following (in thousands):


	September 30, 2003							December 31, 2002

			Accumulated							Accumulated
	Gross		Amortization			Net		Gross		Amortization			Net

Patents and Trademarks	$	199	$	(12	)	$	187	$	168	$	(3	)	$	165

Total Intangible Assets	$	199	$	(12	)	$	187	$	168	$	(3	)	$	165

Amortization of patents and trademarks is estimated to be $3,000 a year for the next five years.

3. Long Term Debt

On December 31, 2002, the Company completed a private placement of convertible notes and warrants in which it issued to three institutional investors, 4.95% convertible notes having an aggregate principal amount of $7,000,000, and warrants to purchase 726,330 shares of Company common stock. Interest on the convertible notes was payable quarterly in arrears in cash or, at the option of the Company, in shares of Company common stock, provided the Company satisfied certain financial and other conditions. The convertible notes were to mature on December 31, 2007, unless earlier converted into shares of Company common stock at a price of $2.26 per share. The warrants expire on December 31, 2006, and are exercisable at a price of $2.26 per share.

The Company was required to provide registration rights under the Securities Act of 1933 for shares of Company common stock covering (i) the conversion of $7,000,000 in principal, (ii) 726,330 warrants, and (iii) any potential payment of interest in the form of common stock.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The convertible notes defined several events of default, including but not limited to: (i) failure of the Company’s registration statement to be declared effective by the Securities and Exchange Commission (“SEC”), (ii) delisting from The NASDAQ National Market or other national exchange, (iii) change in control, (iv) event of conversion default such as lack of authorized capital, (v) event of bankruptcy, (vi) failure to pay principal and interest on the convertible notes when payments become due, (vii) judgments against the Company in excess of $1,000,000 and (viii) material breach of any representation, warranty, covenant or other term. Upon an event of default, the convertible notes would immediately become due and payable, after a grace period to cure the default lapsed.

Pursuant to SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” the Company bifurcated the fair value of the conversion options from the convertible notes since the conversion options were determined to not be clearly and closely related to the debt host. In addition, since the effective registration of the securities underlying the conversion options and warrants was an event outside of the control of the Company, pursuant to EITF Issue No. 00-19, the Company recorded the fair value of conversion options and warrants as long-term liabilities, as it was assumed that the Company will be required to net-cash settle the underlying securities. The fair values of the convertible notes, conversion options, and warrants of $5,535,000, $1,177,000, and $288,000, respectively, were determined by the Company using the following assumptions: a 20% discount on the Company’s common stock price at December 31, 2002, a credit spread of 20% over LIBOR rates at December 31, 2002, and an annualized stock volatility of 46%. The aggregate value of the convertible notes and conversion options of $6,712,000, and the warrants of $288,000 are recorded as long-term liabilities in the Company’s consolidated balance sheets at December 31, 2002. Debt issuance costs, which amounted to $668,000, were recorded as other assets in the Company’s consolidated balance sheets, in accordance with APB Opinion No. 21 “Interest on Receivables and Payables.” The amortization of discount on the convertible notes and debt issue costs totaling $72,000 were accounted for in accordance with the provisions of APB Opinion No. 21, which requires amortization of the discount and debt issue costs using the interest method.

On February 28, 2003, the Company received notices of default from two of the three investors. The notices alleged that the Company was in default of the notes because it had breached certain representations and warranties in the Securities Purchase Agreement.

On March 25, 2003, the Company entered into Redemption, Amendment and Exchange Agreements with the three institutional investors with whom it had completed the private placement of convertible notes and warrants on December 31, 2002. Pursuant to these agreements, the notice of default was withdrawn and Viewpoint redeemed an aggregate of $3,300,000 principal amount of the outstanding convertible notes, exchanged an aggregate of $1,000,000 principal amount of the outstanding convertible notes for shares of Viewpoint common stock at $0.74 per share, and exchanged the remaining $2,700,000 principal amount of outstanding convertible notes for $2,700,000 principal amount of new convertible notes. The convertible notes were issued in three tranches of $900,000 each and are scheduled to mature December 31, 2007. The warrants to purchase 726,330 shares of Company common stock, which were issued to these investors on December 31, 2002, remain outstanding.

Based on the provisions of SFAS No. 133 and EITF Issue No. 00-19, the Company recorded income based on the change in the fair value of the conversion options of the original convertible notes as of March 24, 2003, which amounted to $1,122,000, in the Company’s consolidated statements of operations for the three months ended March 31, 2003.

In accordance with the provisions of APB Opinion No. 26 “Early Extinguishment of Debt,” and EITF Issue No. 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”, the Company recorded a loss on the early extinguishment of the original convertible notes in the amount of $1,682,000 of which $650,000 related to the write-off of deferred loan costs. The carrying value of the convertible notes at the time of the exchange was $5,643,000, inclusive of $55,000, which represented the fair value of the conversion options. In conjunction with the extinguishment, the Company paid $3,300,000, issued new convertible notes in the principal amount of $2,700,000 and issued 1,351,351 shares of its common stock with a market value of $675,000. The difference between (i) the carrying value of the outstanding convertible notes exchanged and (ii) cash paid and the fair value of the common stock and new convertible notes issued, amounted to $1,032,000 and was included in the loss on early extinguishment of debt.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company charged the loss on early extinguishment of debt to operations as such loss did not qualify for classification as extraordinary based on the provisions of SFAS No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of , and Technical Corrections”, and APB 30 “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”

Interest on the new convertible notes is payable quarterly in arrears in cash or, at the option of the Company, in shares of Company common stock, provided the Company satisfies certain financial and other conditions. If interest is paid in shares of Company common stock, the number of shares to be issued shall be calculated by dividing the interest payable by 95% of the arithmetic average of the dollar volume-weighted average price of Company common stock on each of the five consecutive trading days immediately preceding the interest payment date. The new convertible notes mature on December 31, 2007, unless earlier converted into shares of Company common stock. Each tranche of the new convertible notes were initially convertible into Company common stock at a price of $2.26 per share. However, pursuant to the Redemption, Amendment and Exchange Agreements, the conversion price of the first, second, and third tranche became adjustable on the basis of the arithmetic average of the dollar volume-weighted average price of Company common stock for the ten trading days following May 16, 2003, August 16, 2003, and November 16, 2003, respectively, in each case subject to a minimum conversion price of $1.00 and a maximum conversion price of $2.26. The conversion price of the first $900,000 tranche of notes is $1.10. The conversion price of the second $900,000 tranche of notes is $1.00.

At the noteholders’ option, up to 20% of the net proceeds from any new capital raises by the Company may be used to redeem outstanding notes at par plus accrued interest. On November 12, 2003, the Company sold 3,125,000 shares of common stock in a private placement to Federal Partners, L.P., an affiliate of The Clarke Estates, Inc. for $2,500,000, or $0.80 per share. To exercise their right to redeem their notes in an amount up to 20% of the $2,500,000 received by the Company, the noteholders must notify the Company within 10 days of the Company’s public announcement of the closing of the private placement. The Company publicly announced the closing of the private placement on November 13, 2003 by way of a filing on SEC Form 8-K.

Each tranche of the notes is redeemable by the investors at any time on or after June 30, 2004 in cash at par plus accrued and unpaid interest if the dollar volume-weighted average price of Company common stock is less than the conversion price applicable to the notes for any 25 consecutive trading days. Each tranche of the notes is redeemable by the investors at any time after December 31, 2005, in cash at 83% of par plus accrued and unpaid interest if the dollar volume-weighted average price of Company common stock is less than the conversion price applicable to the notes for any 25 consecutive trading days following December 31, 2005. If the investors redeem their convertible notes, up to 20% of the amount to be redeemed may, at the Company’s option, be paid in shares of Company common stock, and said payment would be at 95% of the dollar volume-weighted average price of Company common stock for the 20 consecutive trading days immediately preceding payment.

The Company has the right at any time to redeem up to all of the outstanding notes at par plus accrued and unpaid interest. Concurrently with any such redemption, the Company is required to deliver to the investors warrants, with an exercise price of $1.00 and a term equal to the remaining term of the notes being redeemed, to subscribe for a number of shares of common stock equal to 100% of the principal amount being redeemed divided by the conversion price of the notes then in effect.

Each tranche of the notes is convertible at the Company’s election at any time after April 15, 2004 if the dollar volume-weighted average price of Company common stock exceeds 150% of the conversion price applicable to the notes for any 25 consecutive trading days following April 15, 2004.

The investors may require the Company to sell to the investors an additional 4.95% convertible notes having an aggregate principal amount of up to $2,800,000, and warrants to purchase up to 290,533 shares of Company common stock prior to January 14, 2004.

The Company had the right to sell additional 4.95% convertible notes having an aggregate principal amount of up to $7,000,000 and warrants to purchase up to 726,330 shares of Company common stock prior to June 30, 2003, if the dollar volume-weighted average price of Company common stock exceeded $3.25 on each of not less than 15 trading days in any 20 consecutive trading-day period. This right expired unexercised on June 30, 2003.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

notes. The Company was required to pay cash penalties if the registration statement was not declared effective by June 30, 2003. The registration statement was declared effective July 14, 2003, and the Company was required to pay penalties of $183,000, of which $127,000 was charged to interest expense in the second quarter of 2003 and $56,000 was charged to interest expense in the third quarter of 2003.

Under the terms of the amended agreements, certain covenants and events of default were restructured as follows: the requirement to have its registration statement declared effective by the SEC and the requirement to remain listed on The NASDAQ National Market or other national exchange, were waived through March 2004, unless the Company receives a going concern or qualified opinion from its auditors. If such a report is received from the Company’s auditors through March 2004, the original events of default remain effective.

Pursuant to SFAS No. 133, the Company bifurcated the fair value of the conversion options from the new convertible notes since the conversion options were determined to not be clearly and closely related to the debt host. In addition, since the effective registration of the securities underlying the conversion options is an event outside of the control of the Company, pursuant to EITF Issue No. 00-19, the Company recorded the fair value of the conversion options as long-term liabilities, as it is assumed that the Company will be required to net-cash settle the underlying securities. The fair values of the new convertible notes and conversion options of $2,361,000 and $339,000, respectively, were determined by the Company using the following assumptions: the Company’s Common stock price at March 25, 2003, a credit spread of 30% over LIBOR rates at March 25, 2003, and an annualized stock volatility of 65%. The value of the new convertible notes and conversion options of $2,392,000 and $609,000, respectively are recorded as long-term liabilities in the Company’s consolidated balance sheets at September 30, 2003. Debt issuance costs, which amounted to $75,000, were recorded as other assets in the Company’s consolidated balance sheets, in accordance with APB Opinion No. 21.

Based on the provisions of SFAS No. 133 and EITF Issue No. 00-19, the Company recorded income based on the changes in the fair values of the new conversion options and original warrants of $61,000 and $241,000, respectively, in the Company’s consolidated statements of operations for the three months ended March 31, 2003, and a loss based on the changes in the fair values of the new conversion options and original warrants of $886,000 and $195,000, respectively, in the Company’s consolidated statements of operations for the three months ended June 30, 2003. For the three months ended September 30, 2003, the Company recorded income based on the changes in the fair values of the new conversion options and original warrants of $555,000 and $112,000, respectively. The amortization of discount on the new convertible notes and debt issue costs totaling $37,000 were accounted for using the interest method, in accordance with the provisions of APB Opinion No. 21.

On March 26, 2003, Viewpoint Corporation entered into a Securities Purchase Agreement with three other accredited investors, pursuant to which it received $3,500,000 in exchange for an aggregate of $3,500,000 principal amount of 4.95% subordinated notes and 3,614,756 shares of Viewpoint common stock. The subordinated notes are scheduled to mature on March 31, 2006.

Interest on these notes is payable quarterly in arrears in cash. The notes contain certain events of default, including, but not limited to: (i) failure to pay principal and interest on the notes when payments become due, (ii) judgments against the Company in excess of $1,000,000, (iii) event of bankruptcy, and (iv) material breach of representations, covenants or other terms. Upon an event of default, the notes will become immediately due and payable.

The Company filed a registration statement covering the resale of the issued shares on May 9, 2003, which was declared effective by the SEC on July 30, 2003.

The Company has the right at any time to redeem up to all of the outstanding notes at par plus accrued and unpaid interest.

The $3,500,000 of proceeds was allocated to subordinated notes, common stock, and additional paid in capital based on the market value of the Company’s common stock on March 26, 2003. In accordance with the provisions of APB Opinion No. 21, the Company recorded a debt discount of $2,024,000. Debt issuance costs, which amounted to $194,000, were recorded as other assets in the Company’s consolidated balance sheets in accordance

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

with APB Opinion No. 21. The amortization of the discount on the subordinated notes and debt issue costs totaling $211,000 were accounted for using the interest method, in accordance with the provisions of APB Opinion No. 21.

4. Related Party Transactions

During the three and nine months ended September 30, 2003, the Company recorded revenues totaling $693,000 and $5,146,000, respectively, related to agreements with America Online, Inc. (“AOL”). As of September 30, 2003, the Company has $286,000 in accounts receivable and $687,000 in deferred revenues relating to transactions entered into with AOL and Computer Associates, Inc. (“Computer Associates”), both of whom have representatives on the Company’s Board of Directors. During the three and nine months ended September 30, 2002, the Company recorded revenues totaling $3,088,000 and $8,686,000, respectively, related to agreements, including reseller arrangements, with AOL and Computer Associates. At December 31, 2002 the Company had $838,000 in accounts receivable and $500,000 in deferred revenues relating to transactions entered into with AOL and Computer Associates.

5. Restructuring and Impairment Charges

In fiscal 2003, the Company implemented two restructuring plans. The first plan, implemented in February 2003, reduced operating expenses by closing the Company’s Utah office and related to the termination of 28 employees in that office who were primarily engaged in sales and marketing activities. In accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded restructuring charges of $1,211,000. The restructuring charges represent the fair value of remaining lease commitments reduced by estimated sublease rentals, employee severance and termination benefits, the write-off of the net book value of certain fixed assets used in the Utah office, and other miscellaneous charges. In September 2003, the Company re-evaluated market conditions surrounding its efforts to sub-lease the Utah office space and adjusted the restructuring charge by $211,000 related to the reduction of estimated sublease rentals as of September 30, 2003. The Company believes that it may be necessary to adjust our estimate of sublease income in the future as our ability to sublease the property in Utah is contingent upon real estate and other market conditions in Utah.

