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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 333-7137
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Votan Corporation
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 7372 94-3246202
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification Number)
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7020 KOLL CENTER PARKWAY, PLEASANTON, CALIFORNIA 94566
(510) 426-5600
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
JOHN A. WHITE
CHIEF EXECUTIVE OFFICER
VOTAN CORPORATION
7020 KOLL CENTER PARKWAY, PLEASANTON, CALIFORNIA 94566
(510) 426-5600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
COPIES OF ALL COMMUNICATIONS TO:
RICHARD R. PLUMRIDGE, ESQ. RICHARD H. GILDEN, ESQ.
BABAK YAGHMAIE, ESQ. FULBRIGHT & JAWORSKI L.L.P.
BROBECK, PHLEGER & HARRISON LLP 666 FIFTH AVENUE
1301 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10103
NEW YORK, NEW YORK 10019 (212) 318-3000
(212) 581-1600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, as amended, please check
the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, as amended, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, as amended, please check the following
box. [ ]
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CALCULATION OF REGISTRATION FEE
===================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
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Common Stock, $.01 par value 3,277,500 shares $12.00 $39,330,000 $13,562.07(3)
===================================================================================================
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(1) Includes 427,500 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee.
(3) Of this amount, $13,087.00 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 6, 1996
PROSPECTUS
2,850,000 SHARES
[VOTAN LOGO]
VOTAN CORPORATION
COMMON STOCK
Of the 2,850,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Votan Corporation ("Votan" or the "Company") and 850,000
shares are being sold by MOSCOM Corporation ("MOSCOM" or the "Selling
Stockholder"), the sole stockholder of the Company prior to this offering.
The Company will not receive any of the proceeds from the sale of shares by
the Selling Stockholder. Following the offering, MOSCOM will own
approximately 62% of the outstanding shares of Common Stock (assuming no
exercise of the Underwriters' over-allotment option). See "Principal and
Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company and there can be no assurance that a trading market will
develop after the sale of the shares offered hereby. It is currently
anticipated that the initial public offering price will be between $10.00 and
$12.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied for quotation of the Common Stock on the Nasdaq National Market under
the symbol "VOTN."
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share .... $ $ $ $
Total(3) ..... $ $ $ $
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(1) For information regarding indemnification of the Underwriters by the
Company and certain compensation payable to the Representatives of the
Underwriters, see "Underwriting."
(2) Before deducting expenses of this offering, estimated at approximately
$890,000, all of which will be paid by the Company.
(3) The Selling Stockholder has granted to the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to
427,500 additional shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, and Proceeds to Selling
Stockholder will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters, subject to
their right to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of the certificates representing the
shares of Common Stock will be made on or about , 1996 at the
offices of Ladenburg, Thalmann & Co. Inc., New York, New York.
LADENBURG, THALMANN & CO. INC. KAUFMAN BROS., L.P.
The date of this Prospectus is , 1996
<PAGE>
Security...
as sound as your voice
1. Text accompanying photo - Spectral VOICEPRINTS of two speakers saying
"one. two. three. four. five." - description of photo: Spectral voice
patterns.
2. Text accompanying photo - Votan's voice board incorporates its VOICE
VERIFICATION AND SPEECH RECOGNITION technologies. - description of
photo: Rectangular personal computer board with components.
3. Text accompanying photo - MOSCOM's MVM for Windows is a VOICE CONTROLLED
voice mail system based on Votan's voice verification and speech recognition
technologies. - description of photo: Operator sitting at a PC workstation
with Windows menu on screen.
4. Text accompanying photo - TeleVoice applies Votan's speech recognition
technologies to VOICE ACTIVATED information systems used in a variety of
industries. - description of photo: Woman holding telephone handset
and travel brochure.
5. Text accompanying photo - Votan's voice verification system as
used in Chase Manhattan Bank's "XTRA SECURE"[sm] pilot program.
- description of photo: Bank lobby showing series of verification systems
in front of teller windows.
6. Text accompanying photo - description of photo: Closeup of verification
card reader device including printer, keypad, telephone handset and Chase
Manhattan Bank's "Xtra Secure[sm]" promotional display
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER THE COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
Votan(Registered Trademark) is a registered trademark of the Company and
VoiceLock, TeleVoice and VoiceBuilder for Windows are trademarks of the
Company. This Prospectus also includes references to trademarks and trade
names of companies other than the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements of the Company, including the notes
thereto, contained elsewhere in this Prospectus. This Prospectus contains
certain statements of a forward-looking nature relating to future events or
the future financial performance of the Company. Prospective investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors identified in this
Prospectus, including the matters set forth under the caption "Risk Factors,"
which could cause actual results to differ materially from those indicated by
such forward-looking statements. Unless otherwise indicated, the information
included in this Prospectus does not give effect to the exercise of the
Underwriters' over-allotment option. See "Under writing." Unless otherwise
indicated, all information included in this Prospectus reflects a 5,500-to-1
stock split of the Common Stock to be effected prior to the effective date of
the Registration Statement of which this Prospectus is a part.
THE COMPANY
Votan Corporation is a leading developer of advanced speech technologies
utilized in voice verification and speech recognition applications. The
Company's primary focus is the development of commercially feasible voice
verification applications that address the growing demand for enhanced
security of financial transactions, electronic databases and physical
facilities. The Company's products are designed to verify the user's identity
without the need for cumbersome or invasive procedures. Votan offers its
customers either a standard or customized single vendor solution and
integrates its voice verification and speech recognition software technology
on a single proprietary board.
The Company's voice verification technologies and products may be used in
a variety of applications to authenticate the identity of a speaker by
establishing a match between the speaker's speech patterns and previously
stored templates. The Company's technologies consist of proprietary
algorithms and patented methods that are highly resistant to extraneous noise
interference such as the electronic static of a telephone line, the clamor of
a public area (such as a bank lobby or retail store) or unintended non-speech
sounds made by the speaker. The ability of Votan's speech technologies to
distinguish and ultimately ignore extraneous noises enables the Company's
products to perform more accurately in noisy, uncontrolled environments and
makes its products particularly suitable for a variety of real-world
applications. In addition to its voice verification technologies, Votan has
developed speech recognition technologies that have been utilized in a number
of products for the telecommunications market. These speech recognition
technologies complement the Company's voice verification products and
applications.
Votan's initial focus will be to market its voice verification
technologies and products directly to banks and other financial institutions
for use in a variety of applications, including bank teller verification,
home banking, wire transfers, credit cards, smart cards and automatic teller
machines ("ATMs"). The Company's voice verification technologies and products
are designed to enhance the security of financial transactions and improve
productivity by reducing the amount of time required to process a
transaction. Votan's voice verification products have been developed and
tested for a variety of applications but are still in early stages of
commercialization. Currently, the Company is working with The Chase Manhattan
Bank, N.A. to analyze the results of a pilot program which utilized the
Company's voice verification products to authenticate the identity of
customers prior to a teller transaction. Over 9,000 Chase customers were
enrolled in the program. The Company also intends to actively market its
voice verification technologies and products for computer network, electronic
commerce, Internet and physical access applications.
The Company's voice verification and speech recognition technologies have
to date been incorporated into various products sold by MOSCOM, the sole
stockholder of the Company, to numerous leading telecommunications systems
providers, including Siemens AG, Lucent Technologies, Inc. (a subsidiary of
AT&T Corp.) and Alcatel SEL AG. These technologies are being used in a
variety of telecommunications applications, particularly in international
markets that do not utilize touch tone telephone systems and,
3
<PAGE>
therefore, must rely on speech recognition technologies to permit interactive
telephonic services such as voice mail. The Company and MOSCOM have entered
into certain agreements that will enable the Company to continue to market
its products and technologies through MOSCOM's existing channels of
distribution. See "Certain Transactions --MOSCOM Relationship."
The key elements of the Company's strategy are to: (i) exploit its
technological leadership in the voice verification market; (ii) focus on
direct sales of its proprietary technologies and products to banks and other
financial institutions; (iii) actively market its proprietary technologies
and products directly and through original equipment manufacturers ("OEMs"),
value-added resellers ("VARs") and systems integrators for use in other
markets that have a need for the Company's products; and (iv) leverage
MOSCOM's existing relationships with leading telecommunications systems
manufacturers and suppliers in order to market its voice verification and
speech recognition technologies internationally.
Votan's business and operations were acquired by MOSCOM in September 1991
from a predecessor company that had been engaged in voice verification and
speech recognition development since its inception in 1979. The Company has,
until recently, conducted its business and operations as the Votan division
of MOSCOM. In June 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of the Votan division to the Company
(the "Formation"). After the consummation of this offering, MOSCOM will own
approximately 62% of the outstanding shares of Common Stock of the Company
(56% if the Underwriters' over-allotment option is exercised in full).
Votan was incorporated in Delaware in June 1996. The Company's executive
offices are located at 7020 Koll Center Parkway, Pleasanton, California
94566, and its telephone number is (510) 426-5600.
THE OFFERING
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Common Stock offered by:
The Company ............................................. 2,000,000 shares
The Selling Stockholder(1) .............................. 850,000 shares
Common Stock to be outstanding after this offering(2) .... 7,500,000 shares
Use of Proceeds ........................................... For expansion of sales and marketing
activities; research and
development; reimbursement of MOSCOM
for certain expenses; and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol .................... VOTN
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(1) Does not include 427,500 shares of Common Stock subject to the
Underwriters' over-allotment option from the Selling Stockholder. See
"Underwriting."
(2) Excludes 825,000 shares issuable under the Company's Stock Option Plan
adopted in June 1996 and 285,000 shares reserved for issuance upon the
exercise of warrants to be granted to the Representatives of the
Underwriters and their designees, exercisable at 120% of the initial
public offering price (the "Representatives' Warrants"). See
"Management --Stock Option Plans," "Description of Capital Stock" and
"Underwriting."
4
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SUMMARY FINANCIAL DATA
The summary financial data presented below for each of the three years
ended December 31, 1995 have been derived from the Financial Statements of
the Company. The summary statement of operations data for the six months
ended June 30, 1995 and 1996 and the summary balance sheet data as of June
30, 1996 have been derived from unaudited financial statements of the Company
that, in the opinion of management, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results of operations for these periods in accordance with generally accepted
accounting principles. The results for interim periods are not necessarily
indicative of the results for the full year. The summary information set
forth below should be read in conjunction with the Financial Statements and
the Notes contained in this Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The historical financial information may not be indicative of the
Company's future performance and does not necessarily reflect what the
financial position and results of operations of the Company would have been
had the Company operated as a separate, stand-alone entity during the periods
covered. See "Risk Factors --Recent Organization; Absence of Operating
History as an Independent Business; Limited Relevance of Historical Financial
Information."
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
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STATEMENT OF OPERATIONS DATA:
Sales .................................... $ 517 $ 593 $ 572
Gross profit ............................. 210 288 243
Engineering and software development, net 342 579 424
Net loss ................................. $(846) $(1,003) $ (891)
Net loss per share (1) ................... $(0.16)
Weighted average shares outstanding (2) . 5,500
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(RESTUBBED TABLE CONTINUED FROM ABOVE)
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SIX MONTHS ENDED
JUNE 30,
-------------------
1995 1996
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Sales .................................... $ 225 $ 183
Gross profit ............................. 47 46
Engineering and software development, net 212 227
Net loss ................................. $(500) $ (562)
Net loss per share (1) ................... $(0.10)
Weighted average shares outstanding (2) . 5,500
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JUNE 30, 1996
----------------------
AS ADJUSTED
ACTUAL (3)
-------- ------------
(UNAUDITED)
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BALANCE SHEET DATA:
Working capital (deficit) $(89) $19,426
Total assets .............. 678 19,853
Total liabilities ......... 461 121
Total stockholder's equity 217 19,732
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(1) Pursuant to Securities and Exchange Commission requirements, net loss
per share of the Company is presented on a pro forma basis for the most
recent year presented and the most recent interim period presented. See
Note 2 of the Notes to Financial Statements.
(2) Gives retroactive effect to the capitalization of the Company and
reflects the anticipated 5,500-to-1 stock split of the Common Stock to
be effected prior to the consummation of this offering.
(3) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company at an assumed initial public offering price of
$11.00 per share (after deducting the estimated underwriting discounts
and estimated offering expenses) and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
5
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RISK FACTORS
In addition to other information contained in this Prospectus, prospective
investors should carefully consider the following specific factors relating
to the Company and its business before deciding to invest in the Common Stock
offered hereby.
RECENT ORGANIZATION; ABSENCE OF OPERATING HISTORY AS AN INDEPENDENT BUSINESS;
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The Company is a wholly owned subsidiary of MOSCOM and, until recently,
conducted its business and operations as the Votan division of MOSCOM. In
June 1996, MOSCOM transferred substantially all of the voice verification and
speech recognition business, operations (including research and development),
assets and associated liabilities of its Votan division to the Company.
Accordingly, the Company has no independent operating history upon which an
evaluation of the Company and its prospects can be based. After this
offering, the Company will continue to be a subsidiary of MOSCOM but will
operate as a separate, stand-alone business. The Company's management has no
experience, as a group, operating the Company as a stand-alone business unit,
separate and apart from MOSCOM. Except as otherwise described in this
Prospectus, MOSCOM has no obligation to provide financial or management
assistance to the Company and has no plans to do so. See "Certain
Transactions --MOSCOM Relationship." The inability of the Company to operate
successfully as a separate entity would have a material adverse effect on the
Company's business, financial condition and results of operations.
The financial information included herein does not necessarily reflect the
results of operations, financial position and cash flows of the Company in
the future or what the results of operations, financial position and cash
flows would have been had the Company been operated as a separate,
stand-alone business during the periods presented. The financial information
included herein does not reflect the many significant changes that will occur
in the funding and operations of the Company as a result of the Formation and
this offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PAST AND ANTICIPATED OPERATING LOSSES; UNCERTAINTY OF FUTURE RESULTS
Since its acquisition by MOSCOM through the Formation, the Votan division had
accumulated net losses from operations in an amount equal to approximately
$4.1 million and had incurred negative cash flows, each of which have been
funded by MOSCOM. Sales have been generated from a limited number of products
and research and development expenses have substantially contributed to these
operating losses. The Company expects to generate additional losses at least
through 1996, as it continues to expend substantial resources in establishing
and expanding its sales and marketing activities, research and development
and building its separate corporate infrastructure. There can be no assurance
that significant revenues or profitability will ever be achieved. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NEW MANAGEMENT TEAM; DEVELOPMENT OF A SALES AND MARKETING ORGANIZATION
The Company has recently hired a Chief Executive Officer, a Vice
President, Sales and Marketing and a Chief Financial Officer. The new
management team is in the early stages of being integrated into the Company,
and there can be no assurance that the management team will be successfully
integrated and will develop into an effective group. The Company has entered
into an employment agreement with John A. White, the Company's President and
Chief Executive Officer. See "Management -- Employment Agreements." The
Company has not entered into employment agreements with any other employees.
The Company currently has a small marketing and sales support
organization. Votan's previous revenues largely resulted from indirect sales
through MOSCOM or from direct sales of certain applications developed to meet
the needs of particular customers. The Company intends to increase
substantially its direct sales and marketing force, with an initial emphasis
on meeting the needs of banks and other financial institutions. There can be
no assurance that the Company will be successful in expanding its marketing
and sales support organization or that such an organization will be able to
6
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generate increased sales or compete effectively against the more extensive
and well-funded sales and marketing organizations of the Company's current or
potential competitors. If the Company is unable to successfully expand its
sales and marketing organization, the Company's business, operating results
and financial condition would be materially adversely affected.
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS; CHANGE OF PRODUCT STRATEGY
Historically, the Company's products have been sold to a limited number of
customers. In the years ended December 31, 1993, 1994 and 1995 and the
six-month period ended June 30, 1996, the Company made significant sales to
only six, four, six and three customers, representing 63%, 38%, 84% and 93%
of the Company's sales, respectively. See "Business --Sales and Marketing."
In most cases, the customers are not recurring customers that are expected to
purchase substantial quantities of the Company's products in the future.
Accordingly, the Company currently does not have a substantial customer base
of its own to which it can market its new products. The inability of the
Company to develop a broad or substantial customer base in the future would
have a material adverse effect on its business, financial condition and
results of operations.
The Company's product sales have consisted mostly of the sale of computer
boards to third parties that have added application software to meet their
requirements or those of the ultimate end-user. The Company plans to shift
its strategy to place greater emphasis on the delivery of complete end-user
solutions. Delivery of complete solutions to end users is expected to be more
complex, time consuming and require additional and more sophisticated sales
and service personnel. This strategy is also expected to result in higher
sales per transaction, the timing of which would have a material effect on
the reported results of operations from period to period. Moreover, the
inability of the Company to successfully implement this new strategy would
have a material adverse effect on the business, results of operations and
financial condition of the Company.
In the event that the Company's pilot program with The Chase Manhattan
Bank, N.A. is not successful or does not result in a substantial sale of the
Company's products and technologies, the Company's business, financial
condition and results of operations would be materially adversely affected.
Moreover, any delay in the successful completion of the pilot program, or
broader implementation of the program, could materially delay growth in the
Company's revenues and acceptance of the Company's products and technologies
by other banks and financial institutions.
ABILITY TO MANAGE GROWTH; MANAGEMENT OF EXPANDING OPERATIONS
The Company's ability to expand and grow will depend on a number of
factors, including the successful commercialization of its voice verification
and speech recognition technologies, the availability of working capital to
support such growth, existing and emerging competition, the Company's ability
to generate sufficient operating revenue, the Company's ability to adapt its
infrastructure and systems to accommodate growth and the Company's ability to
recruit and train additional qualified personnel to manage such growth. The
Company anticipates rapid expansion of its operations, which will place a
significant strain on its administrative, operational, financial and
management systems and resources. The management of the Company's growth will
require continued expansion and improvement of the Company's systems and
controls, as well as a significant increase in the Company's sales and
marketing operations and research and development activities. There can be no
assurance that the Company will not encounter difficulties as it integrates
these functions into its operations or that the Company's systems, procedures
and controls will be adequate to support the Company's expanding operations.
The Company's planned growth will impose significant added
responsibilities on members of senior management, including the need to
identify, recruit and integrate new senior level managers and executives into
the Company. The Company expects to expand its management, research and
development, testing, quality control, marketing, sales, customer service and
support operations, as well as financial and accounting controls, which could
place a significant strain on the Company. Failure to integrate new personnel
on a timely basis could have an adverse effect on the Company's operations.
Furthermore, the expenses associated with expanding the Company's management
team and hiring new
7
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employees may be incurred prior to the generation of any associated revenues.
The Company's executive management team has no experience working together as
a group. No assurance can be given that the executive management team will be
able to work effectively together and efficiently manage the operations and
growth of the Company. There can be no assurance that such management
expansion can be readily or successfully implemented. If the Company's
management is unable to manage growth effectively, the quality of the
Company's products, its ability to retain key personnel and its business,
financial condition or results of operations could be materially adversely
affected.
CONTROL BY MOSCOM; POTENTIAL CONFLICTS OF INTEREST
The Company is currently a wholly owned subsidiary of MOSCOM. Immediately
following this offering, MOSCOM will own approximately 62% of the outstanding
shares of Common Stock (56% if the Underwriters' over-allotment option is
exercised in full). As a result, MOSCOM will retain the voting power required
to elect all directors and to approve other matters required to be voted upon
by the stockholders of the Company. The concentration of ownership and
MOSCOM's voting control may have the effect of delaying or preventing a
change in control of the Company, or causing a change in control of the
Company that may not be favored by the Company's other stockholders. There
can be no assurance that MOSCOM's ability to prevent or cause a change in
control of the Company will not have a material adverse effect on the price
of the Common Stock. See "Principal and Selling Stockholders" and
"Description of Capital Stock." Prior to the Formation, the Votan division
had a limited number of employees and depended upon MOSCOM for most
administrative, sales and marketing functions. After this offering, these
functions will be undertaken by the Company, and there can be no assurance
that the Company will be successful in taking control of these functions from
MOSCOM. Furthermore, the Company has entered into certain agreements with
MOSCOM which govern certain aspects of the parties' relationship after the
Formation, including the licensing of certain technologies, the provision of
certain administrative, quality assurance testing and other services and
physical facilities. See "Certain Transactions --MOSCOM Relationship." There
can be no assurance that conflicts of interest between MOSCOM and the Company
will not arise with respect to the contractual arrangements, any services
which might be provided by MOSCOM in the future, or other matters. Any
adverse change in the Company's relationship with MOSCOM would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's Bylaws provide that the independent
members of the Company's Board of Directors shall decide all matters before
the Board relating to MOSCOM and the Company. See "Certain Transactions --
MOSCOM Relationship."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's future revenues and operating results are uncertain and may
fluctuate from quarter to quarter and from year to year due to a combination
of factors, including the timing of capital expenditures, demand for the
Company's products, the volume and timing of orders and the ability to
fulfill orders, the level of product and price competition, the expansion of
the Company's sales and marketing organization, the Company's ability to
develop new and enhanced products, the type of distribution channels through
which products are sold, the mix of products and services sold and general
economic factors.
UNCERTAINTIES REGARDING FUTURE CAPITAL REQUIREMENTS; ABSENCE OF MOSCOM
FUNDING
For at least the last three years, the Company has operated, and is
currently operating, at a loss. The Company's working capital requirements
and cash flow provided by its operating activities are likely to vary greatly
from quarter to quarter, depending on the volume of production, the timing of
deliveries, the buildup of inventories and the payment terms offered to
customers. In the past, the Company's working capital needs have been met by
MOSCOM. However, MOSCOM will no longer be providing funds to finance the
Company's operations after the earlier of March 31, 1997 or the consummation
of a debt or equity financing by the Company of at least $10 million. The
Company expects that its existing capital resources, together with the net
proceeds of this offering and the interest earned thereon, will be adequate
to fund the Company's operations for at least the next two years. No
assurance can be given that the
8
<PAGE>
Company would not consume an unexpected and significant amount of its
available resources. The Company's future capital requirements and the
adequacy of available funds will depend on numerous factors, including the
successful commercialization of its voice verification and speech recognition
technologies, progress in its product development efforts, the magnitude and
scope of such efforts, the development of effective sales and marketing
activities, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments and the development of strategic alliances for the
marketing of its applications. To the extent that funds generated from the
Company's operations, together with its existing capital resources and the
net proceeds of this offering and the interest earned thereon, are
insufficient to meet current or planned operating requirements, the Company
will be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others or through other
sources. If additional funds are raised through the issuance of equity
securities, the net tangible book value per share of the Common Stock may
decrease, the percentage ownership of then current shareholders of the
Company may be diluted and such equity securities may have rights,
preferences or privileges senior to those of the holders of Common Stock. The
Company does not have any committed sources of additional financing, and
there can be no assurance that additional funding, if necessary, will be
available on commercially reasonable terms, if at all. If adequate funds are
not available on terms acceptable to the Company, the Company may be required
to delay, scale back or eliminate certain aspects of its operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, products or potential markets. If adequate funds are not
available, the Company's business, financial condition and results of
operations would be materially and adversely affected. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations --Liquidity and Capital Resources."
