VisuaLABS Inc. says it has reached an agreement in principle to settle a dispute with company founder Sheldon Zelitt, his wife Joy Zelitt and their private investment company.

Under the agreement, the Zelitts and The Downsview Investment Group Ltd. will surrender all but one million of the 7,674,624 VisuaLABS shares held by them.

The Zelitts acknowledge they owe $1,575,133.45 to VisuaLABS. That debt will not bear interest until Jan. 1, 2004. If the debt is not repaid in full by then with the proceeds of sales of the retained VisuaLABS shares, the balance will be payable in equal monthly installments until Jan. 1, 2009 at a six-per-cent interest rate.

The couple has agreed to secure the debt with a mortgage on property held by them in the Czech Republic.

The settlement agreement provides that the Zelitts will enter into a pooling agreement under which a third person will exercise the voting rights attaching to the 7,674,624 shares. The Zelitts will not, through the shares retained by them, be able to participate in the governance of VisuaLABS as shareholders.

The agreement also provides for the transfer of VisuaLABS’ 3-D technologies to a newly formed corporation, which is to be incorporated in a jurisdiction identified by the Zelitts. The new company will license the 3-D technologies to VisuaLABS.

The Zelitts will hold 7,674,824 of the voting shares of that corporation and VisuaLABS will be issued 9,500,000 non-voting shares.

The Zelitts will resign as directors of VisuaLABS.

The settlement will be subject to regulatory and other third-party approvals. When all outstanding matters have been addressed to the satisfaction of VisuaLABS, the court actions started aganst the Zelitts in August 2001 are expected to be discontinued.

As a condition to the settlement, the Zelitts required undertakings from VisuaLABS that it would not sponsor or promote any action by a third person against the Zelitts, take any active measures to publicly denigrate the 3-D technology or issue statements, press releases or communicate with the media in respect of matters relating to the Zelitts.

"With the recovery of a large proportion of the shares owned by the Zelitts, the acknowledgement of their debts to the company and the implementation of steps to secure those debts, VisuaLABS feels that it will be in a good position to move forward in a positive and unencumbered way,” said Dr. John Kendall, president and acting CEO of VisuaLABS.

“The directors felt that this settlement was much more beneficial to the shareholders than long, drawn-out litigation," he said.

Sheldon Zelitt was first suspended, then fired last summer as CEO of the company over allegations he made major “misrepresentations” about the company’s technology, including trying to pass off a purchased television set as the company's cutting-edge imaging technology. The Alberta Securities Commission issued a trading halt to shares owned by the Zelitts.