The restructuring reserve activity for the first plan for the three and nine months ended September 30, 2003 was as follows (in thousands):


					Employee
					Severance
					and
					Termination			Asset			Miscellaneous			Restructuring
		Lease Costs			Benefits			Write-offs			Charges			Accrual

Restructuring and impairment charges		$	459		$	367		$	361		$	24		$	1,211
	Cash paid		(36	)		(350	)		—			(24	)		(410	)
	Non-cash charges		—			—			(361	)		—			(361	)

Balance at March 31, 2003			423			17			—			—			440
	Cash paid		(53	)		(17	)		—			—			(70	)

Balance as of June 30, 2003			370			—			—			—			370
Restructuring charge			211			—			—			—			211
	Cash paid		(56	)		—			—			—			(56	)

Balance as of September 30, 2003		$	525		$	—		$	—		$	—		$	525

The second plan was implemented in September 2003, and was designed to streamline the business. Under the plan the Company eliminated 24 sales and marketing, research and development, and general and administrative positions. The Company incurred a restructuring charge of $463,000 related to one-time severance arrangements. The charge is recorded on our income statement as a restructuring and impairment charge. The second restructuring plan was completed by September 30, 2003.

The restructuring activity for the second restructuring plan is as follows (in thousands):

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Employee
		Severance and
		Termination			Restructuring
		Benefits			Accrual

Restructuring charges		$	463		$	463
	Cash paid		(256	)		(256	)

Balance as of September 30, 2003		$	207		$	207

6. Comprehensive Loss

Total comprehensive loss for the three and nine months ended September 30, 2003 and 2002 consisted of the following (in thousands):


	Three Months						Nine Months
	Ended						Ended
	September 30,						September 30,

	2003			2002			2003			2002

Net loss	$	(5,518	)	$	(4,000	)	$	(18,308	)	$	(18,576	)
Foreign currency translation adjustment		(6	)		7			(14	)		(1	)
Unrealized gain (loss) on marketable securities		—			107			—			60

Comprehensive loss	$	(5,524	)	$	(3,886	)	$	(18,322	)	$	(18,517	)

7. Commitments and Contingencies

On May 5, 2003, the Company entered into termination protection agreements with certain executives of the Company. The agreements provide benefits following a change in control by the Company, and the termination of the executive’s employment within 12 to 24 months following the change in control that occurs on or prior to December 31, 2006. The benefits include severance payments ranging from 2 to 2.99 times the executive’s annual compensation and full vesting of all outstanding stock options granted to these executives.

These benefits replace the existing termination benefits in change of control agreements which provided for one times the executives annual compensation and full vesting of stock options that the executives were entitled to in the event of a change in control prior to the execution of the termination protection agreements.

On November 6, 2003, a former officer of the Company filed a claim against the Company in New York State Supreme Court alleging that the Company breached an employment agreement between the officer and Viewpoint. The suit claims $1,050,000 in damages. The Company believes it did not breach the employment agreement and that it has strong defenses against the officer’s claims. In responding to the claims, the Company intends to assert its claims against the former officer in the amount of $425,000, plus attorney’s fees.

8. Subsequent Events

In October 2003, the Company entered into an amended license agreement with AOL which provides for payments by AOL of $10,000,000, all due in the fourth quarter of 2003. The agreement contains multiple elements consisting of a perpetual broadcast license, a perpetual source code license, quarterly updates to the source code through December 2005, and maintenance and consulting services. The Company will recognize revenue from this agreement ratably, through December 31, 2005, which represents the duration of the Company’s obligation for post-contract customer support including quarterly upgrades and maintenance requirements.

In November 2003, the Company sold 3,125,000 shares of common stock, in a private placement to Federal Partners, L.P., an affiliate of The Clarke Estates, Inc for $2,500,000 or $0.80 per share. Under the terms of the investment, the Company is obliged to file a registration statement covering the resale of the shares within 45 days of the closing date, which occurred on November 12, 2003.

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1,125,000 previously issued stock options by approximately 2 years. These options carry a weighted average grant price of $0.76. If the fair market value the day of the reduction exceeds the price on the original date of grant, the Company would incur an expense if the applicable employee terminates employment prior to the conclusion of the original vesting period.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto.

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from the results implied by the forward looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Factors That May Affect Future Results of Operations.” You should carefully review the risks described in other documents we file from time to time with the Securities and Exchange Commission, including any future reports to be filed in 2003 and our Annual Report on Form 10-K/A for 2002. When used in this report, the words “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly release any revisions to the forward — looking statements or reflect events or circumstances after the date of this document.

Overview

Viewpoint Corporation (“Viewpoint” or the “Company”) provides interactive media technologies and digital content creation services for website marketing, online advertising, and embedded applications. Our graphics operating system has been licensed by Fortune 500 companies and others for use in online, offline and embedded applications serving a wide variety of needs, including: interactive marketing campaigns, rich media advertising and product presentations, and business process visualizations.

Until December 1999, the Company (which was then known as MetaCreations) was primarily engaged in the development, marketing, and sales of prepackaged software graphics products. Its principal products were computer graphics “painting” tools, photo editing software, and 3D graphics software. With its acquisition of Real Time Geometry Corporation in December 1996, the Company became involved, on a limited basis, in the development of technologies designed to make practical the efficient display and deployment of interactive media on the Internet. In June 1999, the Company increased its commitment to the development of interactive Internet technologies and formed Viewpoint (formerly Metastream Corporation) to increase the pace of development of an Internet-based product and a business model to exploit these technologies.

In December 1999, the Board of Directors of the Company approved a plan to focus exclusively on the Internet technologies of Viewpoint and to correspondingly divest the Company of all its prepackaged software business. Since then, our primary goal has been to establish the Viewpoint Media Player as the standard platform for the display of interactive media content, particularly on the Internet.

The Company’s primary initiatives include:

• Licensing technology for website marketing and e-commerce visualization solutions;

• Licensing technology for Internet advertising purposes;

• Providing a full range of fee-based digital content creation and software engineering services for implementing visualization solutions for marketing;

• Forging technological alliances with leading interactive agencies, Web content providers, major portals, ISPs, tool companies and computer OEMs; and

• Maximizing market penetration of the Viewpoint Media Player.

Viewpoint believes that its success will depend largely on its ability to improve and enhance its interactive media technologies and the distribution of those technologies. Accordingly, Viewpoint has invested and intends to continue to invest in research and development and sales and marketing. Revenues from continuing operations primarily have been from the sale of technology licenses and fee-based professional services, including digital content creation services and engineering services to enhance and create new enterprise software applications.

Viewpoint has a limited operating history upon which an evaluation of the Company and its prospects can be based. Viewpoint has had significant quarterly and annual operating losses since its inception, and as of September 30, 2003, had an accumulated deficit of $242,385,000. Viewpoint’s prospects must be considered in light of the risks and difficulties frequently encountered by early stage technology companies. There can be no assurance that Viewpoint will achieve or sustain profitability.

RESULTS OF OPERATIONS

The following table sets forth for the three and nine months ended September 30, 2003 and 2002, the Company’s consolidated statements of operations expressed as a percentage of total revenues for the periods indicated:


		Three Months						Nine Months
		Ended						Ended
		September 30,						September 30,

		2003			2002			2003			2002

Statements of Operations Data
Revenues:
	Licenses		13	%		31	%		20	%		27	%
	Related party licenses		—			38			9			45
	Services		60			11			34			17
	Related party services		27			20			37			11

Total revenues			100			100			100			100

Cost of revenues:
	Licenses		1			—			1			2
	Services		56			21			45			19

Total cost of revenues			57			21			46			21

Gross profit			43			79			54			79

Operating expenses:
	Sales and marketing (including non-cash stock-based compensation charges)		65			77			69			73
	Research and development (including non-cash stock-based compensation charges)		48			27			37			30
	General and administrative (including non-cash stock-based compensation charges)		124			42			73			44
	Depreciation		15			9			12			9
	Amortization of intangible assets		—			—			—			4
	Restructuring and impairment charges related to office closure		27			—			17			—
	Impairment of goodwill and other intangible assets		—			—			—			41

Total operating expenses			279			155			208			201

Loss from operations			(236	)		(76	)		(154	)		(122	)

Other income (expense):
	Interest and other income, net		—			1			—			1
	Interest expense		(10	)		—			(7	)		—
	Changes in fair values of warrants to purchase common stock and conversion options of convertible notes		26			—			9			—
	Loss on early extinguishment of debt		—			—			(15	)		—

Total other income (expenses)			16			1			(13	)		1

Loss before provision for income taxes			(220	)		(75	)		(167	)		(121	)
Provision for income taxes			1			—			—			—

Net loss from continuing operations			(221	)		(75	)		(167	)		(121	)
Adjustment to net loss on disposal of discontinued operations			2			—			1			1

Net loss			(219	)%		(75	)%		(166	)%		(120	)%

Critical Accounting Policies And Estimates

Viewpoint’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its critical accounting policies and estimates, including those related to revenue recognition and goodwill and other intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances though actual results may differ from these estimates under different assumptions or conditions. For a complete description of the Company’s accounting policies, see Note 2 to the consolidated financial statements included in our 2002 Annual Report on Form 10-K/A.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

both the software license and service fees are recognized in accordance with SOP 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” The percentage of competition method is used for those arrangements in which reasonably dependable estimates are available.

The Company loaned $1,500,000 to a former officer of the Company during 2000. The loan became due and was in default. The Company had commercial litigation to pursue recovery, however, notification of a court judgement in favor of the former officer was received in September 2003. As a result of this unfavorable outcome, a loss of $750,000 was charged to operations to write off the remaining balance of the note.

Goodwill and Intangible Assets

Derivatives

Settled in, a Company’s Own Stock,” which requires the Company to bifurcate and separately account for its embedded derivatives contained in the Company’s convertible notes. The Company is required to carry these embedded derivatives on its balance sheet at fair value and the unrealized changes in the value of these embedded derivatives are reflected in net income as changes in fair values of warrants to purchase common stock and conversion options of convertible notes.

Revenues


			September 30,		September 30,		%
			2003		2002		Change

			(dollars in thousands)
Three months ended:
	Licenses		$	317	$	1,633		(81	)%
	Related party licenses			—		2,024		(100	)%
	Services			1,508		605		149	%
	Related party services			693		1,064		(35	)%

		Total revenues	$	2,518	$	5,326		(53	)%
Nine months ended:
	Licenses		$	2,166	$	4,129		(48	)%
	Related party licenses			1,060		6,929		(85	)%
	Services			3,705		2,673		39	%
	Related party services			4,086		1,757		133	%

Total			$	11,017	$	15,488		(29	)%

During 2003, the Company began to migrate its sales efforts toward larger customers. The customers the Company is currently targeting are contracting limited use of our software to understand its capabilities before they will commit to larger and longer license purchases. These limited use projects are generally for services as we develop content for the customers to use with our software. As we have begun migrating our sales efforts towards these larger customers with a longer license sales cycle, we are generally experiencing what we believe to be a short-term decline in the mix of license revenues relative to total revenues. We believe that this mix will change in the future as the customers who are currently using our software in these limited use projects purchase larger and longer use licenses, which will help increase the mix of license revenues relative to total revenues. Additionally we believe we may need to reduce our license pricing at the entry level of the market to successfully broaden our potential customer base. If we are not able to increase the number of sales we make at the entry level, or sell larger and longer licenses to our larger customers we may not be able to reverse our decline in License revenues.

License revenues decreased $1,316,000 or 81%, for the three months ended September 30, 2003, compared to the same period last year. This decrease is the result of a change in the mix of our business during the period from primarily license based to service based and an overall decline in the licensing of our technology to VARs. During the three months ended September 30, 2003, the Company only sold a few small project licenses and one international VAR sale. As a result, during the three months ended September 30, 2003, the number of pure license arrangements entered into as well as the average size of license arrangements decreased substantially when compared to the same period last year. During the three months ended September 30, 2002 the company entered into several VAR arrangements, as well as a substantial enterprise sale that is not yet up for renewal.

License revenues decreased $1,963,000, or 48% for the nine months ended September 30, 2003 compared to the same period last year. The decrease is primarily the result of a decrease in VAR arrangements in 2003 compared to 2002 which accounted for $1,360,000 of the decrease. The remainder of the decrease is due to our success at selling a larger enterprise license in 2002 that we have not successfully duplicated in 2003 due to a reduction in the salesforce and our customer’s inclination to purchase smaller project licenses in 2003 instead of larger and longer enterprise licenses. We do not anticipate entering into significant VAR arrangements in the immediate future.

Related party license revenues decreased approximately $2,024,000, or 100%, and $5,869,000, or 85%, for the three and nine months ended September 30, 2003, respectively, compared to the same periods last year. The decrease in related party license revenues stems from the Company’s main contract with America Online, Inc. (“AOL”), which was executed and amended in 2002 under which the Company had recognized license revenues

when payments were due. This contract with AOL resulted in $5,825,000 of license revenue during the nine months ended September 30, 2002 as compared to $1,000,000 in the nine months ended September 30, 2003.

Service revenues increased approximately $903,000, or 149%, for the three months ended September 30, 2003 compared to the same period last year. The increase in service revenue compared to 2002 is largely attributable to project work performed for several larger clients, and the receipt of cash from certain clients who were considered credit risks in prior periods for which revenue was not previously recognized.

Service revenues increased approximately $1,032,000, or 39%, for the nine months ended September 30, 2003, compared to the same period last year. The increase is primarily attributable to our efforts to target larger customers for smaller limited use license contracts and content development services that will be followed by our efforts to sell larger licenses to these customers. While we have had a slight decrease in the total number of customers we bill for services, revenue from our average customer is 43% greater for the nine month period in 2003 compared to 2002.