NO ASSURANCE OF COMMERCIALIZATION OF PRODUCTS UNDER DEVELOPMENT
The Company's business strategy is initially dependent upon the continued
development and commercialization of voice verification products,
particularly for banks and other financial institutions. The Company is
involved in development efforts with regard to a number of potential
products. There are a number of technological challenges that the Company
must successfully address to complete its development efforts. Product
development involves a high degree of risk, and returns on the Company's
investment are dependent upon successful development and commercialization of
such products. Some of the Company's products based on the Company's voice
verification and speech recognition technologies will require significant
additional research and development. There can be no assurance that any of
the products currently being developed by the Company, or those to be
developed in the future by the Company, will be technologically feasible,
commercially viable or will gain market acceptance or that such development
will be completed at all.
The development of the Company's technologies and the applications of such
technologies by its customers have required, and will continue to require,
significant technical innovations. In many cases, the Company must adapt its
products to meet the specific requirements of the customers' hardware or
software in which it is to be integrated. The adaptation process can be
time-consuming and costly to both the Company and its customers, and the
quality and resulting market acceptance of the end product will depend, to a
substantial extent, upon the success of such adaptation. There can be no
assurance that the Company will be successful in developing new products or
enhancing the performance of its existing products on a timely basis or
within budget, if at all. Any such failure could materially and adversely
affect the Company's business, financial condition and results of operations.
EARLY STAGE OF MARKET DEVELOPMENT; UNCERTAINTY OF MARKET ACCEPTANCE
The market for voice verification and speech recognition products is
relatively new and at an early stage of development. To date, the Company's
voice verification and speech recognition technologies have only been
incorporated in commercially available products on a limited basis, primarily
in applications relating to telecommunications. Acceptance of these
technologies on a commercial basis (other than telecommunications
applications) will be dependent upon the development of the voice
verification and
9
<PAGE>
speech recognition markets, the performance and price of the Company's and
its customers' products and customer reaction to these products. The
development of the voice verification and speech recognition market will be
dependent in part upon the growth of third-party applications incorporating
voice verification and speech recognition technologies and demand for new
applications, the ability of speech technology to meet and adapt to these
needs, and the continuing price and performance improvements in hardware and
software technologies that will reduce the cost and increase the performance
of products incorporating voice verification and speech recognition
technologies. There can be no assurance that the voice verification and
speech recognition market will develop further. The Company's success depends
upon the widespread acceptance of biometrics (the measurement of human
physical characteristics to confirm identity) as a useful and cost-effective
method to supplement conventional methods of transactional, data and physical
access security. There can be no assurance that the business community will
accept the use of biometrics. Furthermore, the Company's growth and success
will depend upon market acceptance of the Company's voice verification and
speech recognition technologies as useful and cost-effective alternatives to
other biometric security methods such as fingerprinting or retina scanning.
Failure of the Company's voice verification and/or speech recognition
technologies to achieve market acceptance would have a material adverse
effect on the Company's business, financial condition and results of
operations.
PRODUCT RELIABILITY
Most customer applications incorporating the Company's technologies are
being developed or have only been introduced to the market over the past
three years. As a result of the limited period of use and the controlled
environment in which many of the Company's technologies have been tested and
used to date, there can be no assurance that they will meet their performance
specifications under all conditions or for all applications. If any of the
Company's technologies fails to meet such expectations, the Company may be
required to enhance or improve that technology, and there can be no assurance
that the Company would be able to do so on a timely basis, if at all.
Introduction by the Company of products with reliability, quality or
compatibility problems could result in reduced orders, uncollectible accounts
receivable, delays in collecting accounts receivable and additional costs.
There can be no assurance that, despite testing by the Company or by its
customers, errors will not be found in the Company's products after
commencement of commercial deployment, resulting in product redevelopment
costs and loss of, or delay in, market acceptance. In addition, there can be
no assurance that the Company will not experience in the future significant
product returns or that the Company will not be required to upgrade customer
equipment in order to accommodate the Company's products. Any product defects
could subject the Company to warranty or product liability claims. Any such
event could have a material adverse effect on the Company's business,
financial condition or results of operations.
RELIANCE ON SALES OF VOICE VERIFICATION PRODUCTS
To date, the Company's revenues from voice verification products have been
limited. Sales of the Company's voice verification products are expected to
account for a substantial portion of the Company's revenues for the
foreseeable future. The balance of the revenues is likely to be derived from
license fees earned as a result of the sale by MOSCOM of speech recognition
products into the telecommunications marketplace. Accordingly, the Company's
business and results of operations are dependent on sales of voice
verification products, and the failure to generate or any decrease in sales
of voice verification products would have a material adverse effect on the
Company. The Company's future performance will depend in significant part on
the successful development, introduction, marketing and customer acceptance
of voice verification products. See "Business --The Votan Solution."
COMPETITION; ALTERNATIVE TECHNOLOGIES
The voice verification and speech recognition industry is subject to
intense competition. The Company's competitors and potential competitors in
the United States and abroad are numerous and include, among others, Apple
Computer, Inc., AT&T Corp. ("AT&T"), Berkley Speech Technologies Inc., Dragon
Systems, Inc., the DSP Group, International Business Machines Corporation
("IBM"), ITT Aerospace Communications ("ITT"), Lernout & Hauspie Speech
Products N.V., Lucent Technologies,
10
<PAGE>
Inc., Microsoft Corporation, NEC Corp., Nuance Communications, Siemens AG,
Speech Systems, Inc., Texas Instruments Corporation ("Texas Instruments"),
Veritel Corporation ("Veritel"), Voice Control Systems, Inc. ("Voice Control
Systems") and Voice Processing Corporation. While all of the foregoing
competitors participate in the speech recognition market, currently only ITT,
Texas Instruments, Veritel, Voice Control Systems and Voice Processing
Corporation compete with the Company in the voice verification market. In
addition, the Company is likely to become subject to competition in the
verification marketplace from companies which produce or are developing
biometric identification products, such as fingerprint matching, retina
pattern matching and signature analysis, as well as companies which market or
develop traditional key, card and surveillance systems. Existing and
potential competitors may be able to develop technologies that are as
effective as, or more effective or easier to use than those offered by the
Company, which would render the Company's technologies noncompetitive or
obsolete. Moreover, many of the Company's existing and potential competitors
have substantially greater financial, marketing, sales, distribution and
technological resources than the Company. Such existing and potential
competitors may also enjoy substantial advantages over the Company in terms
of research and development expertise, manufacturing efficiency, name
recognition, sales and marketing expertise and distribution channels. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the abilities of their speech technology products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors may emerge and rapidly acquire significant market share. There
can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business --Competition."
RAPID TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT THE COMPANY
The voice verification and speech recognition market in which the Company
operates is characterized by rapid technological change. The development of
new technology by the Company's competitors may render the Company's
technologies obsolete. Competition in the field of voice verification and
speech recognition is based largely on technological superiority.
Accordingly, the success of the Company will depend upon its ability to
continually enhance its current technologies, to develop and introduce new
products that keep pace with technological developments and to timely address
the changing needs of the marketplace. There can be no assurance that the
Company's research and development activities will result in the successful
development of new technologies and products or the enhancement of existing
technologies and products. In addition, there can be no assurance that the
introduction of products, services or technological developments by others
will not have a material adverse effect on the Company's operations. See
"Business --Industry Background" and "--Products and Development."
DEPENDENCE ON SALES BY THIRD PARTIES; DEVELOPMENT OF MARKETING AND SALES
ORGANIZATION
The Company has limited experience in marketing its products and
technologies directly to end-users. Although the Company's initial focus is
on direct sales of its voice verification products, a significant portion of
the Company's revenues may be dependent upon the ability of systems
integrators, VARs and OEMs to develop and sell systems that utilize the
Company's technologies. Factors that adversely affect the revenues of the
Company's systems integrator, VAR and OEM customers, such as economic
conditions, patent positions, their technology and other marketing
restrictions, may have a substantial impact upon the Company's financial
results. No assurance can be given that any systems integrator, VAR or OEM
customer will use the Company as a supplier of voice verification and speech
recognition technologies, that they will give the sale of the Company's
products or other products utilizing the Company's technologies adequate
priority or that customers of the Company will not experience financial or
other difficulties that could adversely affect their revenues and, in turn,
the business, results of operations and financial condition of the Company.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business --Sales and Marketing."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS
The Company does not own or control any manufacturing facilities, does not
manufacture component parts for its products and has no current plans to
acquire such facilities or produce such
11
<PAGE>
components. The Company contracts with third-party suppliers to manufacture
its products and will continue to depend upon such manufacturers in the
future. The Company generally does not have long-term contracts with
suppliers for the purchase and delivery of component parts or contractors for
the assembly of its products.
Certain key components of the Company's voice verification and speech
recognition products are currently manufactured for the Company by various
third-party contract manufacturers. In the event that the Company is unable
to obtain sufficient quantities of such components on commercially reasonable
terms, or in a timely manner, the Company will not be able to manufacture its
products on a timely and cost-competitive basis, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business --Manufacturing." The loss of any one supplier or
an inability of suppliers to provide the Company with the required quantity
or quality of products could have a material adverse effect on the Company's
business, financial condition and results of operations, until such time as
an alternate source of supply for such products is found. Although the
Company believes that it can obtain contracts with suppliers that will
satisfy the Company's quality requirements and production schedules at a
price that is acceptable to the Company, no assurance can be given that it
will be successful in obtaining acceptable contracts. See "Business
- --Manufacturing."
All quality assurance and testing of the Company's products will, for the
foreseeable future, be conducted by MOSCOM. MOSCOM will also handle the final
packaging and shipping of products. See "Certain Transactions --MOSCOM
Relationship." Accordingly, the Company will be dependent upon MOSCOM to
cost-effectively and efficiently handle its production needs until such time
as the Company can develop its own operations or identify other third-party
service providers. The failure of MOSCOM to provide its services to the
Company in an efficient and cost-effective manner would have a material
adverse effect upon the Company's business, results of operations and
financial condition.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies, products and processes,
preserve its trade secrets and operate without infringing the proprietary
rights of other parties. Because of the substantial length of time and
expense associated with bringing new products through development to the
marketplace, the voice verification and speech recognition industry places
considerable importance on obtaining and maintaining patent and trade secret
protection for new technologies, products and processes. While the Company
holds two patents for methods relating to its proprietary algorithms, the
Company relies primarily upon a combination of trademark, copyright, know-how
and trade secrets and contractual restrictions to protect its intellectual
property rights. The Company believes that such measures afford only limited
protection and, accordingly, there can be no assurance that the steps taken
by the Company to protect these proprietary rights will be adequate to
prevent misappropriation of the technology or the independent development of
similar technology by others. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. There can be no assurance that any patents issued or licensed
to the Company will not be challenged and held to be invalid, or that present
or future patents will provide commercially significant protection to the
Company's present or future technologies, products or processes. In addition,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information not covered by patents to
which the Company owns rights or obtain access to the Company's know-how or
that others will not be issued patents that may prevent the sale of one or
more of the Company's technologies, or require licensing and the payment of
significant fees or royalties by the Company to third parties in order to
enable the Company to conduct its business. There can be no assurance that
such licenses would be available or, if available, would be on terms
acceptable to the Company or that the Company would be successful in any
attempt to redesign its technologies, products or processes to avoid
infringement. The Company's failure to obtain these licenses or to redesign
its technologies, products or processes would have a material adverse effect
on the Company's business, financial condition and results of operations.
12
<PAGE>
No assurance can be given as to the degree of protection afforded by any
patents issued to or licensed by the Company or that such patents will not be
infringed by the products of others. The Company has received a notice from a
third party claiming broad patent protection in the voice processing area and
alleging that certain of the Company's voice mail and voice processing
products may infringe upon its patent. Based on advice of its patent counsel,
the Company does not believe that any of its products infringes upon the
cited third-party patent, and if necessary, the Company intends to vigorously
defend its position. However, the Company may not be able to successfully
defend against the claimed infringement. There can be no assurance that the
Company will not be subject to other claims that its technologies or products
infringe upon the patents or proprietary rights of third parties. Defense and
prosecution of patent claims can be expensive and time-consuming, regardless
of whether the outcome is favorable to the Company, and can result in the
diversion of substantial financial, management and other resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liability to third parties, require the Company to obtain
licenses from third parties or require the Company to cease any related
research and development activities or product sales. In addition, the laws
of certain countries may not protect the Company's intellectual property
rights to the same extent that such rights are protected in the United
States.
The Company's success is also dependent upon the skill, knowledge and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company, and in
most cases, assignment to the Company of their ideas, developments,
discoveries and inventions. There can be no assurance, however, that these
agreements will provide adequate protection for the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized
use or disclosure. See "Business --Proprietary Rights."
INTERNATIONAL SALES AND OPERATIONS RISKS
The Company plans to sell applications based on its voice verification and
speech recognition technologies to customers both in the United States and
internationally. International sales and operations may be limited or
disrupted by the imposition of government controls, the need for government
certification of products connecting to telephone networks, political
instability, trade restrictions, changes in tariffs or difficulties in
staffing and managing international operations. Additionally, the Company's
business, financial condition and results of operations may be adversely
affected by fluctuations in currency exchange rates as well as increases in
duty rates and difficulties in obtaining required licenses and permits. To
date, the Company has not engaged in exchange rate hedging activities to
reduce the risks of such fluctuations. In addition to the usual risks
associated with foreign sales (such as currency fluctuations and
restrictions, inflation, export-import regulations, customs matters, foreign
collection problems, and military, political and transportation risks), the
sale of voice technologies in foreign countries involves additional
governmental regulation, necessary product adaptations to local languages and
switching systems and uncertainties arising from local business practices and
cultural considerations. There can be no assurance that the Company will be
able to successfully commercialize its voice verification and speech
recognition technologies or any future applications in any foreign market.
See "Business --Sales and Marketing."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering or that the market
price for the Common Stock will not drop below the initial public offering
price. The initial public offering price will be determined by negotiations
among the Company, the Selling Stockholder and the Underwriters and is not
necessarily indicative of the market price at which the Common Stock of the
Company will trade after this offering. See "Underwriting." The market price
of the shares of Common Stock, like that of the common stock of many of the
Company's competitors, is likely to be highly volatile. Factors such as
announcements of technological innovations or new products by the Company or
its competitors, developments or disputes concerning patent or other
proprietary
13
<PAGE>
rights of the Company or its competitors, litigation, fluctuations in the
Company's operating results, changes in analysts' earnings estimates,
developments in the financial markets and market conditions for voice
verification and/or speech recognition stocks in general could have a
significant impact on the future price of the Common Stock. In addition, the
stock market, especially with regard to technology issues, has experienced
from time to time extreme price and volume fluctuations that may be unrelated
to the operating performance of particular companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock after this
offering or the prospect of such sales could adversely affect the market
price of the Common Stock and the Company's ability to raise any necessary
capital to fund its future operations. The number of shares of Common Stock
available for sale in the public market is limited by restrictions under the
Securities Act of 1933, as amended (the "Securities Act"), and a lockup
agreement (the "Lockup") under which the Company and MOSCOM have agreed for a
period of one year after the date of this Prospectus not to, without the
prior written consent of Ladenburg, Thalmann & Co. Inc., on behalf of the
Representatives, directly or indirectly, offer, pledge, sell, contract to
sell, transfer or otherwise dispose of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock. In their sole discretion and at any time without notice, the
Representatives may release all or any portion of the shares subject to the
Lockup. Of the 7,500,000 shares of Common Stock that will be outstanding
after this offering, the 2,850,000 shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act. In addition, subject to the Lockup, shares owned by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Affiliates"), may generally be sold in compliance with the
applicable provisions of Rule 144. The Company intends to register all the
shares of Common Stock reserved for issuance under the Company's Stock Option
Plan following the date of this Prospectus. The Company has reserved 825,000
shares of Common Stock for issuance under the Company's Stock Option Plan.
Upon completion of this offering, the Company has agreed to issue to the
Representatives warrants covering an aggregate of 285,000 shares of Common
Stock exercisable for a four-year period commencing one year from the date of
this offering, at an exercise price equal to 120% of the public offering
price. The Company has agreed to grant certain demand and piggyback
registration rights to the holders of these warrants. The existence or
exercise of these warrants could adversely affect the Company's ability to
raise additional financing at a time when it may be advantageous to do so.
See "Shares Eligible for Future Sale" and "Underwriting."
ANTITAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without further action
by the stockholders, to issue from time to time, up to 1,000,000 shares of
Preferred Stock in one or more classes or series, and to fix the rights and
preferences of such Preferred Stock. The Company is subject to provisions of
Delaware corporate law that, subject to certain exceptions, will prohibit the
Company from engaging in any "business combination" with a person who,
together with affiliates and associates, owns 15% or more of the Company's
Common Stock (an "Interested Stockholder") for a period of three years
following the date that such person became an Interested Stockholder, unless
the business combination is approved in a prescribed manner. These provisions
of Delaware law and of the Company's Certificate of Incorporation, as well as
MOSCOM's majority ownership of the Company, may have the effect of delaying,
deterring or preventing a change in the control of the Company and may
discourage bids for the Common Stock at a premium over market price, and may
adversely affect the market price and the voting and other rights of the
holders of the Common Stock. See "Description of Capital Stock."
NO SPECIFIC USE OF PROCEEDS
As of the date of this Prospectus, the Company has no specific plans to
use the net proceeds from this offering other than for expansion of sales and
marketing activities, research and development, reimbursement of MOSCOM for
certain expenses and general corporate purposes. Accordingly, the
14
<PAGE>
Company's management will retain broad discretion as to the allocation of a
substantial portion of the net proceeds from this offering. Pending
application, the Company intends to invest the net proceeds in investment
grade, interest-bearing securities. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock in this offering will incur immediate
and substantial dilution in the pro forma net tangible book value per share
from the initial public offering price. In addition, investors purchasing
shares in this offering will incur additional dilution to the extent that
stock options (whether currently outstanding or subsequently issued or
granted) are exercised. See "Dilution."
LACK OF DIVIDENDS
The Company currently intends to retain all earnings, if any, for future
growth and, therefore, does not intend to pay cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $19.5
million based upon an assumed initial public offering price of $11.00 per
share of Common Stock and after deducting the estimated underwriting discount
and estimated offering expenses payable by the Company.
The primary purposes of this offering are to create a public market for
the Common Stock, to facilitate future access to the public market and to
obtain equity capital. The Company expects to use the net proceeds for
expansion of sales and marketing activities, research and development and
general corporate purposes. The Company has also agreed to reimburse MOSCOM
for certain expenses related to the formation of the Company and related
matters in an amount not to exceed $200,000. See "Certain Transactions
- --MOSCOM Relationship." Management of the Company will have broad discretion
over the application of such net proceeds. Although it is possible that the
Company might acquire complementary businesses or technologies, the Company
has no current plans for any acquisitions and no such acquisitions are being
negotiated as of the date of this Prospectus. The Company expects that its
existing capital resources, together with the net proceeds from this offering
and the interest earned thereon, will be adequate to fund its capital
requirements for at least the next two years. Pending application, the
Company intends to invest the net proceeds from this offering in investment
grade, interest-bearing instruments. See "Risk Factors --Uncertainties
Regarding Future Capital Requirements; Absence of MOSCOM Funding" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources."
DIVIDEND POLICY
The Board of Directors intends to retain any earnings of the Company to
support operations and does not anticipate declaring or paying cash or other
dividends on its Common Stock in the foreseeable future. The declaration of
dividends, cash or otherwise, is subject to the discretion of the Company's
Board of Directors and will depend on a number of factors, including the cash
position, earnings, financial position and anticipated financial requirements
of the Company and other factors deemed relevant by the Board of Directors.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996 (i) to reflect the 5,500-to-1 stock split of the Common Stock to
be effected prior to the effective date of the Registration Statement of which
this Prospectus is part and to reflect an increase in the authorized capital
stock of the Company and (ii) as adjusted to give effect to the sale of the
Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share, and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
---------- ------------
<S> <C> <C>
Stockholders' Equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized,
none issued and outstanding ................................ -- --
Common stock, $0.01 par value, 20,000,000 shares authorized,
5,500,000 shares issued and outstanding, and 7,500,000
shares issued and outstanding, as adjusted (1) .............$ 55,000 $ 75,000
Additional paid-in capital .................................. 162,000 19,657,000
---------- ------------
Total .......................................................$ 217,000 $19,732,000
========== ============
</TABLE>
- ------------
(1) Excludes 825,000 shares issuable under the Company's Stock Option
Plan adopted in June 1996 and 285,000 shares reserved for issuance upon
the exercise of the Representatives' Warrants. See "Management --Stock
Option Plan," "Description of Capital Stock" and "Underwriting."
17
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1996 was
approximately $(35,000) or approximately $(0.01) per share. After giving
effect to the sale by the Company of the 2,000,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $11.00 per
share) and the application of the estimated net proceeds therefrom, as set
forth in "Use of Proceeds," the as adjusted net tangible book value of the
Company as of June 30, 1996 would have been approximately $19.5 million, or
approximately $2.60 per share. This represents an immediate increase in net
tangible book value of $2.61 per share to existing stockholders and an
immediate dilution of $8.40 per share to new investors purchasing shares in
this offering. The following table illustrates the dilution on a per share
basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share (1) ..................... $11.00
Net tangible book value before this offering (2) ....................... (0.01)
Increase attributable to the sale of shares to new investors (3) ...... 2.61
--------
Pro forma net tangible book value after this offering (3) .............. 2.60
--------
Dilution in net tangible book value of Common Stock to new investors (3) $ 8.40
========
</TABLE>
- ------------
(1) Before deduction of underwriting discounts and commissions and
estimated offering expenses payable by the Company.
(2) Net tangible book value per share is determined by dividing the net
tangible book value of the Company (tangible assets less liabilities)
by the number of shares of Common Stock outstanding.
(3) After deduction of underwriting discounts and commissions and
estimated offering expenses payable by the Company.
