Impact Research Corporation, Joan C. Benz, Tax Matters Person - Page 6




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          to grasp a portion of a lesson, then the teacher could replay the           
          unclear portion of the lesson in a step-by-step process to                  
          reinforce or clarify key principles; conversely, if the class               
          appeared to understand the lesson, then the teacher could                   
          continue with the lesson.  The videodiscs also enabled teachers             
          to present the information contained in the videodiscs in more              
          than one manner.                                                            
               By 1984, Systems had developed early prototypes of the                 
          videodiscs, but it needed an additional $5-8 million to bring               
          them to market.                                                             
          B.   Creation and Operation of IRC and RIC                                  
               In 1984, Gordon Gould (hereinafter sometimes referred to as            
          Gould) was the president of Heritage Financial Corp. (hereinafter           
          sometimes referred to as Heritage Financial).  Heritage Financial           
          was a securities firm; a broker-dealer, it sold stocks, bonds,              
          and other forms of investments.                                             
               In 1984, Gould met with Systems’ representatives about                 
          raising the financial support Systems needed in order to expand             
          its research and development activities.  Gould considered the              
          videodisc technology to be a “valid potential product for                   
          investors”.  After consulting with securities attorneys, Gould              
          and Systems agreed that the formation of two S corporations                 
          represented the best way to (1) provide to Systems the additional           
          financing it needed, and (2) secure an equity investment in the             






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