Related party service revenues decreased approximately $371,000, or 35%, but increased $2,329,000 or 133%, for the three and nine months ended September 30, 2003, respectively, compared to the same periods last year. These changes were generally due to AOL’s expanded use of the Company’s engineering and creative services resources during 2003 to make fuller use of the license rights AOL has for Viewpoint technology. The reduction of services revenues in the three month period ended September 30, 2003 was affected by the timing of completion for certain AOL projects.

Cost of revenues


			September 30,			September 30,			%
			2003			2002			Change

			(dollars in thousands)
Three months ended:
	Licenses		$	21		$	6			250	%
		Percentage of license revenues		7	%		—	%
Nine months ended:
	Licenses		$	96		$	251			(62	)%
		Percentage of license revenues		3	%		2	%
Three months ended:
	Services		$	1,419		$	1,125			26	%
		Percentage of service revenues		65	%		67	%
Nine months ended:
	Services		$	4,967		$	2,947			69	%
		Percentage of services revenues		64	%		67	%

Cost of revenues consists primarily of salaries, consulting fees and overhead for those who provide fee-based content creation and engineering professional services. The increase in cost of revenues is directly attributable to an increase in service revenues. Services expenses as a percentage of services revenue decreased slightly for the three and nine month periods ended September 30, 2003 as the company relied more heavily in 2003 on outside labor to complete its projects and received more favorable pricing in its agreements with customers. The reduction in cost of revenues attributable to licenses was due to the reduction in sales made to VAR’s during 2003.

Sales and marketing (including non-cash stock-based compensation charges totaling $88 and $552 for the three months ended September 30, 2003 and 2002, respectively and $467 and $1,992 for the nine months ended September 30, 2003 and 2002, respectively)


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Sales and marketing	$	1,637		$	4,068			(60	)%
	Percentage of total revenues		65	%		77	%
Nine months ended:
	Sales and marketing	$	7,625		$	11,234			(32	)%
	Percentage of total revenues		69	%		73	%

Sales and marketing expenses include salaries and benefits, sales commissions, non-cash stock-based compensation charges, consulting fees, and travel and entertainment expenses for our sales and marketing personnel. Sales and marketing expenses also include the cost of programs aimed at increasing revenue, such as advertising, trade shows, and public relations.

Sales and marketing expenses decreased by $2,431,000, or 60%, for the three months ended September 30, 2003 compared to the same period last year primarily due to a decrease in salaries, commissions and benefits of $1,259,000 and non-cash stock-based compensation charges of $463,000. Salaries and benefits decreased due to the office closure in Utah and other reductions in 2003. Non-cash stock-based compensation charges decreased due to headcount reductions in marketing and creative service personnel who had received option grants in the past where the exercise price was lower than the market value of the Company’s common stock on the date of grant. The Company expects non-cash stock-based compensation expense charges to continue to decrease in subsequent periods. However, since the remaining unamortized deferred compensation as of September 30, 2003 amounted to $586,000 and significant compensation cost is not expected to be recorded on future grants of stock options, the Company does not expect those decreases to be as significant as in previous quarters. Currently, the Company issues stock options to new personnel with an exercise price equal to the market value of the common stock on the date of grant. Other decreases in Sales and marketing included $251,000 in lower marketing expenditures due to the Company narrowing its focus on marketing efforts to certain industries in 2003.

Sales and marketing expenses decreased by $3,609,000, or 32%, for the nine months ended September 30, 2003 compared to the same period last year due, primarily due to decreases in non-cash stock-based compensation charges of $1,525,000 and salaries, commissions and benefits of $1,891,000. This was partially offset by an increase in consulting fees of $381,000. Non-cash stock-based compensation charges decreased due to headcount reductions in marketing and creative service personnel who had received option grants in the past where the exercise price was lower than the market value of the Company’s common stock on the date of grant. Salaries and benefits decreased due to the office closure in Utah and other headcount reductions in the first and third quarters of 2003. Consulting expenses increased due to training related costs associated with the Company’s plan to outsource certain content creation services to international partners, which the Company expects will increase its fee-based professional service margins over time.

Research and development (including non-cash stock-based compensation charges totaling $138 and $366 for the three months ended September 30, 2003 and 2002, respectively and $803 and $1,071 for the nine months ended September 30, 2003 and 2002, respectively)


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Research and development	$	1,201		$	1,439			(17	)%
	Percentage of total revenues		48	%		27	%
Nine months ended:
	Research and development	$	4,125		$	4,619			(11	)%
	Percentage of total revenues		37	%		30	%

Research and development expenses consist primarily of salaries and benefits for software developers, contracted development efforts, and non-cash stock-based compensation charges related to the Company’s product development efforts. The Company expenses as incurred research and development costs necessary to establish the technological feasibility of its internally developed software products and technologies. To date, the establishment of technological feasibility of the Company’s products and general release has substantially coincided. As a result, the Company has not capitalized any software development costs since costs qualifying for such capitalization have not been significant. Additionally, the Company capitalizes costs of software, consulting services, hardware and payroll-related costs incurred to purchase or develop internal-use software, when technological feasibility has been established, it is probable that the project will be completed and the software will be used as intended. The Company expenses costs incurred during preliminary project assessment, research and development, re-engineering, training and application maintenance.

The Company’s research and development efforts are primarily directed at improving the overall quality of the Viewpoint Media Player and its proprietary software tools for creating digital content. In 2002, the Company: developed a “color swapping” feature of its graphics operating system that permits end users to change the colors of textures on static two-dimensional images; developed audio features for its graphics operating system; improved the quality of its ability to play back vector graphics animation files; and built an infrastructure for the delivery of online advertising products. Since December 2002, the Company has been developing significant enhancements to the video playback functionality of Viewpoint Media Player (which the company made available in June 2003), an authoring tool for clients publishing advertising content, Computer Aided Design (“CAD”) workflow solutions and technology for converting CAD data into Viewpoint content, expanded capability of the Video Media Player onto new platforms, developed new configuration capabilities for user interfaces, and enhancements to the Viewpoint Media Player that allow print quality images to be generated from interactive online content.

Research and development expenses decreased by $238,000, or 17%, and $494,000, or 11%, for the three and nine months ended September 30, 2003, respectively, compared to the same periods last year. The decrease is primarily attributable to a decrease in non-cash stock-based compensation for three and nine months ended September 30, 2003, of $228,000 and $268,000, respectively. The Company expects non-cash stock-based compensation expense charges to continue to decrease in subsequent periods. However, since the remaining unamortized deferred compensation as of September 30, 2003 amounted to $586,000 and significant compensation cost is not expected to be recorded on future grants of stock options, the Company does not expect those decreases to be as significant as in previous quarters. Salaries and benefits also decreased for three and nine months ended September 30, 2003 by $33,000 and $188,000, respectively, primarily due to specific engineering salaries and benefits which were charged to cost of revenues as compared to research and development, as a result of revenue generating customer-specific development work.

General and administrative (including non-cash stock-based compensation charges totaling $294 and $282 for the three months ended September 30, 2003 and 2002, respectively and $1,118 and $1,110 for the nine months ended September 30, 2003 and 2002, respectively)


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	General and administrative	$	3,133		$	2,247			39	%
	Percentage of total revenues		124	%		42	%
Nine months ended:
	General and administrative	$	8,058		$	6,846			18	%
	Percentage of total revenues		73	%		44	%

General and administrative expenses primarily consist of corporate overhead of the Company, which includes salaries and benefits related to finance, human resources, legal, and executive personnel along with other administrative costs such as facilities costs, legal, accounting and investor relations fees, insurance expense, and bad debt expense.

General and administrative expenses increased by $886,000, or 39%, for the three months ended September 30,

2003 compared to the same period last year principally due to our recognition of a charge for an unfavorable legal decision. The Company had previously estimated it would receive a favorable decision, and had anticipated the receipt of $750,000 as a result of the conclusion of the case. Based upon the decision in the case, the Company has recorded a loss of $750,000 on the write-off of the remaining unreserved notes receivable which increased general and administrative expense this quarter. The Company wrote off $226,000 of internally developed software that had been previously capitalized as it re-evaluated its estimate of the software’s utility and concluded that the write-off of the remaining balance was appropriate. The Company had increases in accounting and printing costs of $111,000 due to the filing of stock registration rights associated with its convertible debt facility and other filings. Finally, the Company had increases in expenses of $123,000 associated with hiring new management. These increases were principally offset by a decrease in bad debt expense of $431,000 attributable to a large reserve that was established in 2002 for certain specific receivables.

General and administrative expenses increased by $1,212,000, or 18%, for the nine months ended September 30, 2003 compared to the same period last year, due to a loss on the write-off of a note receivable in the amount of $750,000, associated legal costs, a software asset write-off of $226,000, bad debt expense of $175,000, and accounting and printing costs of $131,000. These costs were partially offset by a decrease in facilities and office expenses of $151,000. The decrease in facilities and office expenses is attributable to the Company’s overall cost reduction strategy including the closure of the Company’s Utah office during the three months ended March 31, 2003.

Depreciation


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Depreciation	$	383		$	493			(22	)%
	Percentage of total revenues		15	%		9	%
Nine months ended:
	Depreciation	$	1,305		$	1,463			(11	)%
	Percentage of total revenues		12	%		9	%

Depreciation expense decreased $110,000, or 22%, and $158,000, or 11%, for the three and nine months ended September 30, 2003, respectively, compared to the same periods last year, due to a decrease in the average property and equipment balances during the respective periods.

Amortization of intangible assets


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Amortization of intangible assets	$	1		$	1			0	%
	Percentage of total revenues		—	%		—	%
Nine months ended:
	Amortization of intangible assets	$	9		$	664			(99	)%
	Percentage of total revenues		—	%		4	%

Amortization of intangible assets for the three and nine months ended September 30, 2003, relates to the amortization of the Company’s patents and trademarks. Amortization of intangible assets decreased $655,000 for the nine months ended September 30, 2003 compared to the same period last year as all intangible assets acquired in the Viewpoint Digital transaction were either fully amortized or written off in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” during the three months ended March 31, 2002.

Restructuring and impairment charges


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Restructuring and impairment charges	$	674		$	—			N/A
	Percentage of total revenues		27	%		—	%
Nine months ended:
	Restructuring and impairment charges	$	1,885		$	—			N/A
	Percentage of total revenues		17	%		—	%

The second plan was implemented in September 2003, and was designed to streamline the business. Under the plan the Company eliminated 24 sales and marketing, research and development, and general and administrative positions. The Company incurred a restructuring charge of $463,000 related to one-time severance arrangements. The second restructuring plan was completed by September 30, 2003.

Impairment of goodwill and other intangible assets


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Impairment of goodwill and other intangible assets	$	—		$	—			N/A
	Percentage of total revenues		—	%		—	%
Nine months ended:
	Impairment of goodwill and other intangible assets	$	—		$	6,275			(100	)%
	Percentage of total revenues		—	%		41	%

In conjunction with the implementation of SFAS No. 142 “Goodwill and Other Intangible Assets”, the Company completed a goodwill impairment review as of January 1, 2002 and found no impairment on that date. As of March 31, 2002, due to the persistence of unfavorable economic conditions along with lower-than-expected revenues generated to date and reduced estimates of future performance of the Viewpoint Digital assets, the Company performed an additional impairment analysis on the goodwill and other intangible asset balances recorded upon the acquisition of Viewpoint Digital. In accordance with the provisions of SFAS No. 142 and SFAS No. 144, the Company recorded impairment charges totaling $6,275,000 during the three months ended March 31, 2002. The fair value of the Viewpoint Digital assets was estimated using the expected present value of future cash flows. The assumptions supporting the cash flows, including a discount rate of 20%, were determined using the Company’s best estimates as of the date the impairment was recorded.

During the nine months ended September 30, 2003, the market value of the Company’s equity securities declined below the Company’s carrying value indicating the existence of a potential goodwill impairment. In accordance with SFAS No. 142, the Company performed the first step of the goodwill impairment test as of March 31, 2003.

The fair value of the Company was determined to exceed its carrying value using a market-based approach with selected multiples ranging from 1.5 to 2.0 times revenues and 1.8 to 2.5 times gross profit. In accordance with SFAS No. 142, the second step of the impairment test was unnecessary, and no goodwill impairment charges were recorded.

Interest and other income, net


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Interest and other income, net	$	8		$	44			(82	)%
	Percentage of total revenues		—	%		1	%
Nine months ended:
	Interest and other income, net	$	42		$	133			(68	)%
	Percentage of total revenues		—	%		1	%

Interest and other income, net, primarily consists of interest and investment income on cash, cash equivalents and marketable securities. As a result, interest and other income, net, fluctuates with changes in the Company’s cash, cash equivalents and marketable securities balances and market interest rates.

Interest and other income, net, decreased $36,000, or 82%, and $91,000, or 68%, for the three and nine months ended September 30, 2003, respectively, compared to the same period last year due to a decrease in average cash, cash equivalents, and marketable securities balances as well as a decline in market interest rates.

Interest expense


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Interest expense	$	(257	)	$	—			N/A
	Percentage of total revenues		(10	)%		—	%
Nine months ended:
	Interest expense	$	(743	)	$	—			N/A
	Percentage of total revenues		(7	)%		—	%

Interest expense consists of interest paid and accrued, and amortization of debt discount and debt issue costs on the Company’s outstanding convertible and subordinated notes. The notes were executed and funded during the first quarter of 2003.

Loss on early extinguishment of debt


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Loss on early extinguishment of debt	$	—		$	—			N/A
	Percentage of total revenues		—	%		—	%
Nine months ended:
	Loss on early extinguishment of debt	$	(1,682	)	$	—			N/A
	Percentage of total revenues		(15	)%		—	%

On March 25, 2003, the Company entered into Redemption, Amendment and Exchange Agreements with the three institutional investors with whom it had completed the private placement of convertible notes and warrants on December 31, 2002. Pursuant to these agreements, the notice of default was withdrawn and Viewpoint redeemed an aggregate of $3,300,000 principal amount of the outstanding convertible notes, exchanged an aggregate of $1,000,000 principal amount of the outstanding convertible notes for shares of Viewpoint common stock at $0.74 per share, and exchanged the remaining $2,700,000 principal amount of outstanding convertible notes for $2,700,000 principal amount of new convertible notes. The convertible notes were issued in three tranches of $900,000 each. The notes are scheduled to mature December 31, 2007. The warrants to purchase 726,330 shares of Company common stock, which were issued to these investors on December 31, 2002, remain outstanding.