The following table sets forth (i) the number of shares of Common Stock
purchased from the Company, (ii) the total consideration and the average
price per share contributed by the existing stockholder, based on the
Company's book value at June 30, 1996, and (iii) the total consideration and
the average price per share paid by new investors. The following computations
do not reflect the sale of shares of Common Stock by the Selling Stockholder.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
---------------------- ------------------------ PER SHARE
NUMBER PERCENT AMOUNT PERCENT
----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder (1) 5,500,000 73.3% $ 217,000(2) 1.0% $ 0.04
New investors ............ 2,000,000 26.7 22,000,000 99.0 $11.00
----------- --------- ------------- ---------
Total ................ 7,500,000 100.0% $22,217,000 100.0%
=========== ========= ============= =========
</TABLE>
[FN]
- ------------
(1) Sales by the Selling Stockholder in this offering will reduce the
number of shares held by the existing stockholder to 4,650,000 or 62.0%
of the total number of shares of Common Stock outstanding after this
offering, and will increase the number of shares to be purchased by the
new public investors to 2,850,000 or 38.0% of the total number of
shares of Common Stock outstanding after the offering. See "Principal
and Selling Stockholders."
(2) Does not include accumulated net losses from operations of the Votan
division through the Formation in an amount equal to approximately $4.1
million and negative cash flows, each of which had been funded by
MOSCOM.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the three years
ended December 31, 1995 have been derived from the Financial Statements of
the Company, which have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report included elsewhere in this
Prospectus. The selected financial data as of and for the year ended December
31, 1992 and as of and for the period ended December 31, 1991 have been
derived from unaudited financial statements of the Company not included in
this Prospectus. The selected statement of operations data for the six months
ended June 30, 1995 and 1996 and the selected balance sheet data as of June
30, 1996 have been derived from unaudited financial statements of the Company
that, in the opinion of management, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results of operations for these periods in accordance with generally accepted
accounting principles. The results for interim periods are not indicative of
the results for the full year. The selected financial data set forth below
should be read in conjunction with the Financial Statements and related Notes
thereto and with Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this Prospectus.
The historical financial information may not be indicative of the
Company's future performance and does not necessarily reflect what the
financial position and results of operations of the Company would have been
had the Company operated as a separate, stand-alone entity during the periods
covered. See "Risk Factors --Recent Organization; Absence of Operating
History as an Independent Business; Limited Relevance of Historical Financial
Information."
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
------------------ ------------------------------- -------------------
1991 (1) 1992 1993 1994 1995 1995 1996
-------- -------- -------- ---------- --------- -------- ---------
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales ........................... $506 $ 483 $ 517 $ 593 $ 572 $ 225 $ 183
Cost of sales ................... 192 204 307 305 329 178 137
-------- -------- -------- ---------- --------- -------- ---------
Gross profit .................... 314 279 210 288 243 47 46
Operating expenses:
Engineering and software
development, net .............. 93 265 342 579 424 212 227
Selling and marketing .......... 108 239 223 293 323 148 91
General and administrative ..... 130 510 490 418 386 187 290
-------- -------- -------- ---------- --------- -------- ---------
Total operating expenses ........ 331 1,014 1,055 1,290 1,133 547 608
-------- -------- -------- ---------- --------- -------- ---------
Loss from operations ............ (17) (735) (845) (1,002) (890) (500) (562)
Provision for taxes ............. -- -- 1 1 1 -- --
-------- -------- -------- ---------- --------- -------- ---------
Net loss ........................ $(17) $ (735) $ (846) $(1,003) $ (891) $(500) $ (562)
======== ======== ======== ========== ========= ======== =========
Net loss per share (2) .......... $(0.16) $(0.10)
========= =========
Weighted average shares
outstanding (3) ................ 5,500 5,500
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
---------------- --------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ -------- -------- ------- -------- -----------
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $127 $(133) $(114) $(94) $(214) $(89)
Total assets ............. 555 458 704 613 342 678
Total liabilities ........ 160 196 209 205 224 461
Total equity ............. 395 262 495 408 118 217
</TABLE>
- ------------
(1) Prior to September 1, 1991, the business of the Company was owned by a
predecessor private company. Accordingly, Statement of Operations Data
for the eight-month period ended August 31, 1991 is not available and
not presented. Statement of Operations Data includes the operations of
the Company from September 1, 1991, the date of acquisition by MOSCOM,
to December 31, 1991.
(2) Pursuant to Securities and Exchange Commission requirements, net loss
per share of the Company is presented on a pro forma basis for the most
recent year presented and the most recent interim period presented.
(3) Gives retroactive effect to the capitalization of the Company and
reflects the anticipated 5,500-to-1 stock split of the Common Stock to
be effected prior to the consummation of this offering.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's business and operations were acquired by MOSCOM in 1991 from
a predecessor company that had been engaged in voice verification and speech
recognition research and development since its inception in 1979. The Company
has, until recently, conducted its business and operations as the Votan
division of MOSCOM and is currently a wholly owned subsidiary of MOSCOM. In
June 1996, MOSCOM transferred substantially all of the voice verification and
speech recognition business, operations (including research and development),
assets and associated liabilities of its Votan division to the Company.
Accordingly, the Company has no independent operating history upon which an
evaluation of the Company and its prospects can be based. After this
offering, the Company will continue to be a subsidiary of MOSCOM, but will
operate as a separate, stand-alone business. See "Certain Transactions
- --MOSCOM Relationship."
Since its acquisition by MOSCOM through the Formation, the Votan division
had accumulated net losses from operations in an amount equal to approximately
$4.1 million and has incurred negative cash flows, each of which have been
funded by MOSCOM. Sales have been generated from a limited number of products
and research and development expenses have substantially contributed to these
operating losses. The Company expects to generate additional losses at least
through 1996, as it continues to expend substantial resources in establishing
and expanding its sales and marketing activities, research and development
and building its separate corporate infrastructure. There can be no assurance
that significant revenues or profitability will ever be achieved.
The Company's future revenues and operating results are uncertain and may
fluctuate from quarter to quarter and from year to year due to a combination
of factors, including the timing of capital expenditures, demand for the
Company's products, the volume and timing of orders and the ability to
fulfill orders, the level of product and price competition, promotional
discounts, the expansion of the Company's sales and marketing organization,
its ability to develop new and enhanced products, the type of distribution
channels through which products are sold, the mix of products and services
sold, and general economic factors.
The Company's working capital requirements and cash flow provided by its
operating activities are likely to vary greatly from quarter to quarter,
depending on the volume of production, the timing of deliveries and the
payment terms offered to customers. In the past, the Company's working
capital needs have been met by MOSCOM. However, MOSCOM will no longer be
providing funds to finance the Company's operations, and except as otherwise
described in this Prospectus, MOSCOM has no obligation to provide financial
or management assistance to the Company and has no plans to do so. The
Company and MOSCOM have entered into certain agreements providing for the
Formation and governing various interim and ongoing relationships between and
among the two companies. See "Certain Transactions --MOSCOM Relationship."
The financial information included herein does not necessarily reflect the
results of operations, financial position and cash flows of the Company in
the future or what the results of operations, financial position and cash
flows would have been had the Company been a separate, stand-alone entity
during the periods presented. The financial information included herein does
not reflect the many significant changes that will occur in the funding and
future operations of the Company as a result of the Formation and this
offering. The financial information contained herein does not reflect the
sales of the Company's products as part of products and systems sold by
MOSCOM. In the future, the sale of the Company's products by MOSCOM will
result in royalties payable by MOSCOM to Votan pursuant to the terms of the
agreements governing the ongoing relationship between the two companies. See
"Certain Transactions --MOSCOM Relationship." The financial information
contained herein does not reflect any revenues resulting from such royalties.
Historically, the Company's products have been sold to a limited number of
customers. In the years ended December 31, 1993, 1994 and 1995 and the
six-month period ended June 30, 1996, the Company
20
<PAGE>
made significant sales to only six, four, six and three customers, accounting
for 63%, 38%, 84% and 93% of the Company's sales, respectively. In most
cases, the customers are not recurring customers which are expected to
purchase substantial quantities of the Company's products in the future.
Accordingly, the Company does not have a substantial customer base of its own
to which it can market its new products. The inability of the Company to
develop a broad or substantial customer base in the future would have a
material adverse effect on its business, financial condition and results of
operations.
The Company's product sales have consisted mostly of the sale of computer
boards to third parties that have added application software to meet their
requirements or those of the ultimate end-user. The Company plans to shift
its strategy to place greater emphasis on the delivery of complete end-user
solutions. This is expected to result in larger per transaction sales, the
timing of which would have a material effect on the reported results of
operations from period to period. Moreover, the inability of the Company to
successfully implement this new strategy would have a material adverse effect
on the business, results of operations and financial condition of the
Company.
In the past, the Company's sales have resulted primarily from sales of the
Company's boards, as stand-alone products, to systems integrators, VARs and
OEMs. After the consummation of this offering, the Company intends to
substantially expand its sales and marketing organization in order to
increase the direct sales of its products as a fully integrated systems
solution. This shift in the Company's marketing strategy is likely to result
in greater fluctuations in quarterly sales due to a number of factors,
including greater expenditures in its sales and marketing efforts, higher
pricing on systems (as opposed to stand-alone boards), additional expenses
associated with a more expansive direct sales and marketing organization, as
well as higher general and administrative expenses attendant to the foregoing
and resulting from it being a publicly traded Company.
In addition, the Company intends to continue to expend substantial
resources on its engineering and software development efforts in order to
continue the improvement and enhancement of its core technologies, as well as
the development of its next generation auditory-based technologies. These
expenditures are likely to materially differ from previous levels of spending
reflected in the historical financial information included herein. Moreover,
such expenditures are likely to contribute significantly to greater
fluctuations in the Company's quarterly results of operations.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated by such forward-looking statements.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Sales decreased from $225,000 for the six months ended June 30, 1995 to
$183,000 for the six months ended June 30, 1996. The decrease was primarily
due to the absence of international sales for the six months ended June 30,
1996 as opposed to $154,000 of international sales for the six months ended
June 30, 1995. This shortfall was partially offset by an increase in domestic
sales from $71,000 for the six months ended June 30, 1995 to $183,000 for the
six months ended June 30, 1996. Sales for the six months ended June 30, 1996
also included $48,000 attributable to the pilot program with The Chase
Manhattan Bank, N.A.
Gross profit decreased from $47,000 for the six months ended June 30, 1995
to $46,000 for the six months ended June 30, 1996. The decrease in gross
profit was primarily due to lower sales partially offset by lower
amortization of software development costs relating to the Company's
VoiceLock product which was fully amortized as of June 30, 1995.
Engineering and software development expenses, net, increased from
$212,000 for the six months ended June 30, 1995 to $227,000 for the six
months ended June 30, 1996, net of amount capitalized of
21
<PAGE>
$53,000 for the six months ended June 30, 1996. The capitalized amount for
the six months ended June 30, 1996 related to enhancements to the Company's
new generation four port board.
Selling and marketing expenses decreased from $148,000 for the six months
ended June 30, 1995 to $91,000 for the six months ended June 30, 1996
primarily due to the absence of sales commissions resulting from the shift
from international sales to domestic sales.
General and administrative expenses increased from $187,000 for the six
months ended June 30, 1995 to $290,000 for the six months ended June 30,
1996. This increase was primarily due to the recruitment and hiring of the
Company's Chief Executive Officer.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Sales decreased from $593,000 for the year ended December 31, 1994 to
$572,000 for the year ended December 31, 1995. This decrease was primarily
due to a substantial decrease in sales of the Company's speech recognition
boards, partially offset by a one-time sale in the aggregate amount of
$320,000 of the Company's Call Router systems to Siemens AG for a major
department store customer in Germany. The decrease in the sale of the
Company's speech recognition boards resulted primarily from a decrease in
sales of boards sold directly by Votan in 1994, but in 1995 were incorporated
into a MOSCOM application sold by MOSCOM to Siemens AG.
Gross profit decreased from $288,000 for the year ended December 31, 1994
to $243,000 for the year ended December 31, 1995. The decrease in gross
profit resulted primarily from lower sales (as discussed above) and higher
amortization expenses incurred during the year ended December 31, 1995
related to the introduction of the Company's new generation board which was
released in the third quarter of 1994.
Engineering and software development expenses, net, decreased from
$579,000 for the year ended December 31, 1994 to $424,000 for the year ended
December 31, 1995, net of amounts capitalized of $104,000 and $51,000, for
the years ended December 31, 1994 and 1995, respectively. This decrease was
primarily due to the fact that in 1995, following the release of its new
generation boards, the Company shifted its emphasis from engineering and
software development to product support and maintenance, while the
development of applications utilizing the Company's technologies was
undertaken by MOSCOM. Upon the consummation of this offering, Votan will
undertake its own application development efforts.
Selling and marketing expenses increased from $293,000 for the year ended
December 31, 1994 to $323,000 for the year ended December 31, 1995. The
increase was primarily due to greater selling expenses resulting from
commissions due to MOSCOM's German subsidiary for sales and support services
in connection with the sale of certain products, including the Company's Call
Router systems to Siemens AG.
General and administrative expenses decreased from $418,000 for the year
ended December 31, 1994 to $386,000 for the year ended December 31, 1995.
This decrease was primarily due to a reduction in the Company's facility
costs resulting from the relocation of the Company's headquarters to a
smaller and more cost-effective facility.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Sales increased from $517,000 for the year ended December 31, 1993 to
$593,000 for the year ended December 31, 1994. This increase was primarily
due to the sales of the Company's new generation board, released during the
third quarter of 1994.
Gross profit increased from $210,000 for the year ended December 31, 1993
to $288,000 for the year ended December 31, 1994. The increase in gross
profit resulted from a combination of higher sales and lower manufacturing
costs due to the utilization of various third-party contract manufacturers
for the production of certain key components and assembly functions of the
Company's newer version boards. These improvements were partially offset by
higher amortization expenses related to the release of the Company's new
generation board.
22
<PAGE>
Engineering and software development expenses, net, increased from
$342,000 for the year ended December 31, 1993 to $579,000 for the year ended
December 31, 1994, net of amounts capitalized of $308,000 and $104,000 for
the years ended December 31, 1993 and 1994, respectively. This increase
occurred during the first half of 1994 and was primarily due to the final
development of the Company's new generation board and to a lesser extent the
final development of the Company's VoiceBuilder for Windows products.
Selling and marketing expenses increased from $223,000 for the year ended
December 31, 1993 to $293,000 for the year ended December 31, 1994. The
increase was primarily due to higher commissions due to higher sales levels
of the Company's products and a shift in the mix of sales into international
markets.
General and administrative expenses decreased from $490,000 for the year
ended December 31, 1993 to $418,000 for the year ended December 31, 1994.
This decrease was primarily due to a decline in facility costs and travel
expenses.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's capital resources have been met by capital
infusions by MOSCOM. Net contributions from MOSCOM amounted to $1.1 million,
$916,000, $601,000 and $661,000 for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1996, respectively.
MOSCOM has committed to continue to meet Votan's capital requirements
until the earlier of March 31, 1997 or the completion of debt or equity
financing by the Company of at least $10 million. MOSCOM has no further
obligation to provide the Company with additional capital resources beyond
such time. See "Certain Transactions --MOSCOM Relationship."
The Company's anticipated cash requirements for capital or other material
non-operating expenditures for the six-month period ended December 31, 1996
is approximately $190,000. Votan believes that the net proceeds from this
offering plus the Company's existing capital resources, together with the
interest income thereon, will be sufficient to fund its operations for at
least the next two years. The Company may attempt to establish a bank credit
facility and equipment lease line to finance a portion of its working capital
requirements and capital expenditures, however, the Company does not have any
commitments or understandings pertaining to the foregoing at this time. The
Company's future liquidity and capital requirements will depend upon the
progress of the Company's engineering and software development programs and
the expansion of its sales and marketing efforts. In addition, the Company's
capital requirements will depend on, among other factors, the timely
establishment of effective sales channels in the United States and
internationally and the extent to which the Company's products gain market
acceptance. Therefore, the Company cannot provide any assurances that it will
not require additional financing during this time frame. If additional
financing is necessary, the Company will seek to raise these funds through
bank facilities or debt or equity offerings. There can be no assurance that
such funds would be available on terms acceptable to the Company.
ACCOUNTING PRONOUNCEMENTS
Effective on January 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." This standard requires the Company to review long-lived
assets and certain identifiable intangibles held and used for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The adoption of this standard did not
have a material impact on the Company's results of operations, financial
condition or cash flows.
In 1996, SFAS No. 123, "Accounting for Stock-Based Compensation," will be
adopted by the Company. This standard establishes a fair value method for
accounting for or disclosing stock-based compensation plans. This standard
will be adopted in 1996 by disclosing the pro forma net income and earnings
per share amounts assuming the fair value method was effective on January 1,
1995. The adoption of this standard will not affect the Company's results of
operations, financial position or cash flows.
23
<PAGE>
BUSINESS
OVERVIEW
Votan Corporation is a leading developer of advanced speech technologies
utilized in voice verification and speech recognition applications. The
Company's primary focus is the development of commercially feasible voice
verification applications that address the growing demand for enhanced
security of financial transactions, electronic databases and physical
facilities. The Company's products are designed to verify the user's identity
without the need for cumbersome or invasive procedures. Votan offers its
customers either a standard or customized single vendor solution and
integrates its voice verification and speech recognition software technology
on a single proprietary board.
The Company's voice verification technologies and products may be used in
a variety of applications to authenticate the identity of a speaker by
establishing a match between the speaker's speech patterns and previously
stored templates. The Company's technologies consist of proprietary
algorithms and patented methods that are highly resistant to extraneous noise
interference such as the electronic static of a telephone line, the clamor of
a public area (such as a bank lobby or retail store) or unintended non-speech
sounds made by the speaker. The ability of Votan's speech technologies to
distinguish and ultimately ignore extraneous noises enables the Company's
products to perform more accurately in noisy, uncontrolled environments and
makes its products particularly suitable for a variety of real-world
applications. In addition to its voice verification technologies, Votan has
developed speech recognition technologies that have been utilized in a number
of products for the telecommunications market. These speech recognition
technologies complement the Company's voice verification products and
applications.
Votan's initial focus will be to market its voice verification
technologies and products directly to banks and other financial institutions
for use in a variety of applications, including bank teller verification,
home banking, wire transfers, credit cards, smart cards and ATMs. The
Company's voice verification technologies and products are designed to
enhance the security of financial transactions and improve productivity by
reducing the amount of time required to process a transaction. Votan's voice
verification products have been developed and tested for a variety of
applications but are still in early stages of commercialization. Currently,
the Company is working with The Chase Manhattan Bank, N.A. to analyze the
results of a pilot program which utilized the Company's voice verification
products to authenticate the identity of customers prior to a teller
transaction. Over 9,000 Chase customers were enrolled in the program. The
Company also intends to actively market its voice verification technologies
and products for computer network, electronic commerce, Internet and physical
access applications.
The Company's voice verification and speech recognition technologies have
to date been incorporated into various products sold by MOSCOM Corporation,
the sole stockholder of the Company, to numerous leading telecommunications
systems providers, including Siemens AG, Lucent Technologies, Inc. (a
subsidiary of AT&T) and Alcatel SEL AG. These technologies are being used in
a variety of telecommunications applications, particularly in international
markets that do not utilize touch tone telephone systems and, therefore, must
rely on speech recognition technologies to permit interactive telephonic
services such as voice mail. The Company and MOSCOM have entered into certain
agreements that will enable the Company to continue to market its products
and technologies through MOSCOM's existing channels of distribution. See
"Certain Transactions --MOSCOM Relationship."
INDUSTRY BACKGROUND
Speech is typically the most natural and convenient means of human
communication. Due to the significant decrease in the cost of computer
processing hardware, many businesses are utilizing advanced speech
technologies to create a more efficient and user-friendly interface with
their customers.
Voice verification and speech recognition technologies convert speech into
digital electronic signals or voiceprint patterns. These patterns are
compared by a computer processor to previously stored speech patterns to
determine if a match exists and to recognize the utterance or, in the case of
voice verification technologies, to ultimately verify the speaker's identity.
24
<PAGE>
While every voice verification and speech recognition system uses sample
voiceprints derived from spectral input, there are major differences in how
this information is processed. Some systems match "phonemes," which are
fundamental sound elements that characterize speech. Spoken words may be
represented by a sequence of phonemes, much as a written word is represented
by a sequence of letters of the alphabet. The advantage of using phonemes is
that large vocabularies may be constructed with a small number of phonemes.
However, the disadvantage of using phonemes is that the recognition system
for each language must also address the co-articulation effects or blending
of the language's phonemes as they occur. An alternative to the use of
phonemes is to pre-store "templates," which are voiceprint patterns for an
entire word or phrase, on the recognition and verification system. The
advantage of using word templates is that recognition accuracy is greatly
improved and there is no language dependency. The entire word is learned as a
single template, which automatically includes all internal co-articulation
effects that modify the sound of phonemes.
Speech recognition applications are generally divided into two major
categories: speaker-dependent applications and speaker-independent
applications. Speaker-dependent applications are designed to function with
known speakers who have "trained" the device to recognize a particular set of
commands by having recorded a voiceprint, or spectrogram, for the system.
Speaker-dependent technologies or devices can accommodate a larger
pre-recorded vocabulary with a greater degree of exactitude with respect to
both the nature of the command and the identity of the speaker.
Speaker-independent technologies recognize speech from any source since the
technology is designed to recognize an utterance that "matches" the
voiceprint template derived from a large and diverse sample of voiceprints
(as opposed to speaker-dependent applications that utilize a particular
individual's voiceprint). While speaker-independent technologies may be
utilized in a wider variety of applications, they are typically limited to a
small and fixed recognizable vocabulary and, more importantly, are not well
suited for voice verification applications designed to authenticate a
speaker's identity.
Although both voice verification and speech recognition technologies use
voiceprints to, respectively, recognize and identify spoken commands, the
technical demands of each technology are fundamentally different. Generally,
speaker-independent recognition systems are designed to accept and
differentiate among a pre-defined set of spoken commands without regard to
the identity of the speaker. On the other hand, speaker-dependent recognition
and voice verification systems are designed to compare an oral utterance to a
specific pre-recorded and stored utterance in order to authenticate the
speaker's identity. Speaker-independent technologies are poorly suited for
voice verification applications because they are based on algorithms which
blend the spectral differences within a large pool of speakers in order to
understand words spoken by a universal population. Consequently,
speaker-dependent technologies are better suited for voice verification
applications because the algorithms utilized in voice verification
technologies are designed to focus on the unique characteristics of the
speaker's voiceprint and to establish a match in order to verify the
speaker's identity.
MARKET NEED FOR SPEECH RECOGNITION APPLICATIONS
As a result of the decreased cost of computer processing hardware, the
development of more advanced computer/telecommunications integration ("CTI")
technologies and increased public familiarity with computer automated
devices, speech recognition has become an accepted feature of many
telecommunications applications. The telecommunications industry continues to
seek advanced speech recognition technologies that enhance product
functionality in a seamless and cost-effective manner. Recent applications of
speech recognition technologies have included transaction processing through
interactive voice response ("IVR") systems, command and control of personal
computers and hands-free dialing of car phones. The Company believes that
speech recognition technologies will continue to be incorporated in an
increasing variety of applications as speech recognition becomes easier to
use, more natural and more affordable, particularly in international markets
that do not utilize touch tone telephone systems and, therefore, must rely on
speech recognition technologies to permit interactive telephonic services.
MARKET NEED FOR VOICE VERIFICATION APPLICATIONS
Advances in telecommunications and computer technology have enabled
end-users to access and transfer information with unprecedented ease. The
ability of an enterprise to reap the full benefits of these
25
<PAGE>
technological advances is becoming increasingly important in today's
competitive marketplace. Unfortunately, the full utilization of these
technologies has been severely constrained by concerns regarding unauthorized
access and use, and the prevailing market perception that such systems are
particularly susceptible to fraud.
The Company believes that many of the existing verification alternatives
fail to meet the market's need for commercially feasible solutions that
enhance security. Traditional number-based identification security systems
("PINs") can easily be used with a touch tone telephone, however, the ease
with which PIN numbers can be improperly obtained or randomly developed by
unauthorized users greatly diminishes the utility of such systems. Magnetic
systems use keys or cards which must be physically carried for use and can be
lost, stolen or loaned to unauthorized users. Moreover, these systems are
relatively expensive and are not well suited for remote-access applications.
Remote access callback systems are popular for many office applications but
create a particular set of cumbersome obstacles to the mobile remote-access
user who needs connectivity but is not always at the callback telephone
number.
Biometric technologies, such as fingerprint matching, retina pattern
matching and signature analysis, have also been proposed as more secure
alternatives. However, each of these technologies has been subject to a
variety of criticisms, which has limited the widespread acceptance and
application of such technologies. Fingerprint matching is often associated
with an invasion of privacy or compromise of civil liberty. Retina pattern
matching is perceived as too physically invasive. Signature analysis has not
proven to be sufficiently reliable for sensitive applications. Moreover, none
of these technologies can presently be utilized in a commercially feasible
manner from remote locations for applications such as home banking, access to
confidential databases, wire transfers and electronic commerce.
The limitations of these existing security measures and their failure to
adequately address the market's needs have resulted in an increasing demand
for an alternative solution. The Company believes that its voice verification
technologies can provide the market with a practical and commercially
feasible solution.
THE VOTAN SOLUTION
Votan offers a single vendor solution developed to the user's
specification or customized from a standard Votan application. The Company
can also integrate its boards, voice verification and speech recognition
technologies and application software into a third-party system or supply the
complete system on a turnkey basis. The Company addresses the market need for
commercially feasible solutions with technologies and products which have the
following characteristics:
EFFECTIVE IN NOISY, REAL-WORLD ENVIRONMENTS. Voice verification and speech
recognition systems utilizing voiceprints are inherently dependent upon the
quality and reliability of the spectral information and are particularly
vulnerable to the hiss, pops and clicks frequently found on telephone
transmission lines, as well as background noise, unintended non-speech sounds
made by the speaker and variations in handset microphones. Votan's voice
verification and speech recognition technologies utilize the Company's
proprietary, noise resistant algorithms, which maintain separate records of
sound throughout the recognition and verification process in order to
distinguish, evaluate and ultimately ignore extraneous noises. This is
accomplished by constructing a direct representation of the voiceprint
whereby the spectral range is divided into a number of bands, and the speech
energy in each of those bands is sampled at discrete time intervals. The
system identifies suspected "noisy" data, which is in turn handled separately
during the pattern matching process. The ability of Votan's technologies to
operate in noisy environments without compromising performance makes its
products particularly suitable for use in real-world environments such as
wireline or wireless telephone systems, the noisy lobby of a bank or the
point of sale at a retail store.
EASY TO USE. The Company's voice verification and speech recognition
technologies may be used with both speaker-dependent and speaker-independent
applications. The Company's Continuous Speaker Dependent Recognition ("CSDR")
technology, utilizing proprietary algorithms, provides greater flexibility in
recognizing and verifying speech at various spoken rates. The speaker need
not pause briefly between each utterance, nor must the speaker use any
specific speed during his or her speech, in order
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for the Company's technologies to accurately recognize and verify the speech
by comparing it to previously stored templates. As a result, the Company's
CSDR technology requires significantly fewer training trials per word than
competing speaker-independent technologies and, therefore, facilitates the
quicker, easier and less costly implementation of various applications.
Moreover, the Company's proprietary Virtual Speaker Independent Recognition
technology enables pre-training of a system application with a set of oral
commands, thus precluding the need for each user to train the system. The
recognizable vocabulary is generated more efficiently than other
speaker-independent applications by utilizing the Company's approach of
basing the recognition voiceprint on a sample comprised of only 15 to 20
voiceprints.
DIFFICULT TO BREACH. The Company's voice verification technologies are
designed to minimize the risk that the system is breached by an unauthorized
person using a pre-recorded pass phrase. Tape recorder microphones invariably
pick up different sounds than those exhibited by an authentic voiceprint due
to a number of factors, including echoes, background noise and separation
from handset microphone. Therefore, tape recordings of the speaker's pass
phrase do not pose a threat to the viability of the Company's voice
verification products.
MORE ACCURATE AND LANGUAGE INDEPENDENT. The Company's technologies utilize
a template-based approach to voice verification and speech recognition that
not only results in greater accuracy, but also is language independent. Many
competing technologies utilize phonemes, which are fundamental sound elements
that characterize speech. The disadvantage of phoneme-based technologies is
that the system must address the co-articulation effects of the language's
phonemes. Because template-based technologies utilize a voiceprint for an
entire word or phrase, the system's ability to accurately recognize and
verify an utterance is greatly improved. Moreover, due to the fact that the
template automatically includes all internal co-articulation effects that
modify the sound of phonemes, the Company's template-based technologies are
language independent and may be trained for any language.
FULLY INTEGRATED SOLUTION. The Company believes that its voice boards are
unique in the industry in their ability to simultaneously support
speaker-independent recognition, speaker-dependent recognition and voice
verification applications. Accordingly, products utilizing the Company's
voice boards provide the end-user with a fully integrated solution by
enabling the product to simultaneously utilize two or three of these
technologies and switch from one to another as the application requires. The
Company supplies this capability in a single board occupying a single slot in
an IBM-compatible personal computer, as opposed to most competing vendors
that sell two or more boards occupying multiple slots for the same
application. Moreover, software enhancements or modifications to the
Company's voice verification and speech recognition technologies can be
downloaded to installed boards via modem.
STRATEGY
Key elements of the Company's strategy are as follows:
EXPLOIT TECHNOLOGICAL LEADERSHIP IN VOICE VERIFICATION MARKET. The Company
believes it currently has the most advanced voice verification technologies
for use in noisy, real-world environments. The Company's primary strategy is
to utilize its technological leadership to develop and market products and
applications that can be used in the growing market for voice verification
and speech recognition technologies. The Company's proprietary algorithms
make the Company's products highly resistant to extraneous noise
interferences and particularly suitable for a variety of real-world
applications. The Company plans to take advantage of its technologies to meet
the growing demand for products and applications that provide increased
security for transactions or communications.
FOCUS DIRECT SALES ON FINANCIAL INSTITUTIONS. The Company believes that
its products and technologies are particularly suitable for use by financial
institutions. The Company is building a sales and marketing organization in
order to expand the direct sales of its products to banks and other financial
institutions for a variety of applications, including bank teller
verification, home banking, wire transfers, credit cards, smart cards and
ATMs. The Company believes that the use of its voice verification
technologies will benefit banks and other financial institutions by providing
increased security for systems and transactions on a more cost-effective
basis.
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MARKET PRODUCTS AND TECHNOLOGIES FOR COMPUTER NETWORKS, ELECTRONIC
COMMERCE, THE INTERNET AND PHYSICAL ACCESS APPLICATIONS. The Company also
intends to actively market its technologies both directly and through OEMs,
VARs and systems integrators for use in securing computer networks,
electronic commerce, Internet applications and physical facilities. The
Company believes that such applications represent a significant potential
market for the Company's voice verification and speech recognition
technologies.
LEVERAGE MOSCOM'S EXISTING DISTRIBUTION CHANNELS. The Company intends to
leverage MOSCOM's established distribution relationships in order to license
its technologies for use in telecommunications applications. MOSCOM has
existing distribution relationships with many of the leading global
manufacturers and suppliers of telecommunications systems, including Lucent
Technologies, Inc., Siemens AG, Alcatel SEL AG, Philips Kommunikations
Industrie AG and Nortel Ltd. MOSCOM's MVM for Windows voice mail system is
currently being sold by Lucent Technologies, Inc. and Siemens AG, and the
TeleVoice platform for IVR applications is now being sold by Siemens AG and
Alcatel SEL AG. Both of these products utilize the Company's speech
recognition technologies.
ACCELERATE DEVELOPMENT OF NEXT GENERATION AUDITORY MODEL. Currently, voice
verification and speech recognition technologies are based on spectral data
analysis. The Company is in the process of developing next generation
auditory-based technologies. The Company believes that its next generation
auditory-based technologies, which are based on mathematical modeling of the
human auditory system, will significantly enhance the accuracy and
performance of speaker-dependent and speaker-independent speech recognition
and voice verification applications by improving resistance to extraneous
noises, tolerance of spectral distortion and sound discrimination. The
Company intends to accelerate the development and commercialization of its
auditory model technology. The successful completion of the Company's
auditory-based research and development efforts will require significant
additional effort by the Company. See "Business --Technology and Research and
Development."
VERTICAL MARKETS AND APPLICATIONS
The Company has identified the following markets for its technologies:
FINANCIAL INSTITUTIONS. Businesses in the financial marketplace are
seeking to minimize their exposure to losses resulting from the fraudulent
use of credit cards, ATM cards and checks, as well as fraudulent withdrawals
from bank accounts. The Company believes that the current system of using
private PIN numbers alone does not provide an adequate level of security for
such transactions. In addition, the use of PIN numbers with signature
verification is both time-consuming and inefficient. The Company believes
that its voice verification technologies are particularly suitable to meet
the needs of financial institutions for the following applications:
Bank Teller Verification. The Company believes that its voice
verification technologies and products can provide immediate benefits to
banks and financial institutions by (i) reducing the costs associated with
teller-related verification, (ii) reducing losses due to fraud and expenses
due to fraud prevention measures and (iii) enhancing customer satisfaction by
providing an extra measure of security. The Company's voice verification
products have been utilized by The Chase Manhattan Bank, N.A. in a pilot
program called "XtraSecure." Over 9,000 Chase customers were enrolled in the
program. The results of the program are currently being analyzed by the
Company and The Chase Manhattan Bank, N.A. Prior to using the system, the
customer is "enrolled" either at the branch or over the telephone. The
enrollment process typically takes a little over one minute. The customer
enters a bank debit or ATM card number using the magnetic card reader at the
branch or from a remote location or home using the touch tone key pad on a
telephone. The customer is then prompted to say a pass phrase. The resulting
voiceprint is stored for use in later verification of the same customer. When
the customer visits the branch, his or her identification number is entered
into the system by sliding the debit or ATM card through the card reader. The
customer then picks up the telephone handset and says his or her pass phrase.
Upon successful identification, the verification station notifies the teller
to process the transactions. If unsuccessful, the customer is directed to
proceed to the customer service counter.
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Home Banking. Home banking transactions are significantly less costly
to a bank than a branch transaction with a human teller. The Company believes
that a voice verification system for home banking using telephone touch tones
or the Company's magnetic strip voice verification systems will enable a bank
not only to enhance its product offerings in a secure environment, but also
to significantly reduce its teller-related costs.
Wire Transfers. Banks and other financial institutions rely
extensively on electronic wire transfers for many transactions. Electronic
transfers are both faster and less expensive than physical delivery of checks
and certificates. In addition, wire transfers are typically requested
telephonically and entail large amounts of money. The Company believes that
its voice verification technologies can greatly enhance the security of wire
transfer transactions in an easy and cost-efficient manner.
Credit Card Issuers. Use of credit cards by unauthorized individuals
results in claims and uncollectible revenues that adversely affect both
retail and credit organizations. The Company believes that point-of-sale
terminals (e.g., at department stores) using the Company's voice verification
technologies can validate the user's identity while obtaining authorization
from the credit card issuer.
Smart Card Issuers. A potential market for voice verification is the
smart card. The smart card is used instead of cash in purchasing goods and
services. The voiceprint of the customer's pass phrase can be stored on the
smart card to enable secured reloading of funds onto the smart card. Smart
card technologies are widely used in certain European countries. The Company,
in conjunction with a European smart card developer, has developed a
prototype smart card verification system which stores a voiceprint on a smart
card and retrieves the stored voiceprint via a commercial smart card reader.
Automatic Teller Machines. ATM cards are relatively easy to
counterfeit and the current PIN-based security systems which secure ATM
transactions are particularly vulnerable to theft or misappropriation. The
Company believes that using the Company's voice verification technologies
will greatly enhance the security of ATM transactions.
INTERNET AND WORLD WIDE WEB. The utility of the Internet as a means of
conducting commercial and confidential transactions has to date been impaired
by widespread concerns regarding the security of such transactions. Votan's
technologies and products may be used to provide enhanced security for World
Wide Web servers on the Internet. High security for access to Web sites is a
valuable tool to many customers. It will allow confidential data to be more
readily accessible via the Internet. It can also be used to ensure the
security of financial transactions consummated over the Internet. The Company
is currently working with a VAR which has developed and demonstrated a
prototype voice verification product that blocks Web site access to
unauthorized users.
TELEPHONE COMMUNICATIONS. Telephone toll fraud is a national problem.
Fraudulent use of telephone credit card numbers, Direct Inward System Access
(DISA) lines, private networks and voice mail call-out features is estimated
to exceed $1 billion annually. The rapidly growing cellular telephone market
has also been plagued by theft and unauthorized use estimated to exceed $400
million in 1995. The Company believes that Votan's voice verification
technologies and applications may be utilized to secure the desirable
features and functions of everyday telephone service. For example, a voice
verification device could be used to authenticate the identity of the user as
the owner of a telephone credit card or cellular telephone prior to
connecting any calls. Moreover, Votan's proprietary algorithms render its
speech recognition and voice verification technologies particularly suitable
for use over the narrow bandwidth of noisy telephone networks and the
inherently distorted cellular telephone environment. The Company's speech
recognition technologies are currently being used in MOSCOM's MVM for Windows
voice mail system and the Company's TeleVoice platform for IVR applications.
MOSCOM's MVM for Windows voice mail system is currently being sold by Lucent
Technologies, Inc. and Siemens AG. TeleVoice is currently being sold by
Siemens AG and Alcatel SEL AG.
REMOTE AND NETWORK ACCESS TO GOVERNMENT AND COMMERCIAL DATABASES. There is
a growing need for security of access to information contained in
confidential government and commercial databases. The Company's voice
verification technologies may be used to authenticate the user's identity and
to permit remote and network access to confidential databases without
compromising the system's integrity. The
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Company has developed a VoiceLock product which limits unauthorized access to
a telephone system or computer network utilizing voice verification
technologies. VoiceLock was developed for the Company's single port voice
verification board. Additional software development will be required to
enable VoiceLock to run on the Company's new generation four port boards.
PHYSICAL ACCESS. Voice verification technologies can also be used to
authorize access to secured areas. One of the Company's VARs has installed
various systems in a number of commercial and industrial locations and
government facilities which are designed to secure access to physical spaces.
PRODUCTS
Votan's proprietary boards serve as a platform for the Company's voice
verification and speech recognition products and applications. These boards
may also be sold as stand-alone products to VARs, OEMs and systems
integrators. The Company designs and markets the following boards:
SPEECH RECOGNITION BOARDS. Votan's Speech Recognition Boards contain voice
recognition, record and playback capabilities and input/output signal
interfaces and are installed in a single slot of an IBM-compatible personal
computer. They utilize a commercially available digital signal processing
integrated circuit plus a proprietary pattern matching integrated circuit
that contains patented Votan voice technology methods. These boards serve as
platforms that may easily accommodate upgrades and improvements. The
Company's Speech Recognition Boards may be operated in the Microsoft Windows
environment using the Company's proprietary programming language,
VoiceBuilder for Windows. The Company's Speech Recognition Boards may be used
for both telephonic and microphone applications.
VOICE VERIFICATION BOARDS. The Company's voice verification technology is
available on a separate family of Voice Verification Boards. These boards
contain all of the technologies of the Company's Speech Recognition Boards
and are enhanced by Votan's voice verification technologies. The Company's
Voice Verification Boards may also be used for both telephonic and microphone
applications. Moreover, the voice verification and speech recognition
technologies available on the Company's Voice Verification Boards may be used
together in many typical applications. For example, speaker-independent
recognition may be used to gain entry into an application (e.g., voice mail)
over telephone lines, then voice verification may be used to authenticate the
user's identity, and finally speaker-dependent recognition may be used to
provide for accurate control of the application in the language and
vocabulary specific to the user.
Prior to 1994, the platform for the Company's products was a single port
board. In the third quarter of 1994, the Company introduced its new
generation four port board which enabled simultaneous access by four users
and resulted in a reduction in the price per port.
Since 1993, over 1,000 of the Company's voice verification and speech
recognition boards have been sold by the Company and MOSCOM, including sales
of 193, 309 and 111 units of the new generation four port board in each of
the years ended December 31, 1994 and 1995 and the six-month period ended
June 30, 1996, respectively.
The Company has developed the following applications utilizing its voice
verification and speech recognition boards:
VOICE VERIFICATION SYSTEMS. The Company's Voice Verification Systems
verify the identity of a user. These systems utilize magnetic strip cards,
smart cards or bar-code cards. The cards are used to convey the cardholder's
identity and to retrieve the individual's previously stored voiceprints for
comparison. The Company's Voice Verification Systems can be used either
locally or from remote locations.
VOICE VERIFICATION ENROLLMENT SYSTEMS. The Company's Voice Verification
Enrollment Systems enroll users locally or from remote locations by making
templates of the user's voice. The system performs real-time tests of the
samples' amplitude and consistency and prompts the speaker to repeat the
utterance until a consistent, high quality enrollment template is created.
GATEKEEPER. The Gatekeeper is a single step module that answers the
telephone, verifies a caller's identity and then transfers the caller to a
requested destination. It consists of a verification voice card plus
application software.
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TELEVOICE. TeleVoice is a telephone-based information system that utilizes
speech recognition technologies to present callers with a choice of various
recorded announcements. Callers ask for an announced topic of interest and
control the menu of announcements with simple spoken commands such as "next,"
"repeat" and "start over." The Company's TeleVoice system, which is sold by
MOSCOM through Siemens AG, is currently being used in Germany and Austria by
travel agencies, auto dealers, real estate firms and government transport
agencies. The system is designed to enhance customer satisfaction by
permitting callers to control and interact with the system and to receive
updated information at any time. The system operates by presenting the caller
with a menu of information. The caller can then choose categories of interest
by orally responding to the menu.
CALL ROUTER. Call Router is a voice activated auto attendant for use with
a business telephone or PBX system. In 1995, a sale of multiple Call Router
systems was made by the Company through Siemens AG to a large German
department store chain.
VOICEBUILDER FOR WINDOWS DEVELOPER'S KIT. The VoiceBuilder for Windows
Developer's Kit is used to develop customized applications by end-users. The
Kit may also be used by end-users that wish to assume maintenance of custom
applications developed for them by Votan. The Kit includes a one-week
training course, a voice recognition board, programming manuals and Windows
user interface development software, sound editing kit with sound board and
sound editing software.
MOSCOM has developed another application, MVM for Windows, utilizing the
Company's proprietary technologies:
MVM FOR WINDOWS. MVM for Windows is a voice activated voice mail system
with IVR and automatic call distribution features. By utilizing the Company's
voice verification technologies, MVM for Windows ensures the security and
privacy of voice mail systems. MVM for Windows is currently being sold by
Lucent Technologies, Inc. and Siemens AG and is available in British English,
American English, German, Spanish, Portuguese, Italian and Czech. All rights
to MVM for Windows are owned by MOSCOM, subject to certain royalty fees
payable to Votan for the underlying board technologies. See "Certain
Transactions --MOSCOM Relationship."
SALES AND MARKETING
To date, the Company's principal sales and marketing activities have
included participation in industry trade shows and seminars, advertising in
selected trade publications, public relations activities with trade and
business press, publication of technical articles and case studies and
distribution of sales literature. The Company currently markets its
technologies and products primarily through VARs, OEMs, systems integrators
and component manufacturers. MOSCOM, the Company's sole stockholder, has been
and is expected to remain an OEM and VAR of the Company's products in the
telecommunications market, particularly outside the United States. See
"Certain Transactions --MOSCOM Relationship." MOSCOM has distribution
relationships with several of the world's leading telecommunications systems
manufacturers and suppliers, including Siemens AG, Lucent Technologies, Inc.,
Nortel Ltd., Philips Kommunikations Industrie AG and Alcatel SEL AG.
The Company has entered into a License Agreement with MOSCOM under which
the Company has licensed to MOSCOM certain of the Company's existing
technologies. The License Agreement provides that the Company will receive a
royalty from MOSCOM on the sale of boards containing the Company's
proprietary algorithms. Although sublicenses to distributors are permitted,
VAR sublicenses will require specific approval of the Company as well as the
negotiation of a separate royalty arrangement. Cross-licensing of
enhancements of the technologies by either Votan or MOSCOM is required on a
royalty-free basis under the License Agreement. The Company has also entered
into a VAR Agreement pursuant to which the Company has granted MOSCOM a
non-exclusive license to market the Company's bank teller verification
products outside the United States. See "Certain Transactions --MOSCOM
Relationship."
As of August 31, 1996, the Company employed five persons in sales and
marketing. The Company is increasing its sales, marketing, customer service
and installation staff and intends to initially market its products and
technologies directly through its own sales force to banks and other
financial institutions for
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a variety of applications. The Company's primary focus will be on markets for
voice verification products. This focus will allow the Company to establish a
base of customers in the financial institution marketplace that it can
leverage for expansion into other distribution channels and vertical markets.