In accordance with the provisions of Accounting Principals Board (“APB”) Opinion No. 26 “Early Extinguishment of Debt,” and Emerging Issues Task Force (“EITF”) Issue No. 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”, the Company recorded a loss on the early extinguishment of the original convertible notes in the amount of $1,682,000 of which $650,000 related to the write-off of deferred loan costs. The carrying value of the convertible notes at the time of the exchange was $5,643,000, inclusive of $55,000, which represented the fair value of the conversion options. In conjunction with the extinguishment, the Company paid $3,300,000, issued new convertible notes in the principal amount of $2,700,000 and issued 1,351,351 shares of its common stock with a market value of $675,000. The difference between (i) the carrying value of the outstanding convertible notes exchanged and (ii) cash paid and the fair value of the common stock and new convertible notes issued, amounted to $1,032,000 and was included in the loss on early extinguishment of debt.

The Company charged the loss on early extinguishment of debt to operations as such loss did not qualify for classification as extraordinary based on the provisions of SFAS No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, and APB 30 “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”

Changes in fair value of warrants to purchase common stock and conversion options of convertible notes


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Changes in fair value of warrants to purchase common stock and conversion options of convertible notes	$	667		$	—			N/A
	Percentage of total revenues		26	%		—	%
Nine months ended:
	Changes in fair value of warrants to purchase common stock and conversion options of convertible notes	$	1,010		$	—			N/A
	Percentage of total revenues		9	%		—	%

Based on the provisions of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and EITF Issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” the Company recorded a gain for the three months ended September 30, 2003 based on the decrease in fair values of the conversion options of its convertible notes of $555,000 and warrants of $112,000. For the nine months ended September 30, 2003, the Company recorded income based on the decrease in fair values of the conversion options of its convertible notes of $852,000 and warrants of $158,000.

Provision for income taxes


			September 30,			September 30,			%
			2003			2002			Change

			(dollars in thousands)
Three months ended:
	Provision for income taxes		$	26		$	—			N/A
	Percentage of total revenues			1	%		—	%
Nine months ended:
		Provision for income taxes	$	39		$	—			N/A
	Percentage of total revenues			—	%		—	%

Provision for income taxes consists primarily of certain minimum state income taxes as well as foreign tax withholdings.

Adjustment to net loss on disposal of discontinued operations


		September 30,			September 30,			%
		2003			2002			Change

		(dollars in thousands)
Three months ended:
	Adjustment to net loss on disposal of discontinued operations	$	41		$	9			356	%
	Percentage of total revenues		2	%		—	%
Nine months ended:
	Adjustment to net loss on disposal of discontinued operations	$	157		$	102			54	%
	Percentage of total revenues		1	%		1	%

In December 1999, the Board of Directors of the Company approved a plan to focus exclusively on its interactive media technologies and digital content creation services and to correspondingly divest itself of its prepackaged software graphics business. Accordingly, these operations are reflected as discontinued operations for all periods presented in the accompanying consolidated statements of operations.

The adjustment to net loss on disposal of discontinued operations for the three and nine months ended September 30, 2003, represents royalty payments received for certain prepackaged software.

Factors That May Affect Future Results of Operations

We believe that in the future our results of operations could be affected by various factors including:

• We have a history of losses and expect to incur losses in the future, which may cause our share price to decline;

• Our future revenues may be unpredictable and may cause our quarterly results to fall below market expectations;

• We may have to obtain financing on less than favorable terms, which could dilute current stockholders’ ownership interests in the Company;

• We have limited cash resources which could affect our ability to fund operations;

• Provisions of our Convertible debt may require us to redeem part or all of the $2.7 million outstanding debt as early as June 2004;

• Our stock price is volatile, which could subject us to class action litigation;

• Negative publicity resulting from announcements of new products or initiatives may cause our share price to decline;

• We may be delisted from NASDAQ, which would adversely impact our stock price and the ability of our stockholders to purchase and sell our shares in an orderly manner;

• We may need to develop new products or other untested methods of increasing sales with our existing products or distribution network to generate sufficient sales that will be necessary for future growth and if we are unsuccessful the growth of our business may cease or decline.

• We may effect a reverse stock split and if we do so, our stock price may decline after the reverse stock split;

• If the Internet does not become a more widespread commerce medium, demand for our products and technologies may decline significantly;

• Our market is characterized by rapidly changing technology, and if we do not respond in a timely manner, our products and technologies may not succeed in the marketplace;

• Security risks could limit the growth of e-commerce which would adversely impact our ability to increase sales of graphics technology;

• We may be unable to protect our intellectual property rights;

• We may be liable for infringing the intellectual property rights of others;

• We may need to enter into business combinations and strategic alliances, which could be difficult to integrate and may disrupt our business;

• The loss of key engineering or management employees, including our former Chief Technology Officer who left the Company on September 30, 2003, could harm our business;

• If we fail to establish, maintain, or expand our strategic relationships for the integration of our technology with the services and products of third parties, the growth of our business may cease or decline;

• AOL accounted for 51% of our revenues for the year ended December 31, 2002, and 47% of our revenues for the nine months ended September 30, 2003, but may not generate similar amounts of revenue in subsequent periods or years;

• Our charter documents could make it more difficult for an unsolicited third party to acquire us.

Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a material effect on the Company’s financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents, and marketable securities totaled $1,763,000 at September 30, 2003, down from $11,568,000 at December 31, 2002.

Net cash used in operating activities of the Company totaled $9,320,000 and $4,928,000 for the nine months ended September 30, 2003 and 2002, respectively. Net cash used in operating activities for the nine months ended September 30, 2003 primarily resulted from a $18,308,000 net loss, partially offset by $2,388,000 in non-cash stock-based compensation charges, $1,885,000 in restructuring and impairment charges, $1,682,000 of a loss on early extinguishment of debt, a $1,514,000 decrease in accounts receivable, $1,314,000 in depreciation and amortization, a $750,000 write-off of a Note Receivable and a $745,000 provision for bad debt. Net cash used in operating activities for the nine months ended September 30, 2002 primarily resulted from a $18,576,000 net loss, partially offset by $6,275,000 of impairment of goodwill and other intangible assets, $4,173,000 in non-cash stock-based compensation charges and $2,127,000 in depreciation and amortization.

Net cash used in investing activities totaled $71,000 for the nine months ended September 30, 2003, compared to net cash provided by investing activities of $4,457,000 for the nine months ended September 30, 2002. Net cash used in investing activities for the nine months ended September 30, 2003 primarily resulted from $419,000 for the purchase of property and equipment and a net $127,000 net purchases of marketable securities, which was partially offset by a $499,000 net decrease in restricted cash. Net cash provided by investing activities for the nine months ended September 30, 2002 primarily resulted from $5,218,000 in net proceeds from sales and maturities of marketable securities, partially offset by $712,000 for the purchase of property and equipment.

Net cash used in financing activities totaled $521,000 for the nine months ended September 30, 2003, compared to net cash provided by financing activities of $1,370,000 for the nine months ended September 30, 2002. Net cash used in financing activities for the nine months ended September 30, 2003 resulted from $3,300,000 used for the repayment of convertible notes and $576,000 used for the payment of debt issue costs, which was partially offset by $3,311,000 in proceeds from the issuance of subordinated notes and common stock, net of issuance costs. Net cash provided by financing activities for the nine months ended September 30, 2002 resulted from proceeds received from the exercise of stock options by the Company’s employees.

On December 31, 2002, the Company completed a private placement of convertible notes and warrants in which it issued to three institutional investors 4.95% convertible notes having an aggregate principal amount of $7,000,000, and warrants to purchase 726,330 shares of Company common stock. Interest on the convertible notes was payable quarterly in arrears in cash or, at the option of the Company, in shares of Company common stock, provided the Company satisfied certain financial and other conditions. The convertible notes were to mature on December 31, 2007, unless earlier converted into shares of Company common stock at a price of $2.26 per share. The warrants expire on December 31, 2006, and are exercisable at a price of $2.26 per share.

The convertible notes defined several events of default, including but not limited to: (i) failure of the Company’s registration statement to be declared effective by the Securities and Exchange Commission (“SEC”), (ii) delisting from The NASDAQ National Market or other national exchange, (iii) change in control, (iv) event of conversion default such as lack of authorized capital, (v) event of bankruptcy, (vi) failure to pay principal and interest on the convertible notes when payments become due, (vii) judgments against the Company in excess of $1,000,000 and (viii) material breach of any representation, warranty, covenant or other term. Upon an event of default, the convertible notes would become immediately due and payable, after a grace period to cure the default lapsed.

On March 25, 2003, the Company entered into Redemption, Amendment and Exchange Agreements with the three institutional investors with whom it had completed the private placement of convertible notes and warrants on December 31, 2002. Pursuant to these agreements, the notice of default was withdrawn and Viewpoint redeemed an aggregate of $3,300,000 principal amount of the outstanding convertible notes, exchanged an aggregate of $1,000,000 principal amount of the outstanding convertible notes for shares of Viewpoint common stock at $0.74 per share, and exchanged the remaining $2,700,000 principal amount of outstanding convertible notes for $2,700,000 principal amount of new convertible notes. The convertible notes were issued in three tranches of $900,000 each and are scheduled to mature on December 31, 2007. The warrants to purchase 726,330 shares of Company common stock, which were issued to these investors on December 31, 2002, remain outstanding.

August 16, 2003, and November 16, 2003, respectively, in each case subject to a minimum conversion price of $1.00 and a maximum conversion price of $2.26. The conversion price of the first $900,000 tranche of notes is $1.10. The conversion price of the second $900,000 tranche of notes is $1.00.

The Company was required to file a registration statement by April 14, 2003, covering the resale of the shares of common stock issued to the investors in exchange for the $1,000,000 principal of convertible notes, the shares of common stock issuable to the investors upon the conversion of the notes, the shares of common stock underlying the warrants issued and to be issued, and any shares of common stock that may be issued as payment of interest on the notes. The Company was required to pay cash penalties if the registration statement was not declared effective by June 30, 2003. The registration statement was declared effective July 14, 2003, and the Company was required to pay penalties of $182,000, of which $127,000 was accrued as interest expense in the second quarter of 2003 and $55,000 was accrued as interest expense in the third quarter of 2003.

amount of 4.95% subordinated notes and 3,614,756 shares of Viewpoint common stock. The notes are scheduled to mature on March 31, 2006.

The Company filed a registration statement covering the resale of the issued shares on May 9, 2003, which was declared effective by the SEC on July 30, 2003.

The Company has the right at any time to redeem up to all of the outstanding notes at par plus accrued and unpaid interest.

In fiscal 2003, the Company implemented two restructuring plans. The first plan, implemented in February 2003, reduced operating expenses by closing the Company’s Utah office and terminating 28 employees in that office who were primarily engaged in sales and marketing activities. In accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded restructuring charges of $1,211,000. The restructuring charges represent the fair value of remaining lease commitments reduced by estimated sublease rentals, employee severance and termination benefits, the write-off of the net book value of certain fixed assets used in the Utah office, and other miscellaneous charges. In September 2003, the Company re-evaluated market conditions surrounding its efforts to sub-lease the Utah office space and added a restructuring charge of $211,000 related to the fair value of remaining lease commitments reduced by estimated sublease rentals. The Company believes that it may be necessary to adjust our estimate of sublease income in the future as our ability to sublease the property in Utah is contingent upon real estate and other market conditions in Utah.

The second plan was implemented in September 2003, and was designed to streamline the business. Under the plan the Company eliminated 24 research and development, sales and marketing, and general and administrative positions. The Company incurred a restructuring charge of $463,000 related to severance. The charge is recorded on our income statement as a restructuring and impairment charge. The second restructuring plan was completed by September 30, 2003.

The Company has contingency plans for 2004 if expected revenue targets are not achieved. These plans include further workforce reductions as well as reductions in overhead and capital expenditures.

The Company believes that its current cash, cash equivalents, and marketable securities balances and cash provided by future operations, if any, are sufficient to meet its operating cash flow needs and anticipated capital expenditure requirements through at least the next twelve months. The Company may seek additional funds before that time through public or private equity financing or from other sources to fund our operations and pursue our growth strategy. We have no commitment for additional financing, and we may experience difficulty in obtaining additional financing on favorable terms, if at all. Any financing we obtain may contain covenants that restrict our freedom to operate our business or may have rights, preferences or privileges senior to our common stock and may dilute our current shareholders’ ownership interest in Viewpoint.

Subsequent Events

In November 2003, the Company sold 3,125,000 shares of common stock, in a private placement to Federal Partners L.P., an affiliate of The Clarke Estates, Inc for $2,500,000 or $0.80 per share. Under the terms of the investment, the Company is obliged to file a registration statement covering the resale of the shares within 45 days of the closing date, which occurred on November 12, 2003.

In November 2003, the Company approved a grant of 2,375,000 non-statutory stock options to acquire Company common stock to certain employees of the Company at an exercise price equal to the fair market value of the Company’s common stock on the final date of grant, under the provisions of the Company’s stock option plans. The options will vest over a period of up to two years. Additionally, the Company plans to reduce the vesting period of 1,125,000 stock options by approximately 2 years. These options carry a weighted average grant price of $0.76. If the fair market value the day of the reduction exceeds the price on the original grant date the Company would incur an expense if the applicable employee terminates employment prior to the conclusion of the original vesting period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to concentration of credit risk and interest rate risk related to cash, cash equivalents and marketable securities. Credit risk is managed by limiting the amount of securities placed with any one issuer, investing in high-quality marketable securities and securities of the U.S. government and limiting the average maturity of the overall portfolio. The majority of the Company’s portfolio, which is classified as available-for-sale, is comprised of fixed income securities that are subject to the risk of market interest rate fluctuations, and all of the Company’s securities are subject to risks associated with the ability of the issuers to perform their obligations under the instruments. The Company may suffer losses in principal if forced to sell securities, which have declined in market value due to changes in interest rates.