The Company also intends to actively market its technologies both directly
and through OEMs, VARs and systems integrators for use in securing computer
networks, electronic commerce, Internet applications and physical facilities.
For each of the years ended December 31, 1993, 1994 and 1995, sales to
four, two and three customers, respectively, accounted for 57% of sales (JBM
Electronics (28%), Voiceprint Security Systems, Inc. (12%), and Votek
Systems, Inc. (11%)), 30% of sales (Voiceprint Security Systems, Inc. (21%)),
and 74% of sales (Quelle Department Stores A.G. (56%) and JBM Electronics
(12%)). For the six months ended June 30, 1996, sales to three customers
accounted for 93% of sales (DHI Computing Services, Inc. (39%), The Chase
Manhattan Bank, N.A. (27%) and MAXM Systems Corporation (27%)).
TECHNOLOGY AND RESEARCH AND DEVELOPMENT
The Company believes that enhancements of and improvements to its existing
technologies are critical to its future success. The Company has made
substantial investments in research and development in each of the last three
years. The Company spent $650,000, $683,000, $475,000 and $280,000 on
research and development, consisting of engineering and software development
expenses and capitalized software expenditures during each of the years ended
December 31, 1993, 1994 and 1995 and the six-month period ended June 30,
1996, respectively. Currently, the Company employs eight people in research
and development.
The Company and its predecessor have been engaged in the research and
development of speech recognition and voice verification technologies over
the past 17 years. The Company's extensive research and development efforts
have enabled the Company to develop certain proprietary algorithms which
enhance the functionality of speech recognition and voice verification
technologies due to their ability to distinguish and ignore extraneous
noises. The Company's technologies utilize these proprietary algorithms to
construct a direct representation of the voiceprint using a fast Fourier
transform, whereby the spectral range of spoken utterances is divided into a
number of bands and the speech energy in each band is sampled at discrete
time intervals in order to distinguish, evaluate and ultimately ignore
extraneous noises.
The Company's technology development activities are directed at continued
improvements to its existing core technologies, enhancements to these
technologies, and improved implementations of the technologies. Votan is
currently engaged in a major research and development program to advance the
state of the art of voice verification and speech recognition by
incorporating a mathematical model of the human auditory system into its
proprietary algorithms. The Company believes that there are substantial
differences in performance between state-of-the-art technologies that
recognize speech and human organs that perform the same function. For
example, dramatic changes in spectral shape (e.g., as caused by tone controls
or equalizers in stereo receivers) do not significantly change human
recognition of speech, whereas the performance of all current speech
recognition technologies, which use spectral pattern matching, is strongly
degraded. The human auditory system is a biological mechanism with
specialized functions that are performed with complex mechanical,
electrochemical and neurophysiological components. Signal processing, feature
extraction and pattern matching processes performed by these biological
structures are considerably different from the engineering and mathematical
processes used in state-of-the-art voice verification and speech recognition
technologies.
Development of the Company's auditory model has been continuing for
approximately ten years. The auditory model consists of three elements:
signal processing; feature extraction; and pattern matching. To date, the
Company has obtained a patent on portions of the signal processing and
feature extraction elements of the model and has implemented these elements
on a laboratory workstation. The Company anticipates that the completion of
these two phases of the auditory model will take at least an additional 18
months. After completion of the development of the first two elements, the
Company expects to engage an industry partner in connection with the
development of the final element of its auditory model, i.e., the pattern
matching element. No assurance can be given that the Company will find
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an appropriate industry partner or that the Company will successfully
complete the auditory model or develop commercially feasible products based
upon the auditory model.
The Company believes that the timely development and enhancement of its
technologies are necessary to remain competitive in the industry. Delays or
inabilities to develop new technology features, enhancements or products
could have a material adverse effect on the Company's business, financial
condition and results of operations.
PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies, products and processes,
preserve its trade secrets and operate without infringing upon the
proprietary rights of other parties. Because of the substantial length of
time and expense associated with bringing new products through development to
the marketplace, the voice verification and speech recognition industry
places considerable importance on obtaining and maintaining patent and trade
secret protection for new technologies, products and processes. While the
Company holds two patents for methods relating to its proprietary algorithms,
the Company relies primarily upon a combination of trademark, copyright,
know-how and trade secrets and contractual restrictions to protect its
intellectual property rights. The Company believes that such measures afford
only limited protection and, accordingly, there can be no assurance that the
steps taken by the Company to protect these proprietary rights will be
adequate to prevent misappropriation of the technology or the independent
development of similar technology by others. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that any patents
issued or licensed to the Company will not be challenged and held to be
invalid, or that present or future patents will provide commercially
significant protection to the Company's present or future technologies,
products or processes. In addition, there can be no assurance that others
will not independently develop substantially equivalent proprietary
information not covered by patents to which the Company owns rights or obtain
access to the Company's know-how or that others will not be issued patents
that may prevent the sale of one or more of the Company's technologies, or
require licensing and the payment of significant fees or royalties by the
Company to third parties in order to enable the Company to conduct its
business. There can be no assurance that such licenses would be available or,
if available, would be on terms acceptable to the Company or that the Company
would be successful in any attempt to redesign its technologies, products or
processes to avoid infringement. The Company's failure to obtain these
licenses or to redesign its technologies, products or processes would have a
material adverse effect on the Company's business, financial condition and
results of operations.
No assurance can be given as to the degree of protection afforded by any
patents issued to or licensed by the Company or that such patents will not be
infringed upon by the products of others. The Company has received a notice
from a third party claiming broad patent protection in the voice processing
area and alleging that certain of the Company's voice mail and voice
processing products may infringe upon its patent. Based on advice of its
patent counsel, the Company does not believe that any of its products
infringes upon the cited third-party patent, and if necessary, the Company
intends to vigorously defend its position. However, the Company may not be
able to successfully defend against the claimed infringement. There can be no
assurance that the Company will not be subject to other claims that its
technologies or products infringe the patents or proprietary rights of third
parties. Defense and prosecution of patent claims can be expensive and
time-consuming, regardless of whether the outcome is favorable to the
Company, and can result in the diversion of substantial financial, management
and other resources from the Company's other activities. An adverse outcome
could subject the Company to significant liability to third parties, require
the Company to obtain licenses from third parties or require the Company to
cease any related research and development activities or product sales. In
addition, the laws of certain countries may not protect the Company's
intellectual property rights to the same extent that such rights are
protected in the United States.
The Company's success is also dependent upon the skill, knowledge and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants,
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advisors and collaborators to enter into confidentiality agreements that
prohibit the disclosure of confidential information to anyone outside the
Company, and in most cases, assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's
trade secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. See "Business --Proprietary Rights."
COMPETITION
The voice verification and speech recognition industry is subject to
intense competition. The Company's competitors and potential competitors in
the United States and abroad are numerous and include, among others, Apple
Computer, Inc., AT&T, Berkley Speech Technologies Inc., Dragon Systems, Inc.,
the DSP Group, IBM, ITT, Lernout & Hauspie Speech Products N.V., Lucent
Technologies, Inc., Microsoft Corporation, NEC Corp., Nuance Communications,
Siemens AG, Speech Systems, Inc., Texas Instruments, Veritel, Voice Control
Systems and Voice Processing Corporation. While all of the foregoing
competitors participate in the speech recognition market, currently only ITT,
Texas Instruments, Veritel, Voice Control Systems and Voice Processing
Corporation compete with the Company in the voice verification market. In
addition, the Company is likely to become subject to competition in the
verification marketplace from companies which produce or are developing
biometric identification products, such as fingerprint matching, retina
pattern matching and signature analysis, as well as companies which market or
develop traditional key, card and surveillance systems. Existing and
potential competitors may be able to develop technologies that are as
effective as, or more effective or easier to use than those offered by the
Company, which would render the Company's technologies noncompetitive or
obsolete. Moreover, many of the Company's existing and potential competitors
have substantially greater financial, marketing, sales, distribution and
technological resources than the Company. Such existing and potential
competitors may also enjoy substantial advantages over the Company in terms
of research and development expertise, manufacturing efficiency, name
recognition, sales and marketing expertise and distribution channels. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the abilities of their speech technology products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors may emerge and rapidly acquire significant market share. There
can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes that competition in the voice verification and speech
recognition markets is primarily based upon accuracy, functionality, ease of
use, versatility, cost and time required for application development and
platform integration (including the number of languages offered), price,
processing and memory requirements, and customer support. While certain of
the Company's competitors have developed advanced speech technology products
that are comparable in performance to one or more of the Company's products,
the Company believes that its competitive advantage is based upon (i) the
accuracy of its voice verification technology, (ii) the utilization of the
Company's noise resistant algorithms, (iii) the ease of use and
implementation of the Company's technologies, (iv) the language independent
nature of the Company's technologies, and (v) the Company's single vendor,
fully integrated approach to the implementation of its products.
Notwithstanding these advantages, there can be no assurance that the Company
will be able to compete effectively.
MANUFACTURING
The Company currently does not engage in any manufacturing operations and
does not plan to do so in the foreseeable future. The Company's proprietary
products are manufactured by contract computer board manufacturers. The
Company believes that there are many suitable vendors, in the United States
and elsewhere, that the Company can use to meet its manufacturing needs at
competitive prices. These products are manufactured to the Company's
specifications and quality standards. Certain product testing, packaging and
shipping functions are currently being conducted by MOSCOM on behalf of the
Company. MOSCOM is expected to continue to perform such functions for the
foreseeable future. See "Certain Transactions --MOSCOM Relationship."
34
<PAGE>
EMPLOYEES
As of August 31, 1996, the Company employed 16 persons, including eight in
engineering and software development, five in sales and marketing and three
in accounting, finance and administration. The Company is not subject to any
collective bargaining agreements and believes that its relationship with its
employees is good.
FACILITIES
The Company's executive office and research and development facility is
located in Pleasanton, California. The Company currently occupies a
4,450-square-foot facility pursuant to leases which will terminate on
December 1, 1996. On July 8, 1996 the Company entered into a lease for a
12,587 square-foot facility at the same location which will commence December
1, 1996. This lease will terminate on November 30, 2001. The Company
anticipates that the newly leased premises will satisfy its principal
facilities requirements for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not
aware of any threatened litigation that could have a material adverse effect
upon the Company's business, financial condition and results of operations.
35
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- -------- ---------------------------------------------------
<S> <C> <C>
Albert J. Montevecchio (1)(2) .... 60 Chairman of the Board of Directors
John A. White (2) ................. 58 President, Chief Executive Officer and Director
Richard C. Vail (1) ............... 65 Executive Vice President and Director
William E. O'Connor ............... 57 Chief Financial Officer, Treasurer and Secretary
Ronald L. Rutherford .............. 48 Vice President of Sales and Marketing
Donald G. Heitt (3) ............... 61 Director --designee
</TABLE>
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Mr. Heitt has agreed to join the Board of Directors upon the
consummation of the offering.
Albert J. Montevecchio was elected as Chairman of the Board of Directors
in June 1996. Mr. Montevecchio has been the President, Chief Executive
Officer and a director of MOSCOM since its incorporation in January 1983 and
has served as MOSCOM's Chairman of the Board of Directors since his election
in February 1985.
John A. White joined the Company as President, Chief Executive Officer and
a director in June 1996. From November 1984 to June 1996, Mr. White served in
various capacities with Siemens, ROLM Communications, a telecommunications
company, including Vice President/General Manager, Northeast Area and most
recently as Vice President, Special Product Sales. Prior to joining Siemens,
ROLM, Mr. White was Vice President of Worldwide Sales and Marketing of
Columbia Data Products, a personal computer manufacturing company, and held
various positions at Xerox Corporation, an office products company.
Richard C. Vail has served as Executive Vice President and a director of
the Company since June 1996. From October 1984 to June 1996, Mr. Vail held
various senior management positions with MOSCOM and has served as Vice
President and General Manager of the Votan division of MOSCOM since 1991.
From 1974 to October 1984, Mr. Vail held various senior management positions
with Taylor Instrument Company, a process control company.
William E. O'Connor has served as Chief Financial Officer, Treasurer and
Secretary of the Company since July 1996. From July 1995 until joining the
Company, Mr. O'Connor was Chairman and Chief Financial Officer of Interware
Development Corporation, a multimedia software development company. From
August 1994 until July 1995, Mr. O'Connor was Chief Financial Officer of
Catalina Marketing Corporation, an electronic marketing and software
development company. From October 1987 until August 1994, Mr. O'Connor was a
partner in Keystone Partners, a management consulting firm. From March 1976
to October 1987, Mr. O'Connor held top divisional general management and
financial positions with SmithKline Beecham, PLC, a consumer products and
pharmaceuticals firm. Mr. O'Connor is a certified public accountant.
Ronald L. Rutherford has served as Vice President of Sales and Marketing
of the Company since July 1996. From April 1995 until July 1996, Mr.
Rutherford was Regional Manager and Vice President of Sales for Netrix, Inc.,
a manufacturer of products for wide area networks. From October 1992 to March
1995, Mr. Rutherford was Director of Sales and Marketing for Western
Telecommunication Consulting, Inc., a provider of telecommunications
consulting services. Prior to that time, Mr. Rutherford had held various
senior management positions with Siemens Tel Plus, a provider of
telecommunications systems, from September 1987 to September 1992, Intecom,
Inc., a manufacturer of large communications systems, from January 1982 to
January 1987, and National Data Corporation, a financial and credit card
management transactions company, from January 1979 to January 1982.
36
<PAGE>
Donald G. Heitt has agreed to join the Board of Directors upon
consummation of the offering. Mr. Heitt has been the Chairman of the Board of
Voysys Corporation, a telecommunications company, since January 1996. From
April 1990 to January 1996, Mr. Heitt served as President and Chief Operating
Officer of Voysys Corporation. From September 1987 to November 1989, Mr. Heitt
was Senior Vice President of Telebit Corporation, a telecommunications
company. From January 1986 to September 1987, Mr. Heitt was a managing
partner and co-founder of Resource Partners, Inc., a sales and marketing
distributor and consulting company. From May 1982 until December 1985, Mr.
Heitt served first as Vice President of Sales and Marketing, and later as
President of the computer division of General Automation Inc., a
mini-computer manufacturing and distribution company. Prior to 1982, Mr.
Heitt was Vice President of Honeywell Information Systems, Inc., a industrial
automation and control company.
KEY EMPLOYEES
The following table sets forth certain information with respect to certain
key employees of the Company:
NAME AGE POSITION
- -------------------- -------- -------------------------------
PRINCIPAL RESEARCH
Steven D. Love ...... 41 Engineer
Stephen P. Gill .... 58 Chief Scientist
Graeme R. Kinsey ... 50 Senior Product Manager
Steven D. Love has served as Principal Research Engineer of the Company
since June 1996. From 1982 to June 1996, Mr. Love served as Principal
Research Engineer first with Votan (the predecessor entity) and later with
MOSCOM, following MOSCOM's acquisition of the business and assets of Votan
(the predecessor entity) in 1991. Mr. Love's primary responsibilities have
consisted of the development and implementation of algorithms for automatic
recognition and compression of speech, and algorithms for automatic
recognition and generation telephony signals. His work involves the
implementation of software models of the biological auditory system,
including investigation of neural networks as they relate to speech
recognition. Prior to joining Votan (the predecessor entity), Mr. Love served
in various capacities with the Fairchild Research and Development laboratory,
a semiconductor manufacturing company. Mr. Love received a B.S. in Electrical
Engineering, specializing in analog and integrated circuit design, and an
M.S. in Electrical Engineering, specializing in speech processing, each from
the University of California at Berkeley.
Stephen P. Gill has served as Chief Scientist of the Company on a
part-time basis since June 1996. Dr. Gill is also employed by Magnetic Pulse,
Inc., an oil field service provider. From 1979 to June 1996, Dr. Gill served,
part time, as Chief Scientist first with Votan (the predecessor entity) and
later with MOSCOM, following MOSCOM's acquisition of the business and assets
of Votan (the predecessor entity) in 1991. Dr. Gill has developed a new class
of spectral transforms for voice signal processing and has developed voice
spectral data encoding techniques for both voice verification and speech
recognition research in psychoacoustic grading of voice data and in human
factors affecting perceived performance of voice products. Further, Dr. Gill
has performed research and managed programs in all aspects of voice
technology, including speech recognition, voice store and forward, voice
verification and identification, continuous speech and real-time digital
voice encoding. Dr. Gill received a B.S. in Physics from the Massachusetts
Institute of Technology and he received his M.S. and Ph.D. in Applied Physics
from Harvard University.
Graeme R. Kinsey has served as Senior Product Manager of the Company since
June 1996. From September 1991 to June 1996, Mr. Kinsey served as Senior
Product Manager-Voice Technologies for MOSCOM. From 1988 to September 1991,
Mr. Kinsey served as Senior Product Manager of Votan (the predecessor
entity). From 1985 to 1988, Mr. Kinsey was Project Manager for Applied
Robotic Technologies, Inc., a robotically-controlled hard disk testing work
cell manufacturer. From 1969 to 1985, Mr. Kinsey held various positions with
Zehntel, Inc., an automatic in-circuit printed board test company, including
Manager-System Integration Group. Mr. Kinsey received a B.S. degree in
electrical engineering from the University of California at Berkeley.
37
<PAGE>
BOARD OF DIRECTORS
The Audit Committee of the Board of Directors was established in June 1996
and reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the selection of the
Company's auditors, the scope of the annual audits, fees to be paid to the
auditor, the performance of the Company's independent auditors and the
accounting practices of the Company.
The Compensation Committee of the Board of Directors was established in
June 1996 and determines the salaries and incentive compensation of the
officers of the Company and provides recommendations for the salaries and
incentive compensation of the other employees and the consultants of the
Company. The Compensation Committee also administers various incentive
compensation, stock and benefit plans.
Mr. White has been appointed to serve on the Board of Directors of the
Company pursuant to his employment agreement with the Company. Following this
offering, Mr. White shall continue to serve on the Board of Directors
pursuant to the terms of his agreement.
Mr. Heitt has agreed to serve as an independent member of the Board of
Directors upon consummation of the offering. As soon as possible after the
date of this Prospectus, the Company intends to appoint an additional
independent member to the Board of Directors. The Company anticipates that
such independent directors will serve on the Audit Committee and the
Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently receive a fee for attending Board of Directors
or committee meetings, but are reimbursed for expenses incurred in connection
with performing their respective duties as directors of the Company. However,
the Board of Directors may in the future establish a policy of compensating
directors for attending Board of Directors' or committee meetings.
Additionally, non-employee directors are entitled to be granted options under
the Company's 1996 Stock Option Plan. See "--1996 Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Mr.
Montevecchio and Mr. White. The Compensation Committee determines the
salaries and incentive compensation of the officers of the Company and
provides recommendations for the salaries and incentive compensation of the
other employees and the consultants of the Company. The Compensation
Committee also administers various incentive compensation, stock and benefit
plans. Mr. White is the President and Chief Executive Officer of the Company.
Mr. Montevecchio is the Chairman of the Board of Directors, President and
Chief Executive Officer of MOSCOM. MOSCOM is a party to various transactions
with the Company. See "Certain Transactions --MOSCOM Relationship."
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid to each of the
Company's (i) Chief Executive Officer and (ii) Executive Vice President,
whose total compensation during 1995 based on employment with MOSCOM,
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
- ------------------------------------- ------ --------- -------- -------------------
<S> <C> <C> <C> <C>
John A. White (2)
President and Chief Executive
Officer ............................. 1995 -- -- --
Richard C. Vail
Executive Vice President, formerly
Vice President, General Manager of
the Votan Division of MOSCOM ........ 1995 112,000 5,000 17,111
</TABLE>
38
<PAGE>
- ------------
(1) Other compensation in the form of perquisites and other personal
benefits has been omitted in those instances where the aggregate amount
of such perquisites and other personal benefits constituted the lesser
of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officer for the year. Includes (i) personal use of a MOSCOM
company car, (ii) life insurance premiums paid by MOSCOM, (iii) MOSCOM
contributions to MOSCOM 401(k) Plan and (iv) medical expenses
reimbursed by MOSCOM.
(2) Mr. White began serving as the Company's President and Chief Executive
Officer in June 1996, and therefore, received no compensation from the
Company or MOSCOM prior to the date thereof. In the future, Mr. White
will receive compensation to be paid by the Company in accordance with
his employment agreement. See "--Employment Agreements."
STOCK OPTION INFORMATION
No MOSCOM stock options were granted to the Named Executive Officers in
1995. The following table sets forth certain information with respect to the
Named Executive Officers regarding stock option values in respect of shares
of MOSCOM Common Stock under the MOSCOM Stock Option Plan as of December 31,
1995.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT
YEAR END FISCAL YEAR END
SHARES VALUE
(# OF SHARES) ($)(1)
ACQUIRED ON REALIZED ------------------------------ ------------------------------
NAME EXERCISE (#) $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ------------- ---------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John A. White . -- -- -- -- -- --
Richard C. Vail 21,500 183,125 15,000 -- 87,800 --
</TABLE>
- ------------
(1) Amounts calculated by subtracting the exercise price of the options
from the market value of the underlying MOSCOM Common Stock using the
closing price of the MOSCOM Common Stock on the Nasdaq National Market
of $8.12 per share of MOSCOM Common Stock on December 29, 1995.
1996 STOCK OPTION PLAN
Pursuant to the terms of the Formation, stock options previously granted
to the Votan employees pursuant to the MOSCOM stock option plan will continue
to be held by such employees pursuant to the terms of the MOSCOM stock option
plan. The Company's 1996 Stock Option Plan was adopted by the Board of
Directors and approved by the Company's stockholders in June 1996 (the "1996
Plan"). Up to 825,000 shares of Common Stock have been initially authorized
for issuance under the 1996 Plan. This share reserve will increase on the
first trading day of each calendar year beginning with the year 2000 by 1% of
the number of shares of Common Stock outstanding on December 31 of the
immediately preceding calendar year. In no event may any one participant in
the 1996 Plan receive option grants for more than 500,000 shares in the
aggregate.
The 1996 Plan is divided into two separate components: (i) the
Discretionary Option Grant Program under which employees and consultants may,
at the discretion of the Plan Administrator (as defined in the 1996 plan), be
granted options to purchase shares of Common Stock at an exercise price not
less than 85% of their fair market value on the grant date and (ii) the
Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board of Directors'
members to purchase shares of Common Stock at an exercise price equal to 100%
of their fair market value on the grant date.
The Discretionary Option Grant Program will be administered by the
Compensation Committee. The Compensation Committee, as Plan Administrator,
will have complete discretion to determine which
39
<PAGE>
eligible individuals are to receive option grants, the time or times when
such option grants are to be made, the number of shares subject to each such
grant, the status of any granted option as either an incentive stock option
or a non-statutory stock option under the Federal tax laws, the vesting
schedule to be in effect for the option grant and the maximum term for which
any granted option is to remain outstanding. Pursuant to the terms of his
employment agreement, Mr. White will be granted an option under the 1996 Plan
to purchase 120,000 shares of Common Stock. The Company expects to grant Mr.
Vail an option under the 1996 Plan to purchase 50,000 shares of Common Stock.
The Company also expects to grant to each of Mr. O'Connor and Mr. Rutherford an
option under the 1996 Plan to purchase 20,000 shares of Common Stock.
Upon an acquisition of the Company by merger or asset sale, each
outstanding option will be subject to accelerated vesting under certain
circumstances. The Compensation Committee, as Plan Administrator, of the 1996
Plan will have the authority to provide for the accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Chief
Executive Officer and any other executive officer in connection with certain
changes in control of the Company or the subsequent termination of the
officer's employment following the change in control event.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the
election to surrender their outstanding options for an appreciation
distribution from the Company equal to the excess of (x) the fair market
value of the vested shares of Common Stock subject to the surrendered option
over (y) the aggregate exercise price payable for such shares. Such
appreciation distribution may be made in cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return
for the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market value of
the Common Stock on the new grant date.
Under the Automatic Option Grant Program, each individual serving as a
non-employee Board of Directors' member on the date the Underwriting
Agreement for this offering is executed will receive an option grant on such
date for 10,000 shares of Common Stock. Each individual who first becomes a
non-employee Board of Directors' member thereafter will receive a
10,000-share option grant on the date such individual joins the Board of
Directors. In addition, at each Annual Stockholders' Meeting, beginning with
the 1997 Annual Meeting, each individual who is to continue to serve as a
non-employee Board of Directors' member after the meeting will receive an
additional option grant to purchase 5,000 shares of Common Stock, whether or
not such individual has been in the prior employ of the Company. Pursuant to
the Automatic Option Grant Program, Mr. Montevecchio, in his capacity as a
non-employee director of the Company, will receive an option to purchase
10,000 shares of Common Stock at an exercise price equal to the initial
public offering price set forth on the cover page of this Prospectus.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board of Directors'
service. Each automatic option will be immediately exercisable; however, any
shares purchased upon exercise of the option will be subject to repurchase
should the optionee's service as a non-employee Board of Directors' member
cease prior to vesting in the shares. The initial 10,000-share grant
(including the anticipated grant to Mr. Montevecchio) will vest in four equal
and successive annual installments over the optionee's period of Board of
Directors' service. Each additional 5,000-share grant will vest upon the
optionee's completion of one year of Board of Directors' service measured
from the grant date. However, each outstanding option will immediately vest
upon (i) certain changes in the ownership or control of the Company or (ii)
the death or disability of the optionee while serving as a Board of
Directors' member.
The Board of Directors may amend or modify the 1996 Plan at any time. The
1996 Plan will terminate in June 2006, unless sooner terminated by the Board
of Directors.
EMPLOYMENT AGREEMENTS
On June 19, 1996, the Company entered into an employment agreement with
John A. White, the Company's President and Chief Executive Officer, for a
two-year term. Pursuant to his agreement,
40
<PAGE>
Mr. White will be entitled to receive a minimum base salary of $180,000 per
year, plus an annual discretionary performance-based bonus in an amount up to
50% of his base salary. Pursuant to his employment agreement, Mr. White also
received a bonus in the amount of $25,000 upon the commencement of his
employment with the Company and is also entitled to receive a guaranteed
bonus in the amount of $25,000 upon the successful completion of an initial
public offering of the Company's Common Stock with gross proceeds to the
Company in excess of $10,000,000. In addition, Mr. White is entitled to
receive a stock option to purchase 120,000 shares of the Company's Common
Stock at an exercise price per share equal to the initial public offering
price in the case of incentive stock options or 85% of the initial public
offering price in the case of non-qualified stock options. Of these options,
60,000 shares become exercisable upon completion of 30 months of service
after the commencement of Mr. White's employment and the remaining 60,000
shares become exercisable upon completion of 60 months after the commencement
of his employment. The options are to have a maximum term of 10 years,
subject to earlier termination upon cessation of Mr. White's employment with
the Company. The agreement requires Mr. White to devote his full time,
attention and energies to the Company's business. The agreement contains
restrictive covenants pursuant to which Mr. White has agreed not to compete
with the Company for a period of one year following termination of his
employment. The agreement also prohibits disclosure of the Company's trade
secrets. There can be no assurance that any of these provisions, if violated,
would be enforceable by the Company. The agreement further provides that, if
Mr. White is terminated without "good cause" (as such term is defined in Mr.
White's employment agreement), then Mr. White will be entitled to receive any
unpaid compensation accrued through the last day of his employment and
certain "severance payments" (as such term is defined in Mr. White's
employment agreement).
KEY-MAN LIFE INSURANCE
The Company intends to maintain and will be the sole beneficiary of a $1
million key-person life insurance policy on the life of Mr. White.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that, except to the
extent prohibited by the Delaware General Corporation Law (the "DGCL"), its
directors shall not be personally liable to the Company or its stockholders
for monetary damages for any breach of fiduciary duty as directors of the
Company. Under Delaware law, the directors have fiduciary duties to the
Company that are not eliminated by this provision of the Certificate of
Incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available. In
addition, each director will continue to be subject to liability under
Delaware law for breach of the director's duty of loyalty to the Company for
acts or omissions that are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations
of law, for actions leading to improper personal benefit to the director and
for payment of dividends or approval of stock repurchases or redemptions that
are prohibited by Delaware law. This provision also does not affect the
director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws. In addition, the
Company maintains liability insurance for its officers and directors.
Section 145 of the DGCL permits the Company to, and the Certificate of
Incorporation provides that the Company may, indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was, or has agreed to
become, a director or officer of the Company, or is or was serving, or has
agreed to serve, at the request of the Company, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit
plan), or by reason of any action alleged to have been taken or omitted in
such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
or on his behalf in connection with such action, suit or proceeding and any
appeal therefrom. Such right of indemnification shall inure to such
individuals whether or not the claim asserted is based on matters that
antedate the adoption of the
41
<PAGE>
Certificate of Incorporation. Such right of indemnification shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs and personal representatives of such a person. The
indemnification provided by the Certificate of Incorporation shall not be
deemed exclusive of any other rights that may be provided now or in the
future under any provision currently in effect or hereafter adopted by the
Certificate of Incorporation, by any agreement, by vote of stockholders, by
resolution of directors, by provision of law or otherwise. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors of the Company pursuant to the foregoing provision, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Section 102(b)(7) of the DGCL permits a corporation to eliminate or limit
the personal liability of a director to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, provided
that such provision shall not eliminate or limit the liability of a director
(i) for any breach of the director's duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL relating to unlawful dividends, stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. Section 102(b)(7) of the DGCL is designed, among
other things, to encourage qualified individuals to serve as directors of
Delaware corporations. The Company believes this provision will assist it in
securing the services of qualified directors who are not employees of the
Company. This provision has no effect on the availability of equitable
remedies, such as injunction or rescission. If equitable remedies are found
not to be available to stockholders in any particular case, stockholders may
not have any effective remedy against actions taken by directors that
constitute negligence or gross negligence.
CERTAIN TRANSACTIONS
MOSCOM RELATIONSHIP
Effective June 26, 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of the Votan division to the
Company. In connection with the Formation, the Company has entered into the
following agreements with MOSCOM which govern the continuing relationship
between MOSCOM and the Company; (i) a Subsidiary Formation Agreement; (ii) a
License Agreement and (iii) a Service and Supply Agreement.
Pursuant to the Subsidiary Formation Agreement (the "Formation
Agreement"), MOSCOM has transfered all of the assets of its Votan division to
the Company in consideration for the issuance to MOSCOM of 1,000 (does not
give effect to the anticipated 5,500-to-1 stock split to be effected prior to
the consummation of this offering) fully paid, non-assessable shares of
Common Stock of the Company. The Company has agreed to assume and pay,
perform and discharge all debts, obligations, contracts and liabilities of
MOSCOM related to these assets. In addition, pursuant to the Formation
Agreement, MOSCOM has agreed to meet all of the capital requirements of the
Company until the earlier of March 31, 1997 or upon the consummation of a
debt or equity financing by the Company of at least $10 million. The Company
has also agreed to assume obligations relating to certain pension benefits
afforded to Mr. Vail and to pay MOSCOM for: (i) certain costs incurred by
MOSCOM related to the Formation and the hiring of executive officers of the
Company, including recruiting fees and compensation-related expenses and (ii)
costs and expenses incurred by MOSCOM in connection with the organization and
funding of the Company. Pursuant to the Formation Agreement, the Company's
obligations to reimburse MOSCOM for the costs and expenses referred to in
items (i) and (ii) above shall not exceed $200,000.
Pursuant to the License Agreement (the "License Agreement"), the Company
has granted MOSCOM a non-exclusive, non-transferable worldwide license to
continue selling the TeleVoice System, certain computer board products and
other products incorporating the Company's algorithms. MOSCOM and the Company
have also agreed to promptly disclose and license to each other on a
non-exclusive,
42
<PAGE>
royalty-free basis, all improvements to the licensed technologies and
products which they make or acquire during the term of the license. MOSCOM
has the right to grant sublicenses to end-users and distributors without
prior consent, but must obtain the Company's prior written consent for
sublicenses to other VARs. MOSCOM is required to pay one, and only one, of
the following royalties to the Company for each sale or license of the
products and technologies covered by the License Agreement: (i) $50 for each
copy of the licensed algorithms sublicensed to an end-user or distributor;
(ii) $50 per sale of a product incorporating a licensed algorithm; (iii) $50
for each functional port on each computer board sold, if such board
incorporates a licensed algorithm and is sold with application software; or
(iv) $50 for each board or other computer board sold, if such board
incorporates a licensed algorithm but is not sold with application software.
The license shall continue in effect until terminated, with the Company
having the right to terminate in the event of MOSCOM's breach or bankruptcy
and MOSCOM having the right to terminate for any reason. The Company may
terminate the license upon 30 days prior written notice to MOSCOM. MOSCOM
must provide the Company with 180 days prior written notice of termination of
the license. If MOSCOM terminates because of a material breach by the
Company, MOSCOM's licenses shall survive such termination and no further
royalties shall be due to the Company.
Pursuant to the Service and Supply Agreement, MOSCOM has agreed to sell to
the Company certain speech recognition and voice verification boards for an
amount equal to 1.25 times MOSCOM's cost for each such board. In addition,
pursuant to the Service and Supply Agreement, MOSCOM has agreed to provide
the Company with certain administrative and accounting services, as the
Company may from time to time require, for a fee equal to four times the
gross hourly salary paid by MOSCOM to any employee who performs such
administrative and accounting services for Votan, multiplied by the actual
number of hours expended by each such employee to perform such services. The
services to be provided to the Company by Mr. Montevecchio as Chairman of the
Board of Directors are excluded from the Service and Supply Agreement and
therefore, the Company will not be obligated to pay any fees to MOSCOM for
Mr. Montevecchio's services in such capacity. See "Management -- Director
Compensation." In the event that MOSCOM, upon Votan's request, pays premiums
on group employee benefit plans for the benefit of Votan employees, Votan has
agreed to reimburse MOSCOM in an amount equal to 105% of such premiums paid
by MOSCOM. Finally, MOSCOM has agreed to provide space at its facilities for
certain Votan employees who will perform services for Votan at such
facilities until their relocation to Votan's facilities in California. Votan
is required to pay 1.25 times MOSCOM's cost of occupancy for that portion of
MOSCOM's facilities allocated to occupancy by such Votan employees.
Pursuant to a Value Added Reseller Agreement (the "VAR Agreement"), the
Company has granted MOSCOM non-exclusive rights to sublicense the Company's
application software for the bank teller verification system (the "Products")
worldwide (except for the United States). MOSCOM may use its own VARs or
subdistributors to sublicense the Products to end-users pursuant to the terms
of the VAR Agreement. MOSCOM is obligated to pay a royalty to the Company for
each end-user sublicensed to use the Products, calculated at a rate based on
either (i) the number of bank branches where the end-user is sublicensed to
use the Products or (ii) the number of personal computers on which the
end-user is licensed to use the Products, whichever results in the greater
aggregate royalty to the Company. The Company has also agreed to provide to
MOSCOM sales, installation, system administration, technical support and
engineering and customization services at specified charges. The term of the
VAR Agreement is two years commencing September, 1996 unless terminated
earlier by either party without cause upon 180 days prior written notice or
by the Company in the event of MOSCOM's material breach upon five business
days prior written notice. All royalty payments payable to MOSCOM pursuant
to the VAR Agreement are supplemental to MOSCOM's payment obligations under
the License Agreement.
The Company believes that all transactions between the Company and MOSCOM
have been and will be on terms no less favorable to the Company than could be
obtained from unaffiliated parties. Pursuant to the Company's Bylaws, all
such future transactions before the Company's Board of Directors will be
approved by a majority of the independent members of the Company's Board of
Directors. These Bylaw provisions shall remain in effect until such time as
MOSCOM holds less than 20% of the Common Stock and may only be amended by a
vote of the stockholders of the Company, excluding MOSCOM.
43
<PAGE>
After the completion of this offering, MOSCOM will own approximately 62%
of the outstanding shares of common stock of the Company (56% if the
Underwriters' over-allotment option is exercised in full).
VAIL LOAN
MOSCOM has previously extended an employment-related relocation loan to
Mr. Vail in the principal amount of $100,000 (the "Note"). The Note bears
interest at a rate equal to the rate of appreciation of Mr. Vail's home and
is due and payable to MOSCOM on the earlier of March 23, 1997 or the sale of
Mr. Vail's residence. Currently, there is no appreciation in the value of Mr.
Vail's home and, therefore, the Note is not bearing any interest.
For information regarding employment agreements with Named Executive
Officers, see "Management --Employment Agreements." For information regarding
compensation of directors, see "Management --Director Compensation." For
information regarding options granted to executive officers, see "Management
- --1996 Stock Option Plan."
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 31, 1996, as
adjusted to reflect the Company's anticipated 5,500-to-1 stock split of the
Common Stock and the sale of the shares of Common Stock offered hereby, with
respect to (a) each person known by the Company to be the beneficial owner of
5% or more of the outstanding Common Stock, (b) each director of the Company,
(c) each of the Named Executive Officers, (d) the Selling Stockholder and (e)
all directors and executive officers of the Company as a group. Unless
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. See "Certain Transactions --MOSCOM Relationship."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THIS BENEFICIAL OWNERSHIP
NUMBER OF
OFFERING(1) AFTER THIS OFFERING(1)
---------------------- SHARES BEING ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------- ----------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
MOSCOM Corporation
3750 Monroe Ave. Pittsford, NY 14534 5,500,000 100% 850,000 4,650,000 62%
Albert J. Montevecchio (2)
3750 Monroe Ave. Pittsford, NY 14534 -- -- -- --
John A. White
7020 Koll Center Parkway,
Pleasanton, California 94566 ........ -- -- -- --
Richard C. Vail
7020 Koll Center Parkway,
Pleasanton, California 94566 ........ -- -- -- --
All executive officers and directors
as a group (3 persons) .............. -- -- -- --
</TABLE>
- ------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to these securities.
(2) Does not include shares owned by MOSCOM. Mr. Montevecchio is Chairman
of the Board, President and Chief Executive Officer and a controlling
stockholder of MOSCOM and, as a result, may be deemed to beneficially
own the shares of Common Stock owned by MOSCOM. Mr. Montevecchio
disclaims beneficial ownership of such shares.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the Company's authorized capital
stock will consist of 20,000,000 shares of Common Stock, par value $0.01 per
share, and 1,000,000 shares of Preferred Stock, par value $0.01 per share.
All of the issued and outstanding shares of Common Stock will be fully paid
and nonassessable. In addition, upon consummation of this offering there will
be reserved for issuance 285,000 shares of Common Stock issuable upon the
exercise of the Representatives' Warrants.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended (the "Bylaws"), copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to
be voted upon by the stockholders. Immediately following this offering,
MOSCOM will own approximately 62% of the outstanding shares of Common Stock
(56% if the Underwriters' over-allotment is exercised in full). As a result,
MOSCOM will retain the voting power required to elect all directors and
approve other matters required to be voted upon by the stockholders of the
Company. See "Risk Factors --Control by MOSCOM; Potential Conflicts of
Interest" and "Certain Transactions --MOSCOM Relationship." There are no
cumulative voting rights. Holders of Common Stock are entitled to receive
ratable dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. Upon the liquidation, dissolution or
winding up of the Company, holders of Common Stock share ratably in the
assets of the Company available for distribution to its stockholders, subject
to the preferential rights of any then outstanding shares of Preferred Stock.
No shares of Preferred Stock will be outstanding immediately following the
consummation of this offering. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All shares of Common Stock
outstanding upon the effective date of this Prospectus, and the shares
offered hereby will, upon issuance and sale, be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 1,000,000
shares of Preferred Stock in one or more series and to fix the relative
rights, preferences, privileges, qualifications, limitations and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting any series or the designation of such
series, without further vote or action by the stockholders. The Board of
Directors could, without the approval of the stockholders, issue Preferred
Stock having voting or conversion rights that could adversely affect the
voting power of the holders of Common Stock, and the issuance of Preferred
Stock could be used, under certain circumstances, to render more difficult or
discourage a hostile takeover of the Company. The Company has no present
plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
After this offering, the Representatives and/or their assigns
(collectively, with the Representatives, the "Holders"), will hold certain
warrants pursuant to which they will be entitled to certain rights with
respect to the registration of the shares of Common Stock underlying such
warrants under the Securities Act. Under the terms of such warrants, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other stockholders of the
Company, the Holders are entitled to notice of such registration and are
entitled to include the shares of Common Stock underlying such warrants in
such registration. Further, the Holders may require the Company to file one
registration statement under the Securities Act at the Company's expense with
respect to their shares of Common Stock underlying such warrants. These
rights are subject to certain conditions and limitations, among them the
right of the underwriters of an offering to limit the number of shares
included in such registration. See "Underwriting."
46
<PAGE>
CERTAIN PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a broad range of "business combinations" with an
"interested stockholder" (defined generally as a person owning 15% of more of
a corporation's outstanding voting stock) for three years following the date
such person became an interested stockholder unless (i) before the person
becomes an interested stockholder, the transaction resulting in such person
becoming an interested stockholder or the business combination is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares owned by directors who are
also officers of the corporation or shares held by employee stock plans that
do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender offer or
exchange offer), or (iii) on or after such date on which such person became
an interested stockholder the business combination is approved by the board
of directors and authorized at an annual or special meeting, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock excluding shares owned by the interested
stockholders. The restrictions of Section 203 do not apply, among other
reasons, if a corporation, by action of its stockholders, adopts an amendment
to its certificate of incorporation or by-laws expressly electing not to be
governed by Section 203, provided that, in addition to any other vote
required by law, such amendment to the certificate of incorporation or
by-laws must be approved by the affirmative vote of a majority of the shares
entitled to vote. Moreover, an amendment so adopted is not effective until
twelve months after its adoption and does not apply to any business
combination between the corporation and any person who became an interested
stockholder of such corporation on or prior to such adoption. The Certificate
of Incorporation and Bylaws do not currently contain any provisions electing
not to be governed by Section 203 of the DGCL.
Section 203 of the DGCL may discourage persons from making a tender offer
for or acquisitions of substantial amounts of the Common Stock. This could
have the effect of inhibiting changes in management and may also prevent
temporary fluctuations in the Common Stock that often result from takeover
attempts.
Section 228 of the DGCL allows any action that is required to be or may be
taken at a special or annual meeting of the stockholders of a corporation to
be taken without a meeting with the written consent of holders of outstanding
stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, provided that the
certificate of incorporation of such corporation does not contain a provision
to the contrary. The Certificate of Incorporation contains no such provision,
and therefore stockholders holding a majority of the voting power of the
Common Stock will be able to approve a broad range of corporate actions
requiring stockholder approval without the necessity of holding a meeting of
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company. American Stock Transfer & Trust Company is located
at 40 Wall Street, New York, New York 10005, and its telephone number is
(212) 936-5100.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,500,000 shares
of Common Stock outstanding. Of these shares, the 2,850,000 shares sold in
this offering will be freely tradeable without restriction or further
registration under the Securities Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below. The remaining
4,650,000 shares of Common Stock held by MOSCOM upon consummation of this
offering will be "restricted" securities within the meaning of Rule 144 (the
"Restricted Shares") and may not be sold except in compliance with the
registration requirements of the Securities Act or an applicable exemption
under the Securities Act, including an exemption pursuant to Rule 144.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no assurance can be given that a significant public
market for the Common Stock can be developed or sustained after this
offering. Future sales of substantial amounts of Common Stock in the public
market could have a material effect on the market price of Common Stock from
time to time.
SALES OF RESTRICTED SHARES
Beginning one year after the date of this Prospectus, 4,650,000 shares of
Common Stock held by MOSCOM and subject to a lockup ("Lockup") agreement
between the Underwriters and MOSCOM will become eligible for sale in the
public market if registered or pursuant to an exemption, from registration
such as Rule 144. Pursuant to the Lockup, MOSCOM has agreed not to, directly
or indirectly, offer, pledge, sell, contract to sell, transfer or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of one
year after the date of this Prospectus without the prior written consent of
Ladenburg, Thalmann & Co. Inc., on behalf of the Representatives. In
addition, MOSCOM has the right to require registration of its shares under
certain circumstances.
In general, under Rule 144 as currently in effect, Affiliates who have
beneficially owned shares for at least two years (including the holding
period of certain prior owners) will be entitled to sell in "brokers'
transactions" or to market makers, within any three-month period commencing
90 days after the Company becomes subject to the reporting requirements of
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), a number of shares that does not exceed the greater of (i) one percent
of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks immediately
preceding such sale, subject, generally, to the filing of a Form 144 with
respect to such sales and certain other limitations and restrictions. In
addition, a person (or person whose shares are aggregated) who is not deemed
to have been an Affiliate at any time during the 90 days immediately
preceding the sale and who has beneficially owned the shares proposed to be
sold for at least three years is entitled to sell such shares under Rule
144(k) without regard to the limitations described above. Further, Rule 144A
under the Securities Act as currently in effect permits the immediate sale of
restricted shares to certain qualified institutional buyers without regard to
the volume restrictions described above.