Item 4. Controls and Procedures

As required by Rule 13a-15(b), Viewpoint management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. As required by Rule 13a-15(d), Viewpoint management, including the Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits


Exhibit Number		Exhibit Title

10.1		Employment Agreement between Viewpoint Corporation and Jay S. Amato, dated August 7 2003

10.2		Employment Agreement between Viewpoint Corporation and William H. Mitchell, dated July 18, 2003

10.3		Employment Amendment Agreement between Viewpoint Corporation and Robert E. Rice, dated July 1, 2003

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

The Company filed a report on Form 8-K on August 6, 2003 to furnish its press release concerning its results of operation for the quarterly period ending on June 30, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	VIEWPOINT CORPORATION

Dated: November 14, 2003	By:	/s/ JAY S. AMATO

		Jay S. Amato President and Chief Executive Officer

Dated: November 14, 2003	By:	/s/ WILLIAM H. MITCHELL

		William H. Mitchell Chief Financial Officer

40 EX-10.1 3 y91802exv10w1.htm EMPLOYMENT AGREEMENT: AMATO EMPLOYMENT AGREEMENT: AMATO

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”), dated as of August 7, 2003, is entered into between Viewpoint Corporation, a Delaware Corporation with its principal office at 498 Seventh Avenue, New York, N.Y. 10018 (“Viewpoint”), and Jerry S. Amato (“Executive”).

WHEREAS, Viewpoint desires to retain Executive’s services as President and Chief Executive Officer, and Executive desires to be retained by Viewpoint to serve as President and Chief Executive Officer of Viewpoint.

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

1. Employment; Term.

(a) Duties and Responsibilities. Subject to the terms and conditions of this Agreement, Viewpoint hereby employs Executive, and Executive hereby accepts employment with Viewpoint, as Chief Executive Officer. In addition, Viewpoint shall nominate Executive for membership on the Board of Directors (the “Board”), which shall be subject to the approval of Viewpoint’s shareholders. Executive shall devote his full business time and attention to the business and affairs of Viewpoint and its subsidiaries. Notwithstanding the foregoing, Viewpoint agrees that Executive may serve as a director of other entities, so long as such entities are not direct or indirect competitors of Viewpoint and such service does not otherwise interfere with Executive’s performance of his duties hereunder. Executive shall observe and comply with Viewpoint’s policies, rules and regulations regarding the performance of his duties, shall use his best efforts, skills and abilities to promote Viewpoint’s interests and shall perform his duties faithfully, competently and in such manner as Viewpoint’s Board may from time to time reasonably direct.

(b) Duty of Loyalty. Executive will execute the “Duty of Loyalty Agreement” that is annexed hereto as Exhibit A and is made a part of this Agreement; provided, however, that in the event of a conflict between the Duty of Loyalty Agreement and this Agreement, the provisions of this Agreement shall apply.

(c) Principal Place of Employment. Executive’s principal place of employment shall be at Viewpoint’s headquarters in New York, New York, or at such other location as shall be mutually acceptable to Executive and the Board.

(d) Representations. Executive affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, Executive’s acceptance of employment hereunder, the employment of Executive by Viewpoint, or Executive’s undertakings under this Agreement.

(e) Executive’s employment hereunder shall commence on August 11, 2003 (the “Commencement Date”), and terminate at 12:01 a.m. on August 11, 2005, unless terminated earlier pursuant to Section 3 below.

2. Compensation and Benefits. Viewpoint shall pay the following compensation and provide the benefits to Executive during the Term of Employment:

(a) Base Salary. Executive shall receive a base salary of $395,000 per annum (the “Base Salary”), payable in approximately equal installments in accordance with the customary payroll practices of Viewpoint. If the rate of Base Salary per annum paid to Executive is increased during the Term of Employment, such increased rate shall thereafter constitute the Base Salary for all purposes of this

Agreement. Executive’s Base Salary shall not be decreased during the Term of Employment without the mutual consent of Executive and Company.

(b) Signing Bonus. Viewpoint shall pay to Executive a one-time bonus of $50,000 on the date this Agreement is executed by Executive.

(c) Bonus Compensation.


		(i)		Annual Bonuses. Viewpoint and Executive will negotiate in good faith to develop an annual performance-based incentive bonus program for Executive individually or for Executive as a participant in an incentive compensation plan for senior executives.

		(ii)		Profitability-Based Bonuses. Executive shall be eligible to receive the following bonuses:


		(A)		The first time Viewpoint achieves Profitability (as defined below) during the Term of Employment for a fiscal quarterly period, if at all, Viewpoint will pay to Executive a bonus of $100,000 within thirty (30) days following Viewpoint’s announcement of its financial results for such quarter.

		(B)		The first time Viewpoint achieves Profitability for two (2) consecutive fiscal quarters during the Term of Employment, if at all, Viewpoint will pay to Executive a bonus of $130,000 within thirty (30) days following Viewpoint’s announcement of its financial results for such second such quarter.

		(C)		For purposes of this Section 2(c)(ii), “Profitability” means positive earnings per share calculated before interest, depreciation, amortization, non-cash stock-based compensation charges, and impairment of goodwill and other intangible assets but after accrual for performance-based any bonus(es) described in this Section 2(c).

(d) Option to Acquire Viewpoint Common Stock. Viewpoint will grant to Executive an option to acquire 1,250,000 shares of Viewpoint common stock (the “Option”) at an exercise price equal to the closing price of Viewpoint’s common stock at the close of business on the business day immediately preceding the Commencement Date. Fifty percent (50%) of the shares subject to the Option will vest on the first (1st) anniversary of the Commencement Date and the remaining fifty percent (50%) of the shares will vest on the second anniversary of the Commencement Date. The Option will be subject to the terms of an award agreement to be executed by Viewpoint and Executive.

(e) Life Insurance. During the Term of Employment, Viewpoint will reimburse Executive for the cost of acquiring a term life insurance policy with a death benefit of $5,000,000 payable to Executive’s beneficiaries.

(f) Automobile. Viewpoint will reimburse Executive for his reasonable expenses associated with use of an automobile, primarily for business purposes, in an amount not to exceed $1,500 per month throughout the Term of Employment.

(g) Benefit Plan; Vacation. Executive shall be entitled to participate in all benefit plans maintained for Viewpoint employees and shall be entitled to four (4) weeks of paid vacation per annum.

(h) Withholdings and Deductions. The payment of any Base Salary, bonus or other compensation hereunder shall be subject to income tax, social security and other applicable withholdings, as well as such deductions as may be required under Viewpoint’s employee benefit plans.

(i) Disability Insurance. During the Term of Employment, Viewpoint will provide, or reimburse Executive for premiums paid to acquire, a long-term disability insurance policy which will provide benefits for a qualifying disability of sixty percent (60%) of Executive’s last pre-disability Base Salary, on an after tax basis, for the entire period of Executive’s disability for a maximum period ending on Executive’s sixty-fifth (65th) birthday; provided, however, that if the foregoing disability insurance does not result in the payment of monthly disability benefits that are greater than or equal to Executive’s monthly Base Salary compensation on an after tax basis, Viewpoint shall pay Executive a monthly sum representing the difference between the two amounts, which monthly payments shall continue until the earlier of the date disability benefits cease and the date that is twenty-four (24) months following the date the first such payment is made.

(j) D&O Insurance; Defense and Indemnification.


		(i)		During the Term of Employment, Viewpoint shall maintain directors and officers insurance (“D&O Insurance”) in a liability amount of no less than $15,000,000 and shall cause Executive to be named as an additional insured under such policy. Viewpoint also agrees to obtain tail coverage for Executive with respect to said D&O Insurance for no less than three (3) years after cessation of Executive’s employment.

		(ii)		Viewpoint shall defend, indemnify and hold Executive harmless, to the fullest extent permitted by law and by Viewpoint’s by-laws, against all claims that arise from or out of, or are related to Executive’s actions or inactions while employed with Viewpoint (including attorneys’ fees, judgments, fines, defense costs and amounts paid in any settlement). For the avoidance of doubt, the foregoing indemnification will be provided with respect to all times during which Executive served as a director or officer of Viewpoint, regardless of whether any claim covered by this Section 2(j)(ii) is asserted during the Term of Employment or after Executive’s employment ceases.

3. Termination; Severance; Change in Control.

(a) Termination Without Cause or With Good Reason. If, at any time during the Term of Employment, Executive’s employment is terminated by Viewpoint without Cause (as defined below), or if Executive terminates his employment with Viewpoint for Good Reason (as defined below),


		(i)		Viewpoint will pay to Executive an amount equal to two (2) times Executive’s then current Base Salary, which shall be payable in a lump sum, and

		(ii)		One hundred percent (100%) of the unvested portion of the Option and all other options, if any, granted to Executive during the Term of Employment, will immediately vest and will remain exercisable by Executive for three (3) months following the effective date of termination (the “Termination Date”).

		(iii)		In addition, unless otherwise prohibited by the terms of the applicable plans, Viewpoint shall reimburse Executive for, or pay on Executive’s behalf, the premiums necessary to continue Executive’s participation in Viewpoint’s welfare benefit plans for one (1) year following the Termination Date, including, without limitation, all medical, prescription, dental, disability, group life, accidental death and travel accident insurance plans and programs maintained by Viewpoint, at the level provided to Executive immediately prior to the Change in Control; provided, however, that if Executive becomes covered under any plans of another employer that provide substantially similar coverage, the coverage provided by Viewpoint pursuant to this Subsection 3(a)(iii) will cease.


		(iv)		In addition to the foregoing, Executive will be entitled to continue his coverage under the above plans to the extent required by the Consolidated Omnibus Budget Reconciliation Act of 1985 “COBRA”) commencing on the first (1st) anniversary of the Termination Date.

(b) Termination With Cause or Without Good Reason. If, at any time during the Term of Employment, Viewpoint terminates Executive’s employment with Cause, or if Executive terminates his employment with Viewpoint without Good Reason, Viewpoint will have no obligation to make any payments to Executive under this Agreement, and the unvested portion of the Option and all other options, if any, granted to Executive at any time before such termination will be forfeited and will not vest and will not be exercisable at any time by Executive.

(c) Termination in Connection with a Change in Control of Viewpoint. If, at any time within one (1) year following a Change in Control of Viewpoint, Executive’s employment is terminated by Viewpoint (or its successor, as the case may be) without Cause, or by Executive for Good Reason, then


		(i)		Executive shall be entitled to a lump sum amount, in cash and payable within ten (10) days following the Termination Date, equal to two (2) times Executive’s Base Salary,

		(ii)		One hundred percent (100%) of the unvested portion of the Option and all other options, if any, granted to Executive at any time before such termination will immediately vest and will remain exercisable by Executive for three (3) months following the Termination Date, and

		(iii)		Unless otherwise prohibited by the terms of the applicable plans, Executive shall be entitled to continued participation in Viewpoint’s welfare benefit plans for one (1) year following the Termination Date, including, without limitation, all medical, prescription, dental, disability, group life, accidental death and travel accident insurance plans and programs of Viewpoint, at the level provided to Executive immediately prior to the Change in Control; provided, however, that if Executive becomes eligible for coverage under any plans of another employer that provide substantially similar coverage, the coverage provided by Viewpoint pursuant to this Subsection 3(c)(ii)(C) will cease. In addition to the foregoing, Executive will be entitled to continue his coverage under the above plans to the extent required by COBRA commencing on the first (1st) anniversary of the Termination Date.

(d) Non-Duplication of Benefits; No Interest. In the event of the termination of Executive’s employment, his rights under any benefit plans in which he is a participant shall be determined in accordance with the terms of the plans and by applicable law. Notwithstanding any other provision in this Agreement, nothing in this Agreement shall result in a duplication of payments or benefits provided under this Section 3, nor shall anything in this Agreement require Viewpoint to make any payment or to provide any benefit to Executive that Viewpoint is otherwise required to provide under any other contract, agreement or arrangement. No interest shall accrue on or be paid with respect to any portion of any payments hereunder, except as required by law.

(e) General Release. No payments or benefits payable to Executive upon the termination of his employment pursuant to this Section 3 shall be made to Executive unless and until he executes a general release substantially in the form attached hereto as Exhibit B.

(f) Non-Competition. The obligations of Executive under Section 12 (Non-Compete) of the Duty of Loyalty Agreement provided for in Section 1(b) above shall apply only in the event that Executive receives payments pursuant to Section 3(a), above. In addition, Viewpoint may, at its option, provide Executive with salary continuation payments for reasons not covered in Section 3(a) in exchange for Executive’s

compliance with Section 12; provided, however, that if Viewpoint does not make such election, Section 12 shall be null and void and without further effect.

4. Definitions. In addition to certain terms defined elsewhere in this Agreement, the following terms will have the following respective meanings:

(a) “Cause” means the occurrence of any of the following:


		(i)		the willful and continuing refusal of Executive to follow the lawful directives of the Board, provided that such directives are consistent with Executive’s title and position,

		(ii)		conduct that is intentional and known by Executive to be materially harmful or potentially materially harmful to Viewpoint’s best interest,

		(iii)		gross negligence in the performance of, or willful disregard of, Executive’s obligations hereunder,

		(iv)		Executive’s conviction of any felony, or

		(v)		Executive’s commission of any act of dishonesty or moral turpitude which, in the good faith opinion of the Board, is materially detrimental to Viewpoint;

provided, however, that in the event of a termination due to one or more of the reasons set forth in clauses (a)(i), (ii) and/or (iii), Executive shall be provided with a period of five (5) business days from the date Viewpoint gives notice of such termination to effectively cure or remedy such reason or reasons (unless such cure or remedy is not possible).

(b) “Good Reason” means the occurrence of any of the following:


		(i)		any material breach by Viewpoint of its obligations under this Agreement,

		(ii)		relocation of the Executive’s principal place of employment from the City of New York, without the Executive’s consent,

		(iii)		a significant diminution of Executive’s duties as set forth in Section 1 without Executive’s consent, or

		(iv)		a failure by Viewpoint to obtain a written agreement from any successor or assign of Viewpoint to assume the material obligations under this Agreement upon a Change in Control;

provided, however, that in the event of a termination for Good Reason, Viewpoint shall be provided with a period of five (5) business days from the date Executive gives notice of such termination to effectively cure or remedy such reason or reasons; and if Viewpoint fails to cure or remedy the reason or reasons for termination, Executive’s Good Reason termination shall be effective as of the date the notice was given.


(i)		the acquisition, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) by any person or any group of persons who constitute a group (within the meaning of Section 13d-3 of the Exchange Act) of any securities of Viewpoint such that, as a result


				of such acquisition, such person or group beneficially owns (within the meaning of Rule 13d-3 of the Exchange Act), directly or indirectly, more than fifty percent (50%) of Viewpoint’s outstanding voting securities entitled to vote on a regular basis for a majority of the members of the Board;

		(ii)		the consummation of any merger or any other business combination, in one or more transactions, including, but not limited to a sale of all or substantially all of the assets of Viewpoint, other than a transaction immediately following which the shareholders of Viewpoint who owned shares immediately prior to the transaction continue to own, by virtue of their prior ownership of Viewpoint shares, at least fifty percent (50%) of the voting power, directly or indirectly, of the surviving corporation in any such merger or business combination; or

		(iii)		the consummation of a plan of complete liquidation of Viewpoint.

5. Miscellaneous.

(a) Non-Assignability. Neither this Agreement nor any right or interest hereunder shall be assignable by Executive, his beneficiaries or legal representatives without Viewpoint’s prior written consent; provided, however, that nothing in this Section 5(a) shall preclude Executive from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity.

(b) Binding Effect. Without limiting or diminishing the effect of Section 5(a) hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns.

(c) Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times.

(d) Notice. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person, sent by first class certified or registered mail, postage prepaid or sent by overnight courier, if to Viewpoint, at its principal place of business, and if to Executive, at his home address most recently filed with Viewpoint, or to such other address or addresses as either party shall have designated in writing to the other party hereto.

(e) Entire Agreement; Modifications. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto.

(f) Relevant Law; Venue. This Agreement shall be construed and enforced in accordance with the internal laws of the State of New York, without regard to the conflict of laws principles thereof, and any dispute hereunder shall be adjudicated exclusively by the federal courts of the Southern District of New York or, in the absence of such courts’ willingness to hear such dispute, by the state courts located in the City of New York.

(g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.

6. Acknowledgement. Executive represents and acknowledges the following:

(a) He has carefully read this Agreement in its entirety;

(b) He understands the terms and conditions contained herein;

(c) He has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by Viewpoint or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and

(d) He is entering into this Agreement knowingly and voluntarily.

IN WITNESS WHEREOF, Executive and the authorized representative of the Board of Viewpoint execute and enter into this Agreement as of the date first above written.


EXECUTIVE		VIEWPOINT CORPORATION

/s/ Jerry S. Amato		/s/ Robert E. Rice

Jerry S. Amato		By: Robert E. Rice
		Chief Executive Officer

EX-10.2 4 y91802exv10w2.htm EMPLOYMENT AGREEMENT: MITCHELL EMPLOYMENT AGREEMENT: MITCHELL

Exhibit 10.2

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”), dated as of July 18, 2003, is entered into between Viewpoint Corporation, a Delaware Corporation with its principal office at 498 Seventh Avenue, New York, N.Y. 10018 (“Viewpoint”), and William H. Mitchell (“Executive”).

WHEREAS, Viewpoint desires to retain Executive’s services as Chief Financial Officer, and Executive desires to be retained by Viewpoint to serve as Chief Financial Officer of Viewpoint.

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

1. Employment; Term.

(a) Duties and Responsibilities. Subject to the terms and conditions of this Agreement, Viewpoint hereby employs Executive, and Executive hereby accepts employment with Viewpoint, as Chief Financial Officer. Executive shall devote his full business time and attention to the business and affairs of Viewpoint and its subsidiaries. Executive shall observe and comply with Viewpoint’s policies, rules and regulations regarding the performance of his duties, shall use his best efforts, skills and abilities to promote Viewpoint’s interests and shall perform his duties faithfully, competently and in such manner as Viewpoint’s Chief Executive Officer and Board of Directors (the “Board”) may from time to time reasonably direct.

(b) Duty of Loyalty. Executive will execute the “Duty of Loyalty Agreement” that is annexed hereto as Exhibit A and is made a part of this Agreement.

(c) Principal Place of Employment. Executive’s principal place of employment shall be at Viewpoint’s headquarters in New York, New York, or at such other location as shall be mutually acceptable to Executive and the Board.

(d) Representations. Executive affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, Executive’s acceptance of employment hereunder, the employment of Executive by Viewpoint, or Executive’s undertakings under this Agreement. Notwithstanding the foregoing, Viewpoint acknowledges that Executive is an active participant in several charitable organizations and agrees that Executive may, on up to ten (10) business days per annual period during the Term of Employment, work remotely and on a partial day basis on days for which Executive is performing duties relating to the charitable organizations, provided that performance of such duties does not conflict with his obligations under this Agreement. Viewpoint further acknowledges that Executive may be called upon by officers of MaxWorldwide, Inc. (Executive’s former employer) to assist in affairs relating to MaxWorldwide, Inc.’s liquidation and agrees that Executive may, in response to requests by officers of MaxWorldwide, Inc., spend an average of twenty (20) hours per month over the first six (6) months of the Term of Employment (as defined below) providing such assistance; provided, however, that performance of such services does not conflict with Executive’s obligations under this Agreement.

(e) Executive’s employment hereunder shall commence on August 4, 2003 (the “Commencement Date”), and terminate at 12:01 a.m. on August 4, 2005, unless terminated earlier pursuant to Section 3 below. Executive’s employment shall be extended for additional one (1) year terms after the initial term of employment unless either party gives the other party notice of its or his intention not to renew at least sixty (60) days prior to the expiration of the then current term of employment. The initial term of employment and any subsequent extensions shall be referred to as the “Term of Employment”.

2. Compensation and Benefits. Viewpoint shall pay the following compensation and provide the following benefits to Executive during the Term of Employment:

(a) Base Salary. Executive shall receive a base salary of $225,000 per annum (the “Base Salary”), payable in approximately equal installments in accordance with the customary payroll practices of Viewpoint. Viewpoint will review Executive’s Base Salary on an annual basis. If the rate of Base Salary per annum paid to Executive is increased during the Term of Employment, such increased rate shall thereafter constitute the Base Salary for all purposes of this Agreement. Executive’s Base Salary shall not be decreased during the Term of Employment without the mutual consent of Executive and Company.

(b) Bonuses.

(i) Annual Bonus. Executive shall receive a bonus of not less than $25,000 per annum payable in four (4) equal quarterly installments, with the first such installment payable on November 4, 2003.

(ii) Discretionary Bonus. Viewpoint and Executive shall cooperate in good faith to establish management based objectives for Executive for each annual period during the Term of Employment. To the extent that Executive achieves these management-based objectives, Executive will be eligible to receive a bonus of up to $50,000 per annum in addition to the annual bonus described above and such bonus will be payable within thirty (30) days of the anniversary of the Commencement Date. The management-based objectives for the first year of the Term of Employment will be established in mutual cooperation by Executive and the Chief Executive Officer within sixty (60) days following the Commencement Date.

(c) Housing Allowance. Viewpoint will reimburse Executive for his reasonable expenses associated with lodging in New York City in an amount not to exceed $2,080 per month during the first twelve (12) months of the Term of Employment.

(d) Options to Acquire Viewpoint Common Stock. Viewpoint will grant to Executive an option to acquire shares of Viewpoint common stock (the “Options”) as follows:

(i) Viewpoint will grant to Executive an Option to acquire 350,000 shares of Viewpoint common stock at an exercise price equal to the closing price of Viewpoint’s common stock at the close of business on the business day immediately preceding the Commencement Date.

(ii) Viewpoint will grant to Executive an Option to acquire an additional 150,000 shares of Viewpoint common stock on or before the first (1st) anniversary of the Commencement Date at an exercise price equal to the closing price of Viewpoint’s common stock on the date of grant.

(iii) Twenty-five percent (25%) of the shares subject to each of the above Options will vest on the first (1st) anniversary of the date the Option is granted and one-thirty-sixth (1/36th) of the remaining shares will vest monthly thereafter.

(iv) The Options will be subject to the terms of award agreements to be executed by Viewpoint and Executive.

(e) Benefit Plans; Vacation. Executive shall be entitled to participate in all benefit plans maintained for Viewpoint employees, and Viewpoint shall pay for Executive’s participation in such plans to the same extent that Viewpoint makes payments for other executive officers’ participation. Executive shall be entitled to four (4) weeks of paid vacation per annum, to be accrued and used in accordance with Viewpoint’s policies.

(f) Withholdings and Deductions. The payment of any Base Salary, bonus or other compensation hereunder shall be subject to income tax, social security and other applicable withholdings, as well as such deductions as may be required under Viewpoint’s employee benefit plans.

3. Termination; Severance; Change in Control; Non-Renewal.

(a) Termination Without Cause or With Good Reason in First Twelve (12) Months of Employment. If, within twelve (12) months following the Commencement Date, Viewpoint terminates Executive’s employment without Cause (as defined below), or if Executive terminates his employment with Viewpoint for Good Reason (as defined below), Viewpoint will pay to Executive an amount equal to six (6) months of Executive’s then current Base Salary, and fifty percent (50%) of the unvested portion of Options granted to Executive at any time before such termination will immediately vest and will remain exercisable by Executive for three (3) months following the effective date of termination (the “Termination Date”).

(b) Termination Without Cause or With Good Reason After Twelve (12) Months of Employment. If, at any time during the Term after the date that is twelve (12) months following the Commencement Date, Viewpoint terminates Executive’s employment without Cause, or if Executive terminates his employment with Viewpoint for Good Reason, Viewpoint will pay to Executive an amount equal to one (1) times Executive’s then current Base Salary, and one hundred percent (100%) of the unvested portion of Options granted to Executive at any time before such termination will immediately vest and will remain exercisable by Executive for three (3) months following the Termination Date.

(c) Termination Without Cause or With Good Reason Following a Change in Control of Viewpoint.

(i) Change in Control Agreement Executed Within First Twelve (12) Months. If, within twelve (12) months following the Commencement Date, (A) Viewpoint enters into an agreement that leads to a Change in Control (as defined below), and (B) Executive’s employment is terminated by Viewpoint without Cause, or by Executive for Good Reason, at any time within one (1) year following the Change in Control, then


		(A) Executive shall be entitled to a lump sum amount, in cash and payable within ten (10) days following the Termination Date, equal to one (1) times Executive’s Base Salary;

		(B) Fifty percent (50%) of the unvested portion of Options granted to Executive at any time before such termination will immediately vest and will remain exercisable by Executive for three (3) months following the Termination Date;

		(C) Unless otherwise prohibited by the terms of the applicable plans, Executive shall be entitled to continued participation in Viewpoint’s welfare benefit plans for one (1) year following the Termination Date, including, without limitation, all medical, prescription, dental, disability, group life, accidental death and travel accident insurance plans and programs of Viewpoint, at the level provided to Executive immediately prior to the Change in Control; provided, however, that if Executive becomes eligible for coverage under any plans of another employer that provide substantially similar coverage, the coverage provided by Viewpoint pursuant to this Subsection 3(c)(i)(C) will cease. In addition to the foregoing, Executive will be entitled to continue his coverage under the


		above plans to the extent required by the Consolidated Omnibus Budget Reconciliation Act of 1985 “COBRA”) commencing on the first (1st) anniversary of the Termination Date.

(ii) Change in Control Agreement Executed After First Anniversary of Term of Employment. If, at any time after the first (1st) anniversary of the Commencement Date (A) Viewpoint enters into an agreement that leads to a Change in Control, and (B) Executive’s employment is terminated by Viewpoint without Cause, or by Executive for Good Reason, at any time within one (1) year following the Change in Control, then


		(A) Executive shall be entitled to a lump sum amount, in cash and payable within ten (10) days following the Termination Date, equal to two (2) times Executive’s Base Salary,

		(B) One hundred percent (100%) of the unvested portion of any Options granted to Executive at any time before such termination will immediately vest and will remain exercisable by Executive for three (3) months following the Termination Date,

		(C) Unless otherwise prohibited by the terms of the applicable plans, Executive shall be entitled to continued participation in Viewpoint’s welfare benefit plans for one (1) year following the Termination Date, including, without limitation, all medical, prescription, dental, disability, group life, accidental death and travel accident insurance plans and programs of Viewpoint, at the level provided to Executive immediately prior to the Change in Control; provided, however, that if Executive becomes eligible for coverage under any plans of another employer that provide substantially similar coverage, the coverage provided by Viewpoint pursuant to this Subsection 3(c)(ii)(C) will cease. In addition to the foregoing, Executive will be entitled to continue his coverage under the above plans to the extent required by COBRA commencing on the first (1st) anniversary of the Termination Date.

(d) Non-Renewal. If Viewpoint elects not to renew this Agreement for a one (1) year period following the expiration of the initial Term of Employment or any renewal term, Viewpoint will pay to Executive an amount equal to his then current Base Salary. Executive shall be entitled to a lump sum amount, in cash and payable within ten (10) days following the Termination Date.

(e) Termination With Cause or Without Good Reason. If, at any time during the Term of Employment, Viewpoint terminates Executive’s employment with Cause, or if Executive terminates his employment with Viewpoint without Good Reason, Viewpoint will have no obligation to make any payments to Executive under this Agreement, and the unvested portion of any Options granted to Executive at any time before such termination will be forfeited and will not vest and will not be exercisable at any time by Executive.

(f) Non-Duplication of Benefits; No Interest. In the event of the termination of Executive’s employment, his rights under any benefit plans in which he is a participant shall be determined in accordance with the terms of the plans and by applicable law. Notwithstanding any other provision in this Agreement, nothing in this Agreement shall result in a duplication of payments or benefits provided under this Section 3, nor shall anything in this Agreement require Viewpoint to make any payment or to provide any benefit to Executive that Viewpoint is otherwise required to provide under any other contract, agreement or arrangement. No interest shall accrue on or be paid with respect to any portion of any payments hereunder, except as required by law.

(g) General Release. No payments or benefits payable to Executive upon the termination of his employment pursuant to this Section 3 shall be made to Executive unless and until he executes a general release substantially in the form attached hereto as Exhibit B.