SHARES RESERVED FOR ISSUANCE
Options. As of the date hereof, the Board of Directors and the
stockholders have authorized the issuance of an aggregate of up to 825,000
shares of Common Stock for issuance pursuant to the 1996 Stock Option Plan.
As of August 31, 1996, no options were outstanding under the 1996 Stock
Option Plan, however, the Company intends to grant each of Mr. White, the
Company's Chief Executive Officer, and Mr. Vail, the Company's Executive Vice
President, options to purchase 120,000 and 50,000 shares of Common Stock,
respectively. The Company also intends to grant each of Mr. O'Connor, the
Company's Chief Financial Officer, and Mr. Rutherford, the Company's Vice
President of Sales and Marketing, options to purchase 20,000 shares of
Common Stock, respectively. The Company intends to file one or more
registration statements on Form S-8 under the Securities Act approximately 90
days after the date of this Prospectus to register the 825,000 shares
available for issuance under the 1996 Stock Option Plan. Such
48
<PAGE>
registration statements are expected to become effective upon filing. After
the effective date of the applicable registration statement, shares of Common
Stock issued under the 1996 Stock Option Plan will be immediately eligible
for sale in the public market, subject to vesting limitations and
restrictions on affiliate sales. See "Management--Stock Option Plan."
Warrants. The Company has 285,000 shares reserved for issuance upon
exercise of the Representatives' Warrants. See "Underwriting."
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriters named below (the "Underwriters"),
have severally, and not jointly, agreed, through Ladenburg, Thalmann & Co.
Inc. and Kaufman Bros., L.P., the Representatives of the Underwriters (the
"Representatives"), to purchase from the Company and the Selling Stockholder,
and the Company and the Selling Stockholder have agreed to sell to the
Underwriters, the aggregate number of shares set forth opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ------------------------------- -----------
<S> <C>
Ladenburg, Thalmann & Co. Inc.
Kaufman Bros., L.P. ............
-----------
Total ....................... 2,850,000
</TABLE>
The Underwriters are committed to take and to pay for all of the shares of
Common Stock offered hereby (other than the shares covered by the
over-allotment option described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer all
or part of the Common Stock offered hereby directly to the public initially
at the price to the public set forth on the cover page of this Prospectus,
that they may offer shares to certain dealers at a price which represents a
concession of not more than $ per share, and that the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the commencement of this offering, the
price to the public and the concessions may be changed.
The Selling Stockholder has granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up
to 427,500 additional shares of Common Stock at the same price per share as
the initial 2,850,000 shares to be purchased by the Underwriters. The
Underwriters may exercise this option only to cover over-allotments, if any.
To the extent the Underwriters exercise this option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase the
same percentage thereof as the percentage of the initial 2,850,000 shares to
be purchased by that Underwriter.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act of 1933, as amended, and to contribute to payments the
Underwriters may be required to make in respect thereof.
The Company has agreed to issue to the Representatives, for their own
account, warrants (the "Representatives' Warrants") to purchase 285,000
shares of Common Stock, exercisable for a period of four years commencing one
year from the date of this offering, at a price equal to 120% of the initial
public offering price, subject to adjustment in certain events. The
Representatives' Warrants contain customary antidilution provisions and
certain registration rights relating to the securities issuable upon exercise
of the Representatives' Warrants.
Upon consummation of the offering, the Company has agreed to pay an amount
equal to the lesser of (i) 1% of the gross proceeds from this offering
or (ii) $250,000 to Grady & Hatch, Inc., an advisor to MOSCOM and the Company,
for services rendered to the Company.
50
<PAGE>
The Company and MOSCOM have agreed, pursuant to the Lockup, not to,
directly or indirectly, offer, pledge, sell, contract to sell, transfer or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock for a period
of one year after the date of this Prospectus without the prior written
consent of Ladenburg, Thalmann & Co. Inc., on behalf of the Representatives.
Prior to this offering, there has been no public market for the Common
Stock. The proposed initial public offering price has been determined by
negotiations among the Company, the Selling Stockholder and the
Representatives. Among the factors considered in such negotiations were the
Company's results of operations and financial condition, the prospects for
the Company and for the industry in which the Company operates, the Company's
capital structure and the general condition of the securities market. The
estimated offering price set forth on the cover of this Prospectus is subject
to change as a result of market conditions and other factors.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby and that the Underwriters do not intend to confirm
sales of shares to any account over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, New
York, New York. Certain legal matters in connection with the sale of the
shares of Common Stock offered hereby will be passed upon for the
Underwriters by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports thereon and included in
reliance upon the authority of such firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549 (the "Commission") a Registration Statement on Form
S-1 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement,
including exhibits, schedules and reports filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the Registration Statement referred to herein
set forth the material terms of such contract or other document but are not
necessarily complete, and in each instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission in Washington, D.C.
and copies of all or any part of which may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at The Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can also be obtained at
prescribed rates by mail from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Registration
Statement, including the exhibits and schedules thereto, can also be accessed
through the EDGAR terminals in the Commission's Public Reference Rooms in
Washington, Chicago and New York or through the World Wide Web at
http://www.sec.gov.
51
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants ....... F-2
Balance Sheets .................................. F-3
Statements of Operations ........................ F-4
Statements of Changes in Stockholder's Equity .. F-5
Statements of Cash Flows ........................ F-6
Notes to Financial Statements ................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholder of Votan Corporation:
We have audited the accompanying balance sheets of Votan Corporation
(formerly a division of MOSCOM Corporation) as of December 31, 1995 and 1994,
and the related statements of operations, changes in stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of MOSCOM's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Votan Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Rochester, N.Y.
June 28, 1996
F-2
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash .............................................. $ 2,000 $ 8,000 $ 32,000
Accounts receivable ............................... 108,000 2,000 --
Other assets ...................................... 1,000 -- 340,000
---------- ---------- -----------
Total current assets ............................. 111,000 10,000 372,000
---------- ---------- -----------
PROPERTY AND EQUIPMENT, net ........................ 87,000 63,000 54,000
---------- ---------- -----------
CAPITALIZED SOFTWARE, net of accumulated
amortization of $216,000 and $195,000 in 1994 and
1995, respectively, and $265,000 at June 30, 1996.. 415,000 269,000 252,000
---------- ---------- -----------
Total assets .................................... $613,000 $342,000 $678,000
========== ========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accrued payroll, commissions and related taxes ... $ 16,000 $ 17,000 $ 33,000
Deferred compensation ............................. 189,000 207,000 --
Due to MOSCOM Corporation ......................... -- -- 88,000
Other accrued liability ........................... -- -- 340,000
---------- ---------- -----------
Total current liabilities ........................ 205,000 224,000 461,000
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES ......................
STOCKHOLDER'S EQUITY:
Preferred stock; 100,000 shares authorized, none
issued and outstanding at June 30, 1996, $.01 par
value ............................................ -- -- --
Common stock; 10,000,000 shares authorized,
5,500,000 shares issued and outstanding at June
30, 1996, $0.01 par value ........................ -- -- 55,000
Additional paid-in capital ........................ -- -- 162,000
Divisional equity ................................. 408,000 118,000 --
---------- ---------- -----------
Total stockholder's equity ....................... 408,000 118,000 217,000
---------- ---------- -----------
Total liabilities and stockholder's equity ..... $613,000 $342,000 $678,000
========== ========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ -------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES ................................ $ 517,000 $ 593,000 $ 572,000 $ 225,000 $ 183,000
COST OF SALES:
Direct costs ........................ 181,000 122,000 132,000 50,000 67,000
Amortization of software development
costs .............................. 126,000 183,000 197,000 128,000 70,000
------------ -------------- ------------ ------------ ------------
307,000 305,000 329,000 178,000 137,000
------------ -------------- ------------ ------------ ------------
Gross profit ........................ 210,000 288,000 243,000 47,000 46,000
OPERATING EXPENSES:
Engineering and software
development, net ................... 342,000 579,000 424,000 212,000 227,000
Selling and marketing ............... 223,000 293,000 323,000 148,000 91,000
General and administrative .......... 490,000 418,000 386,000 187,000 290,000
------------ -------------- ------------ ------------ ------------
1,055,000 1,290,000 1,133,000 547,000 608,000
------------ -------------- ------------ ------------ ------------
Loss from operations ................ (845,000) (1,002,000) (890,000) (500,000) (562,000)
PROVISION FOR TAXES .................. 1,000 1,000 1,000 -- --
------------ -------------- ------------ ------------ ------------
NET LOSS ............................. $ (846,000) $(1,003,000) $ (891,000) $(500,000) $ (562,000)
============ ============== ============ ============ ============
UNAUDITED PRO FORMA NET LOSS PER
SHARE ............................... $ (0.16) $ (0.10)
============ ============
Weighted average shares outstanding . 5,500,000 5,500,000
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
DIVISIONAL PREFERRED COMMON PAID-IN
EQUITY STOCK STOCK CAPITAL
------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Balance --January 1, 1993 ......................... $ 262,000 -- -- --
Net loss .......................................... (846,000) -- -- --
Contribution from MOSCOM Corporation .............. 1,079,000 -- -- --
------------- ----------- --------- ------------
Balance -- December 31, 1993 ...................... 495,000 -- -- --
Net loss .......................................... (1,003,000) -- -- --
Contribution from MOSCOM Corporation .............. 916,000 -- -- --
------------- ----------- --------- ------------
Balance -- December 31, 1994 ...................... 408,000 -- -- --
Net loss .......................................... (891,000) -- -- --
Contribution from MOSCOM Corporation .............. 601,000 -- -- --
------------- ----------- --------- ------------
Balance -- December 31, 1995 ...................... 118,000 -- -- --
Net loss (unaudited) .............................. (562,000) -- -- --
Contribution from MOSCOM Corporation (unaudited) . 661,000 -- -- --
Transfer to common stock (unaudited) .............. (55,000) -- 55,000 --
Transfer to additional paid-in capital (unaudited) (162,000) -- -- 162,000
------------- ----------- --------- ------------
Balance -- June 30, 1996 (unaudited) .............. $ -- $-- $55,000 $162,000
============= =========== ========= ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ -------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................. $ (846,000) $(1,003,000) $(891,000) $(500,000) $(562,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ............................. 22,000 28,000 26,000 14,000 13,000
Amortization of capitalized software ..... 126,000 183,000 197,000 128,000 70,000
Changes in operating assets and
liabilities:
Decrease (increase) in:
Accounts receivable ..................... (26,000) (41,000) 106,000 76,000 2,000
Other assets ............................ (1,000) -- 1,000 1,000 --
Increase (decrease) in:
Accrued payroll, commissions and related
taxes .................................. -- -- 1,000 6,000 16,000
Deferred compensation ................... 13,000 (4,000) 18,000 (16,000) (207,000)
Due to MOSCOM Corporation ............... -- -- -- -- 88,000
------------ -------------- ------------ ------------ ------------
Net cash used in operating activities .. (712,000) (837,000) (542,000) (291,000) (580,000)
------------ -------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furniture and
fixtures ................................. (54,000) -- (2,000) (1,000) (4,000)
Capitalized software expenditures ......... (308,000) (104,000) (51,000) -- (53,000)
------------ -------------- ------------ ------------ ------------
Net cash used in investing activities .. (362,000) (104,000) (53,000) (1,000) (57,000)
------------ -------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net contribution from MOSCOM Corporation .. 1,079,000 916,000 601,000 299,000 661,000
------------ -------------- ------------ ------------ ------------
Net cash provided by financing
activities ................................ 1,079,000 916,000 601,000 299,000 661,000
------------ -------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH ............ 5,000 (25,000) 6,000 7,000 24,000
CASH, beginning of period .................. 22,000 27,000 2,000 2,000 8,000
------------ -------------- ------------ ------------ ------------
CASH, end of period ........................ $ 27,000 $ 2,000 $ 8,000 $ 9,000 $ 32,000
============ ============== ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND BASIS OF PRESENTATION:
Votan Corporation ("Votan" or the "Company"), formerly a division of
MOSCOM Corporation ("MOSCOM"), a Delaware corporation, was incorporated in
Delaware in June 1996 and is a wholly-owned subsidiary of MOSCOM. Votan's
business and operations were acquired by MOSCOM in September 1991 from a
predecessor company which had been engaged in speech recognition and voice
verification research and development since 1979. As discussed in Note 10,
effective June 26, 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of its Votan division to the
Company. The financial statements have been prepared on a stand-alone basis
in accordance with generally accepted accounting principles as if the Company
were a separate entity for all periods presented. The net assets for the
Company as of June 30, 1996 have been transferred to common stock and
additional paid-in capital, reflecting MOSCOM's initial capitalization of the
Company. The Company will begin accumulating its retained earnings as of July
1, 1996. Earnings for the period June 26, 1996 through June 30, 1996 were not
significant. Votan's sales in the accompanying financial statements have been
determined based upon existing sales of Votan's Speech Recognition and Voice
Verification Boards and VoiceLock products, certain of which are not
currently being marketed. Hereafter, the "Company" or "Votan" refers to the
Votan division prior to June 26, 1996 and to Votan Corporation on and
subsequent to June 26, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of the Business
Votan is a developer of advanced speech technologies utilized in speech
recognition and voice verification applications used to ensure the security
of financial transactions, databases and physical facilities. The Company's
products are manufactured by contract computer board manufacturers, one of
which, historically, has been MOSCOM.
Interim Financial Information
Unaudited interim financial information as of June 30, 1996 and for the
six month periods ended June 30, 1995 and 1996, have been prepared in
accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, the interim financial
information included herein contains all normal and recurring adjustments
necessary to present fairly the financial position of the Company as of June
30, 1996, and the results of operations and cash flows for the six month
periods ended June 30, 1995 and 1996. Results for interim periods are not
indicative of annual results. The unaudited interim financial statements have
been prepared on a basis consistent with the audited statements as of
December 31, 1995. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Management's Use of Estimates and Judgment
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of the fair value
of certain financial instruments. Cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reflected at fair value
because of the short-term maturity of these instruments.
F-7
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Cash Equivalents
All highly liquid investments with a remaining maturity of three months or
less at the date of acquisition are classified as cash equivalents.
Inventories
The Company does not maintain inventory. Inventories are manufactured on a
contract basis as required. Cost of sales on Votan products are reflected
herein at MOSCOM's costs. See Note 9 for a further description of related
party transactions.
Other Assets
As of June 30, 1996, the Company has reflected approximately $340,000
(unaudited) as other assets, which represents costs incurred as of that date
relating to the proposed initial public offering of its Common Stock. Upon
successful completion of the initial public offering, these costs will reduce
the net proceeds from the offering and be recorded as a reduction of paid in
capital. Otherwise, these costs will be paid by MOSCOM. These costs have also
been reflected as other accrued liabilities on the accompanying balance sheet
at June 30, 1996.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on a
straight-line basis using the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Computer hardware and software ....3-5 years
Machinery and equipment ............ 4-7 years
Furniture and fixtures ............. 5-10 years
</TABLE>
Software Development Costs
Software development costs meeting recoverability tests are capitalized
and amortized on a product-by-product basis over their economic lives,
generally three years, or the ratio of current revenues to current and
anticipated revenues from such software, whichever provides the greater
amortization. The Company continually evaluates, based upon cash flow
projections on a product basis and other factors as appropriate, whether
events and circumstances have occurred that indicate that the remaining
estimated useful life of the applicable asset warrants revision or that the
remaining balance of the asset may not be recoverable. Software development
costs and related accumulated amortization are written off when fully
amortized.
Stockholder's Equity
Stockholder's equity represents a summary of all intercompany activity
between Votan and MOSCOM as well as the accumulation of losses. The Company
will begin accumulating retained earnings as of July 1, 1996. The Company's
earnings from June 26, 1996 to June 30, 1996 were not significant.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. The accompanying financial statements do not reflect the sales of
the Company's products as part of products or systems sold by MOSCOM. Upon
completion of the transaction referred to in Note 10, the Company will
receive royalty income relative to such sales.
F-8
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income Taxes
MOSCOM Corporation files a consolidated federal income tax return in the
United States. Votan is not a separate taxable entity. Its results have been
included in MOSCOM's consolidated federal tax return. Income taxes have been
provided herein as if the Company had filed a separate return. The Company
accounts for income taxes under the liability method. Under this method, any
deferred income taxes recorded are provided for at current statutory rates to
reflect the impact of "temporary" differences between the amounts of assets
and liabilities for financial reporting purposes and such amounts as measured
by tax laws and regulations. Net operating loss tax carryforwards reflected
herein have been utilized by MOSCOM and will not be available for use in
future periods.
Unaudited Pro Forma Net Loss Per Share
Pursuant to Securities and Exchange Commission requirements, losses per
share and share disclosures of the Company are presented on a pro forma basis
for the most recent year presented and the most recent interim period
presented, giving retroactive effect to the capitalization (see Note 10) of
the Company and the anticipated 5,500-to-1 stock split of the Common Stock.
Deferred Compensation Plan
The Company provides certain management employees with the opportunity to
participate in an unfunded, deferred compensation program. One management
employee was covered under this Plan. Under the Plan, employees can defer a
portion of their salary.
New and Pending Accounting Pronouncements
Effective January 1, 1996, the Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement requires long-lived assets as well as identified intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of the assets may not be recoverable. The impact of
implementation of this statement was insignificant.
In October 1993, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." Although the statement
encourages entities to adopt the fair value based method of accounting for
stock options, the Company intends to continue to measure compensation for
such plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Adoption of
SFAS No. 123 in 1996 will require the Company to disclose additional
information relative to issued stock options and the Company's pro forma net
income and earnings per share, as if the options granted were expensed at
their estimated fair value at the time of grant.
F-9
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
3. PROPERTY AND EQUIPMENT:
The major classifications of property and equipment as of December 31,
1994 and 1995 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment .......... $ 16,000 $ 18,000 $ 18,000
Computer hardware and software .. 84,000 84,000 88,000
Furniture and fixture ............ 58,000 58,000 58,000
--------- --------- -----------
Property and equipment, at cost . 158,000 160,000 164,000
Less: Accumulated depreciation .. 71,000 97,000 110,000
--------- --------- -----------
Total property and equipment, net $ 87,000 $ 63,000 $ 54,000
========= ========= ===========
</TABLE>
4. ENGINEERING AND SOFTWARE DEVELOPMENT EXPENDITURES:
Engineering and software development expenditures incurred during the
years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1995 and 1996 were recorded as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Engineering and software development
expense included in the statements of
operations ............................ $342,000 $579,000 $424,000 $212,000 $227,000
Amounts capitalized and included in the
balance sheets ........................ 308,000 104,000 51,000 -- 53,000
---------- ---------- ---------- ---------- ----------
Total expenditures for engineering and
software development ................. $650,000 $683,000 $475,000 $212,000 $280,000
========== ========== ========== ========== ==========
</TABLE>
5. FINANCING:
MOSCOM has utilized a centralized cash management system. As such, cash
had not been allocated on a divisional level. All of the Company's receipts
were collected by MOSCOM and MOSCOM was liable for all of the Company's
purchases. Cash collected or paid on behalf of the Company by MOSCOM was
accounted for as dividends or capital contributions, respectively, against
divisional equity. The Company has not reflected either interest income or
interest expense on centralized cash balances or borrowings.
The Company has been dependent on MOSCOM for its liquidity needs. MOSCOM
has committed to continue to meet the Company's capital requirements until
the earlier of March 31, 1997 or the consummation of debt or equity financing
by the Company of at least $10 million. MOSCOM has no further obligation to
provide the Company with additional capital resources beyond such time.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Sales to three customers were approximately 28%, 12% and 11% of the
Company's total sales in 1993. Sales to one customer was approximately 21% of
the Company's total sales in 1994. Sales to two customers amounted to
approximately 56% and 12% of the Company's total sales in 1995.
F-10
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK: (Continued)
Export sales to European companies amounted to $83,000, $359,000 and
$397,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
7. INCOME TAXES:
The accompanying financial statements reflect an effective tax rate of
40%, which reasonably reflects what the Company's tax rate would have been as
a separate taxable entity. No net tax benefit has been reflected in the
accompanying financial statements for losses incurred in the years ended
December 31, 1993, 1994 and 1995, as the tax loss carryforwards generated in
those years by Votan are fully offset by increases in the valuation
allowance.
The income tax provision for the years ending December 31, 1993, 1994 and
1995 includes the following:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ........................ $ -- $ -- $ --
State .......................... 1,000 1,000 1,000
Deferred:
Federal ........................ (277,000) (324,000) (286,000)
State .......................... (30,000) (49,000) (48,000)
--------- ----------- -----------
Increase in valuation allowance $ 307,000 $ 373,000 $ 334,000
</TABLE>
The income tax provision differs from those computed using the statutory
federal rate of 34%, for the years ended December 31, 1993, 1994 and 1995 due
to the following:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate .................. $(287,000) $(341,000) $(303,000)
State taxes, net of federal tax benefit (20,000) (32,000) (31,000)
Increase in valuation allowance ....... 307,000 373,000 334,000
Other .................................. 1,000 1,000 1,000
------------ ------------ ------------
Total ................................ $ 1,000 $ 1,000 $ 1,000
============ ============ ============
</TABLE>
The deferred income tax asset (liability) recorded in the accompanying
balance sheets results from temporary differences between financial statement
and tax basis of assets and liabilities at December 31, 1994 and 1995 as
follows:
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Net operating loss carryforwards $1,051,000 $ 1,318,000
Fixed assets .................... (10,000) (9,000)
Capitalized software ............ (166,000) (107,000)
Deferred compensation ........... 78,000 85,000
Valuation allowance ............. (953,000) (1,287,000)
------------ -------------
Deferred asset (liability) .... $ -- $ --
============ =============
</TABLE>
Net operating loss tax carryforwards reflected herein have been utilized
by MOSCOM and will not be available for use in future periods.
F-11
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases its office facilities under an operating lease which
expires in 1998. Rent expense under this operating lease (exclusive of real
estate taxes and other expenses payable under this lease) was $79,000,
$69,000 and $23,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The future minimum payments under this operating lease for the
years ending December 31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 .......................... $31,000
1997 .......................... 34,000
1998 .......................... 21,000
---------
Total minimum lease payments $86,000
=========
</TABLE>
MOSCOM rent expense allocated to the Company was $9,000, $17,000 and
$13,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
This is included within the allocations discussed in Note 9.
Subsequent to June 30, 1996, the Company entered into a new operating
lease. See Note 11.