4. Definitions. In addition to certain terms defined elsewhere in this Agreement, the following terms will have the following respective meanings:

(b) “Cause” means the occurrence of any of the following:

(i) the willful and continuing refusal of Executive to follow the lawful directives of the Chief Executive Officer or the Board, provided that such directives are consistent with Executive’s title and position.

(ii) conduct that is intentional and known by Executive to be materially harmful or potentially materially harmful to Viewpoint’s best interest,

(iii) gross negligence in the performance of, or willful disregard of, Executive’s obligations hereunder,

(iv) Executive’s conviction of any felony, or

(v) Executive’s commission of any act of dishonesty or moral turpitude which, in the good faith opinion of the Board, is materially detrimental to Viewpoint;

provided, however, that in the event of a termination due to one or more of the reasons set forth in clauses (a)(i), (ii) and/or (iii), Executive shall be provided with a period of five (5) business days from the date Viewpoint gives notice of such termination to effectively cure or remedy such reason or reasons (unless such cure or remedy is not possible).

(i) any material breach by Viewpoint of its obligations under this Agreement,

(ii) a significant diminution of Executive’s duties as set forth in Section 1 without Executive’s consent, or

(iii) a failure by Viewpoint to obtain a written agreement from any successor or assign of Viewpoint to assume the material obligations under this Agreement upon a Change in Control;

provided, however, that in the event of a termination for Good Reason, Viewpoint shall be provided with a period of five (5) business days from the date Executive gives notice of such termination to effectively cure or remedy such reason or reasons; and if Viewpoint fails to cure or remedy the reason or reasons for termination, Executive’s Good Reason termination shall be effective as of the date the notice was given.

(i) the acquisition, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) by any person or any group of persons who constitute a group (within the meaning of Section 13d-3 of the Exchange Act) of any securities of Viewpoint such that, as a result of such acquisition, such person or group beneficially owns (within the meaning of Rule 13d-3 of the Exchange Act), directly or indirectly, more than fifty percent (50%) of Viewpoint’s outstanding voting securities entitled to vote on a regular basis for a majority of the members of the Board;

(ii) the consummation of any merger or any other business combination, in one or more transactions, including, but not limited to a sale of all or substantially all of the assets of Viewpoint, other than a transaction immediately following which the shareholders of Viewpoint who owned shares immediately prior to the transaction continue to own, by virtue of their prior ownership of Viewpoint shares, at least fifty percent (50%) of the voting power, directly or indirectly, of the surviving corporation in any such merger or business combination; or

(iii) the consummation of a plan of complete liquidation of Viewpoint.

5. Miscellaneous.

(a) Non-Assignability. Neither this Agreement nor any right or interest hereunder shall be assignable by Executive, his beneficiaries or legal representatives without Viewpoint’s prior written consent.

(b) Binding Effect. Without limiting or diminishing the effect of Section 5(a) hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns.

(c) Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times.

(d) Notice. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person, sent by first class certified or registered mail, postage prepaid or sent by overnight courier, if to Viewpoint, at its principal place of business, and if to Executive, at his home address most recently filed with Viewpoint, or to such other address or addresses as either party shall have designated in writing to the other party hereto.

(e) Entire Agreement; Modifications. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto.

(f) Relevant Law. This Agreement shall be construed and enforced in accordance with the internal laws of the State of New York, without regard to the conflict of laws principles thereof.

(g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.

6. Acknowledgement. Executive represents and acknowledges the following:

IN WITNESS WHEREOF, Executive and the authorized representative of the Board of Viewpoint execute and enter into this Agreement as of the date first above written.


EXECUTIVE		VIEWPOINT CORPORATION

/s/ William H. Mitchell		/s/ Robert E. Rice

William H. Mitchell		By: Robert E. Rice
		Chief Executive Officer

EX-10.3 5 y91802exv10w3.htm EMPLOYMENT AGREEMENT: RICE EMPLOYMENT AGREEMENT: RICE

Exhibit 10.3

AMENDMENT

This Agreement is entered into between Viewpoint Corporation, a Delaware Corporation with its principal office at 498 Seventh Avenue, New York, NY, 10018, and Robert E. Rice, and amends that certain Employment Agreement dated as of December 17, 2001 between the same parties.

WHEREAS, pursuant to the Employment Agreement, Executive serves as President, Chief Executive Officer and Chairman of the Board of Directors of Viewpoint; and

WHEREAS, the Employment Agreement terminates on December 31, 2003 and Viewpoint desires to assure his services beyond such date,

Now, therefore, the parties agree as follows:

1. Section 1 is amended to substitute “December 31, 2004” for “December 31, 2003”..

2. Section 2 is amended by adding a new section (f), as follows:
(f) Regardless of any provision of the stock option plan or this agreement: (i) the option grant made to Executive on April 14 shall vest ratably over the period from the date of grant until December 31, 2004; and (ii) all vested options held by Executive as of the date of any termination of employment shall remain exercisable for a period of three years thereafter.

3. Section 3 is amended to add a new section (e), as follows:
(e) Upon termination of Executive’s employment by reason of the non-renewal of this agreement, Company shall pay to Executive an amount equal to one year’s base salary, and continue to provide the other benefits provided herein for a one year period from the date of termination.

4. Section 4 (b) (ii) is amended to provide as follows:
(ii) In the event of changes to Executive’s titles and duties determined by the Board, Executive does not hold the position and title of “Executive Chairman of the Board of Directors” following such changes.

IN WITNESS WHEREOF, Executive and the duly authorized representative of the Board of Directors of Viewpoint hereby execute and enter into this Agreement as of July 1, 2003.


Robert E. Rice		Viewpoint Corporation

/s/ Robert E. Rice		/s/ Samuel H. Jones

Robert E. Rice		by: Samuel H. Jones Chairman, Compensation Committee

EX-31.1 6 y91802exv31w1.htm 302 CERTIFICATION 302 CERTIFICATION

Exhibit 31.1

CERTIFICATION

I, Jay S. Amato, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Viewpoint Corporation;

2. Based on my knowledge, this quarterly 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: November 14, 2003	By:	/s/ JAY S. AMATO

		Jay S. Amato President and Chief Executive Officer

EX-31.2 7 y91802exv31w2.htm 302 CERTIFICATION 302 CERTIFICATION

Exhibit 31.2

CERTIFICATION

I, William H. Mitchell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Viewpoint Corporation;

EX-32.1 8 y91802exv32w1.htm 906 CERTIFICATION 906 CERTIFICATION

Exhibit 32.1

CERTIFICATION 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 Quarterly Report of Viewpoint Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Jay S. Amato and William H. Mitchell, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our 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.


Dated: November 14, 2003	By:	/s/ JAY S. AMATO

		Jay S. Amato President and Chief Executive Officer

Dated: November 14, 2003	By:	/s/ WILLIAM H. MITCHELL

		William H. Mitchell Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

Dated: November 14, 2003

/s/ WILLIAM H. MITCHELL

William H. Mitchell
Chief Financial Officer

	•		Licensing technology for website marketing and e-commerce visualization solutions;

	•		Licensing technology for Internet advertising purposes;

	•		Providing a full range of fee-based digital content creation and software engineering services for implementing visualization solutions for marketing;

	•		Forging technological alliances with leading interactive agencies, Web content providers, major portals, ISPs, tool companies and computer OEMs; and

	•		Maximizing market penetration of the Viewpoint Media Player.

	•		We have a history of losses and expect to incur losses in the future, which may cause our share price to decline;

	•		Our future revenues may be unpredictable and may cause our quarterly results to fall below market expectations;

	•		We may have to obtain financing on less than favorable terms, which could dilute current stockholders’ ownership interests in the Company;

	•		We have limited cash resources which could affect our ability to fund operations;

	•		Provisions of our Convertible debt may require us to redeem part or all of the $2.7 million outstanding debt as early as June 2004;

	•		Our stock price is volatile, which could subject us to class action litigation;

	•		Negative publicity resulting from announcements of new products or initiatives may cause our share price to decline;

	•		We may be delisted from NASDAQ, which would adversely impact our stock price and the ability of our stockholders to purchase and sell our shares in an orderly manner;

	•		We may need to develop new products or other untested methods of increasing sales with our existing products or distribution network to generate sufficient sales that will be necessary for future growth and if we are unsuccessful the growth of our business may cease or decline.

	•		We may effect a reverse stock split and if we do so, our stock price may decline after the reverse stock split;

	•		If the Internet does not become a more widespread commerce medium, demand for our products and technologies may decline significantly;

	•		Our market is characterized by rapidly changing technology, and if we do not respond in a timely manner, our products and technologies may not succeed in the marketplace;

	•		Security risks could limit the growth of e-commerce which would adversely impact our ability to increase sales of graphics technology;

	•		We may be unable to protect our intellectual property rights;

	•		We may be liable for infringing the intellectual property rights of others;

	•		We may need to enter into business combinations and strategic alliances, which could be difficult to integrate and may disrupt our business;

	•		The loss of key engineering or management employees, including our former Chief Technology Officer who left the Company on September 30, 2003, could harm our business;

	•		If we fail to establish, maintain, or expand our strategic relationships for the integration of our technology with the services and products of third parties, the growth of our business may cease or decline;

	•		AOL accounted for 51% of our revenues for the year ended December 31, 2002, and 47% of our revenues for the nine months ended September 30, 2003, but may not generate similar amounts of revenue in subsequent periods or years;

	•		Our charter documents could make it more difficult for an unsolicited third party to acquire us.

		1. Employment; Term.

		(a) Duties and Responsibilities. Subject to the terms and conditions of this Agreement, Viewpoint hereby employs Executive, and Executive hereby accepts employment with Viewpoint, as Chief Executive Officer. In addition, Viewpoint shall nominate Executive for membership on the Board of Directors (the “Board”), which shall be subject to the approval of Viewpoint’s shareholders. Executive shall devote his full business time and attention to the business and affairs of Viewpoint and its subsidiaries. Notwithstanding the foregoing, Viewpoint agrees that Executive may serve as a director of other entities, so long as such entities are not direct or indirect competitors of Viewpoint and such service does not otherwise interfere with Executive’s performance of his duties hereunder. Executive shall observe and comply with Viewpoint’s policies, rules and regulations regarding the performance of his duties, shall use his best efforts, skills and abilities to promote Viewpoint’s interests and shall perform his duties faithfully, competently and in such manner as Viewpoint’s Board may from time to time reasonably direct.

		(b) Duty of Loyalty. Executive will execute the “Duty of Loyalty Agreement” that is annexed hereto as Exhibit A and is made a part of this Agreement; provided, however, that in the event of a conflict between the Duty of Loyalty Agreement and this Agreement, the provisions of this Agreement shall apply.

		(c) Principal Place of Employment. Executive’s principal place of employment shall be at Viewpoint’s headquarters in New York, New York, or at such other location as shall be mutually acceptable to Executive and the Board.

		(d) Representations. Executive affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, Executive’s acceptance of employment hereunder, the employment of Executive by Viewpoint, or Executive’s undertakings under this Agreement.

		(e) Executive’s employment hereunder shall commence on August 11, 2003 (the “Commencement Date”), and terminate at 12:01 a.m. on August 11, 2005, unless terminated earlier pursuant to Section 3 below.

		Agreement. Executive’s Base Salary shall not be decreased during the Term of Employment without the mutual consent of Executive and Company.

		(b) Signing Bonus. Viewpoint shall pay to Executive a one-time bonus of $50,000 on the date this Agreement is executed by Executive.

		(c) Bonus Compensation.

		(d) Option to Acquire Viewpoint Common Stock. Viewpoint will grant to Executive an option to acquire 1,250,000 shares of Viewpoint common stock (the “Option”) at an exercise price equal to the closing price of Viewpoint’s common stock at the close of business on the business day immediately preceding the Commencement Date. Fifty percent (50%) of the shares subject to the Option will vest on the first (1st) anniversary of the Commencement Date and the remaining fifty percent (50%) of the shares will vest on the second anniversary of the Commencement Date. The Option will be subject to the terms of an award agreement to be executed by Viewpoint and Executive.

		(e) Life Insurance. During the Term of Employment, Viewpoint will reimburse Executive for the cost of acquiring a term life insurance policy with a death benefit of $5,000,000 payable to Executive’s beneficiaries.

		(f) Automobile. Viewpoint will reimburse Executive for his reasonable expenses associated with use of an automobile, primarily for business purposes, in an amount not to exceed $1,500 per month throughout the Term of Employment.

		(g) Benefit Plan; Vacation. Executive shall be entitled to participate in all benefit plans maintained for Viewpoint employees and shall be entitled to four (4) weeks of paid vacation per annum.

		(h) Withholdings and Deductions. The payment of any Base Salary, bonus or other compensation hereunder shall be subject to income tax, social security and other applicable withholdings, as well as such deductions as may be required under Viewpoint’s employee benefit plans.

		(i) Disability Insurance. During the Term of Employment, Viewpoint will provide, or reimburse Executive for premiums paid to acquire, a long-term disability insurance policy which will provide benefits for a qualifying disability of sixty percent (60%) of Executive’s last pre-disability Base Salary, on an after tax basis, for the entire period of Executive’s disability for a maximum period ending on Executive’s sixty-fifth (65th) birthday; provided, however, that if the foregoing disability insurance does not result in the payment of monthly disability benefits that are greater than or equal to Executive’s monthly Base Salary compensation on an after tax basis, Viewpoint shall pay Executive a monthly sum representing the difference between the two amounts, which monthly payments shall continue until the earlier of the date disability benefits cease and the date that is twenty-four (24) months following the date the first such payment is made.

		(j) D&O Insurance; Defense and Indemnification.

		3. Termination; Severance; Change in Control.

		(a) Termination Without Cause or With Good Reason. If, at any time during the Term of Employment, Executive’s employment is terminated by Viewpoint without Cause (as defined below), or if Executive terminates his employment with Viewpoint for Good Reason (as defined below),

		(b) Termination With Cause or Without Good Reason. If, at any time during the Term of Employment, Viewpoint terminates Executive’s employment with Cause, or if Executive terminates his employment with Viewpoint without Good Reason, Viewpoint will have no obligation to make any payments to Executive under this Agreement, and the unvested portion of the Option and all other options, if any, granted to Executive at any time before such termination will be forfeited and will not vest and will not be exercisable at any time by Executive.

		(c) Termination in Connection with a Change in Control of Viewpoint. If, at any time within one (1) year following a Change in Control of Viewpoint, Executive’s employment is terminated by Viewpoint (or its successor, as the case may be) without Cause, or by Executive for Good Reason, then

		(d) Non-Duplication of Benefits; No Interest. In the event of the termination of Executive’s employment, his rights under any benefit plans in which he is a participant shall be determined in accordance with the terms of the plans and by applicable law. Notwithstanding any other provision in this Agreement, nothing in this Agreement shall result in a duplication of payments or benefits provided under this Section 3, nor shall anything in this Agreement require Viewpoint to make any payment or to provide any benefit to Executive that Viewpoint is otherwise required to provide under any other contract, agreement or arrangement. No interest shall accrue on or be paid with respect to any portion of any payments hereunder, except as required by law.

		(e) General Release. No payments or benefits payable to Executive upon the termination of his employment pursuant to this Section 3 shall be made to Executive unless and until he executes a general release substantially in the form attached hereto as Exhibit B.

		(f) Non-Competition. The obligations of Executive under Section 12 (Non-Compete) of the Duty of Loyalty Agreement provided for in Section 1(b) above shall apply only in the event that Executive receives payments pursuant to Section 3(a), above. In addition, Viewpoint may, at its option, provide Executive with salary continuation payments for reasons not covered in Section 3(a) in exchange for Executive’s

		5. Miscellaneous.

		(a) Non-Assignability. Neither this Agreement nor any right or interest hereunder shall be assignable by Executive, his beneficiaries or legal representatives without Viewpoint’s prior written consent; provided, however, that nothing in this Section 5(a) shall preclude Executive from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity.

		(b) Binding Effect. Without limiting or diminishing the effect of Section 5(a) hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns.

		(c) Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times.

		(d) Notice. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person, sent by first class certified or registered mail, postage prepaid or sent by overnight courier, if to Viewpoint, at its principal place of business, and if to Executive, at his home address most recently filed with Viewpoint, or to such other address or addresses as either party shall have designated in writing to the other party hereto.

		(e) Entire Agreement; Modifications. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto.

		(f) Relevant Law; Venue. This Agreement shall be construed and enforced in accordance with the internal laws of the State of New York, without regard to the conflict of laws principles thereof, and any dispute hereunder shall be adjudicated exclusively by the federal courts of the Southern District of New York or, in the absence of such courts’ willingness to hear such dispute, by the state courts located in the City of New York.

		(g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument.

		6. Acknowledgement. Executive represents and acknowledges the following:

		(a) He has carefully read this Agreement in its entirety;

		(b) He understands the terms and conditions contained herein;

		(c) He has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by Viewpoint or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and

		(d) He is entering into this Agreement knowingly and voluntarily.

		1. Employment; Term.

		(a) Duties and Responsibilities. Subject to the terms and conditions of this Agreement, Viewpoint hereby employs Executive, and Executive hereby accepts employment with Viewpoint, as Chief Financial Officer. Executive shall devote his full business time and attention to the business and affairs of Viewpoint and its subsidiaries. Executive shall observe and comply with Viewpoint’s policies, rules and regulations regarding the performance of his duties, shall use his best efforts, skills and abilities to promote Viewpoint’s interests and shall perform his duties faithfully, competently and in such manner as Viewpoint’s Chief Executive Officer and Board of Directors (the “Board”) may from time to time reasonably direct.

		(b) Duty of Loyalty. Executive will execute the “Duty of Loyalty Agreement” that is annexed hereto as Exhibit A and is made a part of this Agreement.

		(c) Principal Place of Employment. Executive’s principal place of employment shall be at Viewpoint’s headquarters in New York, New York, or at such other location as shall be mutually acceptable to Executive and the Board.

		(d) Representations. Executive affirms and represents that he is under no obligation to any former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, Executive’s acceptance of employment hereunder, the employment of Executive by Viewpoint, or Executive’s undertakings under this Agreement. Notwithstanding the foregoing, Viewpoint acknowledges that Executive is an active participant in several charitable organizations and agrees that Executive may, on up to ten (10) business days per annual period during the Term of Employment, work remotely and on a partial day basis on days for which Executive is performing duties relating to the charitable organizations, provided that performance of such duties does not conflict with his obligations under this Agreement. Viewpoint further acknowledges that Executive may be called upon by officers of MaxWorldwide, Inc. (Executive’s former employer) to assist in affairs relating to MaxWorldwide, Inc.’s liquidation and agrees that Executive may, in response to requests by officers of MaxWorldwide, Inc., spend an average of twenty (20) hours per month over the first six (6) months of the Term of Employment (as defined below) providing such assistance; provided, however, that performance of such services does not conflict with Executive’s obligations under this Agreement.

		(a) Base Salary. Executive shall receive a base salary of $225,000 per annum (the “Base Salary”), payable in approximately equal installments in accordance with the customary payroll practices of Viewpoint. Viewpoint will review Executive’s Base Salary on an annual basis. If the rate of Base Salary per annum paid to Executive is increased during the Term of Employment, such increased rate shall thereafter constitute the Base Salary for all purposes of this Agreement. Executive’s Base Salary shall not be decreased during the Term of Employment without the mutual consent of Executive and Company.

		(b) Bonuses.

			(i) Annual Bonus. Executive shall receive a bonus of not less than $25,000 per annum payable in four (4) equal quarterly installments, with the first such installment payable on November 4, 2003.

			(ii) Discretionary Bonus. Viewpoint and Executive shall cooperate in good faith to establish management based objectives for Executive for each annual period during the Term of Employment. To the extent that Executive achieves these management-based objectives, Executive will be eligible to receive a bonus of up to $50,000 per annum in addition to the annual bonus described above and such bonus will be payable within thirty (30) days of the anniversary of the Commencement Date. The management-based objectives for the first year of the Term of Employment will be established in mutual cooperation by Executive and the Chief Executive Officer within sixty (60) days following the Commencement Date.

		(c) Housing Allowance. Viewpoint will reimburse Executive for his reasonable expenses associated with lodging in New York City in an amount not to exceed $2,080 per month during the first twelve (12) months of the Term of Employment.

		(d) Options to Acquire Viewpoint Common Stock. Viewpoint will grant to Executive an option to acquire shares of Viewpoint common stock (the “Options”) as follows:

			(i) Viewpoint will grant to Executive an Option to acquire 350,000 shares of Viewpoint common stock at an exercise price equal to the closing price of Viewpoint’s common stock at the close of business on the business day immediately preceding the Commencement Date.

			(ii) Viewpoint will grant to Executive an Option to acquire an additional 150,000 shares of Viewpoint common stock on or before the first (1st) anniversary of the Commencement Date at an exercise price equal to the closing price of Viewpoint’s common stock on the date of grant.

			(iii) Twenty-five percent (25%) of the shares subject to each of the above Options will vest on the first (1st) anniversary of the date the Option is granted and one-thirty-sixth (1/36th) of the remaining shares will vest monthly thereafter.

			(iv) The Options will be subject to the terms of award agreements to be executed by Viewpoint and Executive.

		(e) Benefit Plans; Vacation. Executive shall be entitled to participate in all benefit plans maintained for Viewpoint employees, and Viewpoint shall pay for Executive’s participation in such plans to the same extent that Viewpoint makes payments for other executive officers’ participation. Executive shall be entitled to four (4) weeks of paid vacation per annum, to be accrued and used in accordance with Viewpoint’s policies.

		(f) Withholdings and Deductions. The payment of any Base Salary, bonus or other compensation hereunder shall be subject to income tax, social security and other applicable withholdings, as well as such deductions as may be required under Viewpoint’s employee benefit plans.

		3. Termination; Severance; Change in Control; Non-Renewal.

		(a) Termination Without Cause or With Good Reason in First Twelve (12) Months of Employment. If, within twelve (12) months following the Commencement Date, Viewpoint terminates Executive’s employment without Cause (as defined below), or if Executive terminates his employment with Viewpoint for Good Reason (as defined below), Viewpoint will pay to Executive an amount equal to six (6) months of Executive’s then current Base Salary, and fifty percent (50%) of the unvested portion of Options granted to Executive at any time before such termination will immediately vest and will remain exercisable by Executive for three (3) months following the effective date of termination (the “Termination Date”).

		(b) Termination Without Cause or With Good Reason After Twelve (12) Months of Employment. If, at any time during the Term after the date that is twelve (12) months following the Commencement Date, Viewpoint terminates Executive’s employment without Cause, or if Executive terminates his employment with Viewpoint for Good Reason, Viewpoint will pay to Executive an amount equal to one (1) times Executive’s then current Base Salary, and one hundred percent (100%) of the unvested portion of Options granted to Executive at any time before such termination will immediately vest and will remain exercisable by Executive for three (3) months following the Termination Date.

		(c) Termination Without Cause or With Good Reason Following a Change in Control of Viewpoint.

		(d) Non-Renewal. If Viewpoint elects not to renew this Agreement for a one (1) year period following the expiration of the initial Term of Employment or any renewal term, Viewpoint will pay to Executive an amount equal to his then current Base Salary. Executive shall be entitled to a lump sum amount, in cash and payable within ten (10) days following the Termination Date.

		(e) Termination With Cause or Without Good Reason. If, at any time during the Term of Employment, Viewpoint terminates Executive’s employment with Cause, or if Executive terminates his employment with Viewpoint without Good Reason, Viewpoint will have no obligation to make any payments to Executive under this Agreement, and the unvested portion of any Options granted to Executive at any time before such termination will be forfeited and will not vest and will not be exercisable at any time by Executive.

		(f) Non-Duplication of Benefits; No Interest. In the event of the termination of Executive’s employment, his rights under any benefit plans in which he is a participant shall be determined in accordance with the terms of the plans and by applicable law. Notwithstanding any other provision in this Agreement, nothing in this Agreement shall result in a duplication of payments or benefits provided under this Section 3, nor shall anything in this Agreement require Viewpoint to make any payment or to provide any benefit to Executive that Viewpoint is otherwise required to provide under any other contract, agreement or arrangement. No interest shall accrue on or be paid with respect to any portion of any payments hereunder, except as required by law.

		(g) General Release. No payments or benefits payable to Executive upon the termination of his employment pursuant to this Section 3 shall be made to Executive unless and until he executes a general release substantially in the form attached hereto as Exhibit B.

			(i) the willful and continuing refusal of Executive to follow the lawful directives of the Chief Executive Officer or the Board, provided that such directives are consistent with Executive’s title and position.

			(ii) conduct that is intentional and known by Executive to be materially harmful or potentially materially harmful to Viewpoint’s best interest,

			(iii) gross negligence in the performance of, or willful disregard of, Executive’s obligations hereunder,

			(iv) Executive’s conviction of any felony, or

			(v) Executive’s commission of any act of dishonesty or moral turpitude which, in the good faith opinion of the Board, is materially detrimental to Viewpoint;

			provided, however, that in the event of a termination due to one or more of the reasons set forth in clauses (a)(i), (ii) and/or (iii), Executive shall be provided with a period of five (5) business days from the date Viewpoint gives notice of such termination to effectively cure or remedy such reason or reasons (unless such cure or remedy is not possible).

			(i) any material breach by Viewpoint of its obligations under this Agreement,

			(ii) a significant diminution of Executive’s duties as set forth in Section 1 without Executive’s consent, or

			(iii) a failure by Viewpoint to obtain a written agreement from any successor or assign of Viewpoint to assume the material obligations under this Agreement upon a Change in Control;

			provided, however, that in the event of a termination for Good Reason, Viewpoint shall be provided with a period of five (5) business days from the date Executive gives notice of such termination to effectively cure or remedy such reason or reasons; and if Viewpoint fails to cure or remedy the reason or reasons for termination, Executive’s Good Reason termination shall be effective as of the date the notice was given.

			(i) the acquisition, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) by any person or any group of persons who constitute a group (within the meaning of Section 13d-3 of the Exchange Act) of any securities of Viewpoint such that, as a result of such acquisition, such person or group beneficially owns (within the meaning of Rule 13d-3 of the Exchange Act), directly or indirectly, more than fifty percent (50%) of Viewpoint’s outstanding voting securities entitled to vote on a regular basis for a majority of the members of the Board;

			(ii) the consummation of any merger or any other business combination, in one or more transactions, including, but not limited to a sale of all or substantially all of the assets of Viewpoint, other than a transaction immediately following which the shareholders of Viewpoint who owned shares immediately prior to the transaction continue to own, by virtue of their prior ownership of Viewpoint shares, at least fifty percent (50%) of the voting power, directly or indirectly, of the surviving corporation in any such merger or business combination; or

			(iii) the consummation of a plan of complete liquidation of Viewpoint.

	(a)		He has carefully read this Agreement in its entirety;

	(b)		He understands the terms and conditions contained herein;

	(c)		He has had the opportunity to review this Agreement with legal counsel of his own choosing and has not relied on any statements made by Viewpoint or its legal counsel as to the meaning of any term or condition contained herein or in deciding whether to enter into this Agreement; and

	(d)		He is entering into this Agreement knowingly and voluntarily.

	1.		Section 1 is amended to substitute “December 31, 2004” for “December 31, 2003”..

	2.		Section 2 is amended by adding a new section (f), as follows: (f) Regardless of any provision of the stock option plan or this agreement: (i) the option grant made to Executive on April 14 shall vest ratably over the period from the date of grant until December 31, 2004; and (ii) all vested options held by Executive as of the date of any termination of employment shall remain exercisable for a period of three years thereafter.

	3.		Section 3 is amended to add a new section (e), as follows: (e) Upon termination of Executive’s employment by reason of the non-renewal of this agreement, Company shall pay to Executive an amount equal to one year’s base salary, and continue to provide the other benefits provided herein for a one year period from the date of termination.

	4.		Section 4 (b) (ii) is amended to provide as follows: (ii) In the event of changes to Executive’s titles and duties determined by the Board, Executive does not hold the position and title of “Executive Chairman of the Board of Directors” following such changes.

		a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

		b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

		c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

		a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

		b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.