Employment Agreements
In June 1996, the Company entered into a two year employment agreement
with one key executive. This agreement entitles the executive to bonuses of
$25,000 upon execution of the employment agreement, $25,000 upon completion
of a successful initial public offering and a salary of $180,000 per annum.
Furthermore, in the event of a successful initial public offering, the
Company intends to grant the executive options to purchase an aggregate
amount of 120,000 shares of the Company's common stock at an exercise price
equal to the initial public offering price in the case of incentive stock
options or 85% of the initial public offering price in the case of
non-qualified stock options under the terms of the 1996 Stock Option Plan. See
Note 10. The options will have a maximum term of 10 years, subject to earlier
termination upon cessation of the employee's employment with the Company.
Pending the successful completion of the initial public offering, the options
will become exercisable in the following fiscal years:
<TABLE>
<CAPTION>
<S> <C>
1996 ..................... --
1997 ..................... --
1998 ..................... --
1999 ..................... 60,000
2000 ..................... --
2001 ..................... 60,000
</TABLE>
Legal Matters
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability
will not have a material adverse effect on the Company's financial condition
or results of operations.
F-12
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
9. RELATED PARTY TRANSACTIONS:
MOSCOM has provided services to Votan including, but not limited to, cash
management, financial services, management information systems and legal
services, as well as executive administration. MOSCOM has also provided
engineering technical support relative to some of the technology utilized in
Votan's products. These financial statements include an allocation of
MOSCOM's expenses for the years ended December 31, 1993, 1994 and 1995 and
the six months ended June 30, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Engineering and software development ... $161,000 $405,000 $249,000 $131,000 $139,000
Marketing ............................... 63,000 66,000 62,000 25,000 19,000
Selling ................................. 21,000 101,000 135,000 60,000 3,000
Administrative .......................... 125,000 118,000 132,000 57,000 88,000
---------- ---------- ---------- ---------- ----------
Total allocation of operating expenses $370,000 $690,000 $578,000 $273,000 $249,000
========== ========== ========== ========== ==========
</TABLE>
The above charges have been allocated based upon relative sales levels of
Votan products as a percentage of MOSCOM sales, headcount and other methods
as appropriate. Votan division employees are reflected directly in the
accompanying financial statements.
Reflected in the unaudited balance sheet as of June 30, 1996 is $88,000
due to MOSCOM. This amount relates to certain costs reimbursable to MOSCOM
incurred on behalf of Votan in accordance with the Subsidiary Formation
Agreement (the "Formation Agreement") discussed in Note 10. These amounts
will be repaid to MOSCOM upon successful completion of the initial public
offering.
Management believes that the method of allocation is reasonable. The
charges are not necessarily representative of the amounts that would have
been incurred had Votan been an unaffiliated entity. Management estimates
that had Votan been operating as an unaffiliated entity, it would have
incurred total operating expenses of $1.5 million, $2.1 million and $2.2
million for the years ended December 31, 1993, 1994 and 1995, respectively
(unaudited). The Company anticipates that certain of these services will be
outsourced in the future to MOSCOM or some other provider if deemed to be
cost efficient.
10. CAPITALIZATION:
Effective June 26, 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of the Votan division to the
Company. In connection with the Formation, the Company has entered into
certain agreements with MOSCOM which govern the continuing relationship
between MOSCOM and the Company, including a (i) the Formation Agreement; (ii)
License Agreement and (iii) Service and Supply Agreement.
Reflected in the unaudited balance sheet as of June 30, 1996 is the
transfer of such assets and assumption of such liabilities from MOSCOM in
accordance with the Formation Agreement. The net amount transferred to the
Company from MOSCOM has been accounted for herein as a capital contribution.
Pursuant to the Formation Agreement, MOSCOM has agreed to transfer all of
the assets of its Votan division to the Company in consideration for the
issuance to MOSCOM of 5,500,000 fully paid, non-assessable shares of Common
Stock of the Company. The Company has agreed to assume and pay, perform and
discharge all debts, obligations, contracts and liabilities of MOSCOM related
to these assets. In addition, pursuant to the Formation Agreement, MOSCOM has
agreed to meet all of the capital
F-13
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
10. CAPITALIZATION: (Continued)
requirements of the Company until the earlier of March 31, 1997 or upon the
consummation of a debt or equity financing by the Company of at least $10
million. The Company has also agreed to assume obligations relating to
certain pension benefits afforded to Mr. Vail and to pay MOSCOM for: (i)
certain costs incurred by MOSCOM related to the Formation and the hiring of
executive officers of the Company, including recruiting fees and
compensation-related expenses and (ii) costs and expenses incurred by MOSCOM
in connection with the organization and funding of the Company. The costs and
expenses referred to in (i) and (ii) above shall not exceed $200,000. In
addition, the Company authorized 100,000 shares of preferred stock and
10,000,000 shares of Common Stock. Subsequent to June 30, 1996 the Company
amended its Certificate of Incorporation in order to increase both the
authorized shares of its Preferred Stock and Common Stock. See Note 11.
Pursuant to the License Agreement, the Company has granted MOSCOM a
non-exclusive, non-transferable worldwide license to continue selling the
TeleVoice System, certain computer board products and other products
incorporating the Company's algorithms. MOSCOM and the Company have also
agreed to promptly disclose and license to each other on a non-exclusive,
royalty-free basis, all improvements to the licensed technologies and
products which they make or acquire during the term of the license. MOSCOM
has the right to grant sublicenses to end-users and distributors without
prior consent, but must obtain the Company's prior written consent for
sublicenses to other VARs. MOSCOM is required to pay one, and only one, of
the following royalties to the Company for each sale or license of the
products and technologies covered by the License Agreement: (i) $50 for each
copy of the licensed algorithms sublicensed to an end-user or distributor;
(ii) $50 per sale of a product incorporating a licensed algorithm; (iii) $50
for each functional port on each computer board sold, if such board
incorporates a licensed algorithm and is sold with application software; or
(iv) $50 for each board or other computer board sold, if such board
incorporates a licensed algorithm but is not sold with application software.
The license shall continue in effect until terminated, with the Company
having the right to terminate in the event of MOSCOM's breach or bankruptcy
and MOSCOM having the right to terminate for any reason. The Company may
terminate the license upon 30 days' prior written notice to MOSCOM. MOSCOM
must provide the Company with 180 days' prior written notice of termination
of the license. If MOSCOM terminates because of a material breach by the
Company, MOSCOM's licenses shall survive such termination and no further
royalties shall be due to the Company.
Pursuant to the Service and Supply Agreement, MOSCOM has agreed to sell to
the Company certain speech recognition and voice verification boards for an
amount equal to 1.25 times MOSCOM's cost for each such board. In addition,
pursuant to the Service and Supply Agreement, MOSCOM has agreed to provide
the Company with certain administrative and accounting services, as the
Company may from time to time require, for a fee equal to four times the
gross hourly salary paid by MOSCOM to any employee who performs such
administrative and accounting services for Votan, multiplied by the actual
number of hours expended by each such employee to perform such services. In
the event that MOSCOM, upon Votan's request, pays premiums on group employee
benefit plans for the benefit of Votan employees, Votan has agreed to
reimburse MOSCOM in an amount equal to 105% of such premiums paid by MOSCOM.
Finally, MOSCOM has agreed to provide space at its facilities for certain
Votan employees who will perform services for Votan at such facilities until
their relocation to Votan's facilities in California. Votan is required to
pay 1.25 times MOSCOM's cost of occupancy for that portion of MOSCOM's
facilities allocated to occupancy by such Votan employees.
The Company, on June 26, 1996, also adopted the 1996 Stock Option Plan.
Under this Plan, up to 825,000 shares of Common Stock have been initially
authorized for issuance. The 1996 Plan includes a Discretionary Option Grant
Program under which employees and consultants may be granted options and
F-14
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
10. CAPITALIZATION: (Continued)
an Automatic Option Grant Program under which option grants will
automatically be made to eligible non-employee members of the Board of
Directors of the Company. All options under this Plan will be at an exercise
price of not less than 85% of their fair market value at the date of grant.
11. SUBSEQUENT EVENTS (UNAUDITED):
Operating Lease
On July 8, 1996, the Company entered into a new lease for a 12,587 square
foot facility commencing December 1, 1996 and ending November 30, 2001. This
lease superseded the Company's current lease which was to expire in 1998. The
future minimum payments under these operating leases for the years ending
December 31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 ..................... $ 54,000
1997 ..................... 173,000
1998 ..................... 179,000
1999 ..................... 184,000
2000 ..................... 191,000
2001 ..................... 175,000
</TABLE>
Stockholder's Equity
On September 6, 1996 the Company amended its Certificate of Incorporation
to increase the total number of authorized shares of its Preferred Stock to
1,000,000 and the total number of authorized shares of its Common Stock to
20,000,000.
F-15
<PAGE>
This CHART depicts potential
applications within a bank for
the Company's voice verification
technologies including: bank
teller verification, home
banking and automatic teller
machines.
VOTAN [register mark]
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 6
Use of Proceeds ............................ 16
Dividend Policy ............................ 16
Capitalization ............................. 17
Dilution ................................... 18
Selected Financial Data .................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 20
Business ................................... 24
Management ................................. 36
Certain Transactions ....................... 42
Principal and Selling Stockholders ........ 45
Description of Capital Stock ............... 46
Shares Eligible for Future Sale ............ 48
Underwriting ............................... 50
Legal Matters .............................. 51
Experts .................................... 51
Available Information ...................... 51
Index to Financial Statements .............. F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,850,000 SHARES
[VOTAN LOGO]
VOTAN CORPORATION
COMMON STOCK
PROSPECTUS
LADENBURG, THALMANN & CO. INC.
KAUFMAN BROS., L.P.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC registration fee ................................ $ 13,562
NASD filing fee ..................................... 4,433
Nasdaq National Market listing fee .................. 20,813
Printing and engraving expenses ..................... 100,000
Legal fees and expenses ............................. 275,000
Accounting fees and expenses ........................ 150,000
Blue sky fees and expenses (including counsel fees) 20,000
Transfer agent and registrar fees and expenses ..... 10,000
Financial Advisor Fees .............................. 250,000
Miscellaneous ....................................... 46,192
-----------
Total ............................................. $890,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Registrant
to, and Article 9 of the Certificate of Incorporation provides that the
Registrant may, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Registrant, or is or was serving, or has agreed to serve, at
the request of the Registrant, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan), or by reason of
any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities during the
past three years:
On June 26, 1996, the Registrant issued 1,000 shares of Common Stock to
MOSCOM Corporation in connection with the transfer of all of the assets of
the Votan Division of MOSCOM Corporation to the Registrant, which assets
had a book value of $217,000.
The above securities were offered by the Registrant in reliance upon an
exemption from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering or (ii)
Rule 701 under the Securities Act. No underwriters were involved in
connection with the sales of securities referred to in this Item 15.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ---------- ----------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Specimen certificates for shares of the Registrant's Common Stock.
4.2* Provisions of the Certificate of Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant (included in Exhibits 3.1 and 3.2 to this
Registration Statement).
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Lease dated May 23, 1995 between Bernal Avenue Associates and the Registrant.
10.2 Lease dated July 8, 1996 between Bernal Avenue Associates and the Registrant.
10.3* Subsidiary Formation Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.4* License Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.5* Service and Supply Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.6* Employment Agreement dated June 19, 1996 between the Registrant and Mr. John A. White.
10.7 Form of Representatives' Common Stock Purchase Warrant.
10.8* 1996 Stock Option Plan.
10.9 Value Added Reseller Agreement dated September 6, 1996 between the Registrant and MOSCOM.
10.10 Letter Agreement dated September 4, 1996 between Grady & Hatch, Inc. and MOSCOM.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1 to this Registration
Statement).
23.3 Consent of Donald G. Heitt (Director Designee).
24.1* Powers of Attorney (see Signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Financial Statements or notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation of the Registrant, the Underwriting Agreement, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424 (b)
(1) or (4), or 497 (h) under the Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, State of New York, on this 6th day of September, 1996.
VOTAN CORPORATION
By: /s/ John A. White
-------------------------------------
John A. White
President and Chief Executive
Officer
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE 6TH DAY OF SEPTEMBER, 1996:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
- -------------------------- ----------------------------------------------------
<S> <C>
By: * Chairman of the Board of Directors
-------------------------
Albert J. Montevecchio
By: /s/ John A. White President, Chief Executive Officer
------------------------- and Director (Principal Executive
John A. White Officer)
By: * Executive Vice President
------------------------- and Director
Richard C. Vail
By: /s/ William E. O'Connor Chief Financial Officer, Treasurer and Secretary
------------------------- (Principal Financial and Accounting Officer)
William E. O'Connor
*By: /s/ John A. White
-------------------------
John A. White as
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ----------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1* Specimen certificates for shares of the Registrant's Common Stock.
4.2* Provisions of the Certificate of Incorporation and Bylaws of the Registrant defining
rights of holders of Common Stock of the Registrant (included in Exhibits 3.1 and
3.2 to this Registration Statement).
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Lease dated May 23, 1995 between Bernal Avenue Associates and the Registrant.
10.2 Lease dated July 8, 1996 between Bernal Avenue Associates and the Registrant.
10.3* Subsidiary Formation Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.4* License Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.5* Service and Supply Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.6* Employment Agreement dated June 19, 1996 between the Registrant and Mr. John A.
White.
10.7 Form of Representatives' Common Stock Purchase Warrant.
10.8* 1996 Stock Option Plan.
10.9 Value Added Reseller Agreement dated September 6, 1996 between the Registrant and
MOSCOM.
10.10 Letter Agreement dated September 4, 1996 between the Registrant and MOSCOM.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1 to this Registration
Statement).
23.3 Consent of Donald G. Heitt (Director Designee).
24.1* Powers of Attorney (see Signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
F&J DRAFT
September 6, 1996
2,850,000 Shares
VOTAN CORPORATION
Common Stock
UNDERWRITING AGREEMENT
New York, New York
September __, 1996
Ladenburg, Thalmann & Co. Inc.
Kaufman Bros., L.P.
As Representatives of the several Underwriters
named in Schedule A hereto
c/o Ladenburg, Thalmann & Co. Inc.
540 Madison Avenue
New York, New York 10022
The undersigned, Votan Corporation, a Delaware corporation
(the "Company"), and Moscom Corporation, a Delaware corporation (the "Selling
Stockholder"), hereby confirm their agreement with you and the other
underwriters named in Schedule A annexed hereto.
Section 1. Underwriters and Representatives. The term
"Underwriters", as used herein, will mean and refer collectively to you and
the other underwriters named in Schedule A annexed hereto and the term
"Representatives" will refer to you in your capacity as the representatives of
the Underwriters. Except as may be expressly set forth below, any reference to
"you" in this Agreement shall be solely in your capacity as the
Representatives.
Section 2. Shares Offered. The Company proposes to issue and
sell to the Underwriters an aggregate of 2,000,000 shares of its authorized
and unissued common stock, $0.01 par value per share (the "Common Stock"), and
the Selling Stockholder
<PAGE>
proposes to sell to the Underwriters an aggregate of 850,000 issued and
outstanding shares of Common Stock (collectively, the "Firm Shares"). The
Selling Stockholder also proposes to grant to the Underwriters an Option
(hereinafter defined) to purchase up to an additional aggregate of 427,500
shares (the "Option Shares") of Common Stock on the terms and for the purposes
set forth in Section 4(b) hereof. The Firm Shares and the Option Shares are
hereinafter sometimes together called the "Shares."
Section 3. Representations and Warranties. (a) The Company
and the Selling Stockholder, jointly and severally, represent and warrant to
each Underwriter that:
(i) A registration statement (File No. 333-07137) on
Form S-1 relating to the Shares, including a preliminary
prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules, regulations and
instructions (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder and
has been filed by the Company with the Commission. One or
more amendments to such registration statement, including in
each case a revised preliminary prospectus, have been so
prepared and filed. If such registration statement has not
become effective as of the execution and delivery of this
Agreement, and the filing of a further amendment (the "Final
Amendment") to such registration statement is necessary to
permit such registration statement to become effective, such
amendment will promptly be filed by the Company with the
Commission. If such registration statement has become
effective and any post-effective amendment has been filed
with the Commission prior to the execution and delivery of
this Agreement, the most recent such amendment has been
declared effective by the Commission. If such registration
statement has become effective, either (A) if the Company
relies on Rule 434 under the Act, a Term Sheet (hereinafter
defined) relating to the Shares, that shall identify the
preliminary prospectus (hereinafter defined) that it
supplements containing such information as is required or
permitted by Rules 434, 430A and 424(b) under the Act, will
be promptly filed with the Commission by the Company or (B)
if the Company does not rely on Rule 434 under the Act, a
final prospectus (the "Rule 430A Prospectus") containing
information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will
promptly be filed by the Company pursuant to Rule 424(b) of
the Rules and Regulations. The term "preliminary prospectus"
as used herein means each prospectus subject to completion
included at any time as part of such registration statement
or any amendment thereto or filed with the Commission
pursuant to Rule 424(a) of the Rules and Regulations; such
registration statement, as amended at the time that it
becomes or became effective, or, if applicable, as amended
at the time the most recent post-effective amendment to such
registration statement filed with the Commission
-2-
<PAGE>
prior to the execution and delivery of this Agreement became
effective, including financial statements and all exhibits
and information deemed to be a part thereof at such time
pursuant to Rule 430A of the Rules and Regulations is herein
called the "Registration Statement"; the term "Term Sheet"
as used herein means any term sheet that satisfies the
requirements of Rule 434 under the Act; and the term
"Prospectus" as used herein means (x) if the Company relies
on Rule 434 under the Act, the Term Sheet relating to the
Shares that is first filed pursuant to Rule 424(b)(7) under
the Act, together with the preliminary prospectus identified
therein that such Term Sheet supplements; (y) if the Company
does not rely on Rule 434 under the Act, the final
prospectus relating to the Shares in the form first filed
with the Commission pursuant to Rule 424(b)(1) or (4) of the
Rules and Regulations; or (z) if no such filing is required,
the form of final prospectus included in the Registration
Statement at the Effective Date (as hereinafter defined).
The date on which the Registration Statement becomes
effective is hereinafter called the "Effective Date." Any
reference herein to the "date" of a Prospectus that includes
a Term Sheet shall mean the date of such Term Sheet.
(ii) When the Registration Statement becomes effective,
and at all subsequent times to and including the Closing
Time (hereinafter defined), and at each Option Exercise Time
(hereinafter defined), or for such longer period as the
Prospectus may be required to be delivered in connection
with sales of the Shares by the Underwriters or a dealer,
the Registration Statement and the Prospectus, including any
Term Sheet that is a part thereof (as amended or as
supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto;
provided, that no amendment or supplement to the
Registration Statement or the Prospectus, including as a
result of the filing of a Term Sheet, shall be made without
prior consultation with you, and your approval), will comply
with the requirements of the Act and the Rules and
Regulations, will contain all statements required to be
stated therein in accordance with the Act and the Rules and
Regulations, will not contain an untrue statement of a
material fact and will not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading; provided,
however, that the representations and warranties in this
subsection (ii) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon and
made in conformity with written information furnished to the
Company by or on behalf of any Underwriter specifically for
inclusion therein.
(iii) The Commission has not issued an order preventing
or suspending the use of any preliminary prospectus with
respect to the Shares and has not instituted or threatened
to institute any proceedings with respect to such an
-3-
<PAGE>
order. Each preliminary prospectus, when filed with the
Commission, conformed in all material respects with the
requirements of the Act and the Rules and Regulations and,
as of its date, did not include any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; provided,
however, that the representations and warranties in this
sentence do not apply to statements or omissions in each
such preliminary prospectus based upon and made in
conformity with written information furnished to the Company
through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(iv) The Company is, and at the Closing Time, and at
each Option Exercise Time will be, a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has, and at the
Closing Time and at each Option Exercise Time will have, the
power and authority (corporate, governmental, regulatory and
otherwise) and all necessary approvals, orders, licenses,
certificates, permits and other governmental authorizations
to conduct all of the activities conducted by it, to own or
lease all of the assets owned or leased by it and to conduct
its business as described in the Registration Statement and
the Prospectus; and is, and at the Closing Time and at each
Option Exercise Time will be, duly qualified to do business
and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities
conducted by it and/or the character of the assets owned and
leased by it makes such qualification necessary, or in which
the failure to so qualify would have a material adverse
effect on the business, results of operations or financial
condition of the Company. The Company does not own, and at
the Closing Time and at each Option Exercise Time will not
own, any shares of stock or any other securities of any
corporation or have any equity interest in any firm,
partnership, association or other entity, except as
otherwise set forth in the Prospectus. A complete and
correct copy of the certificate of incorporation of the
Company and by-laws of the Company as currently in effect
have been delivered to you and no changes therein will be
made subsequent to the date hereof and prior to the Closing
Time or each Option Exercise Time.
(v) The Company is, and at the Closing Time and at the
Option Exercise Time will be, authorized to issue only
20,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock, $0.01 par value (the "Preferred Stock"), and
has heretofore validly issued, and has outstanding, and at the
Closing Time and at each Option Exercise Time will have
outstanding, fully paid and nonassessable, 5,500,000 shares of
the Common Stock, without giving effect to the issuance of
Shares by the Company pursuant to this Agreement, and has no
shares of Preferred Stock outstanding. The Company
-4-
<PAGE>
has, and at the Closing Time and at each Option Exercise
Time will have, reserved for issuance 825,000 shares of
Common Stock under the Company's 1996 Stock Option Plan, of
which options to purchase ____________ shares are
outstanding on the date hereof. Subsequent to the date
hereof and prior to the Closing Time and each Option
Exercise Time, the Company will not issue or acquire any
securities. Except the Warrants (as hereinafter defined) and
options under the Company's 1996 Stock Option Plan, the
Company does not have outstanding, and at the Closing Time
and at each Option Exercise Time the Company will not have
outstanding, any options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue
or sell shares of capital stock or any warrants, convertible
securities or obligations.
(vi) The financial statements of the Company (including
the footnotes thereto) filed with and as part of the
Registration Statement and the Prospectus present fairly the
financial position of the Company as of the respective dates
thereof and the [statements of operations and divisional
equity and statements of cash flows] of the Company for the
respective periods covered thereby, all in conformity with
generally accepted accounting principles applied on a basis
consistent with prior periods. Arthur Anderson L.L.P. (the
"Company's accountants"), who have reported on certain of
such financial statements, are independent accountants with
respect to the Company as required by the Act and the Rules
and Regulations.
(vii) The Company has a duly authorized and outstanding
capitalization as disclosed in the Prospectus under
"Capitalization" and will have the adjusted capitalization
set forth therein at the Closing Time (based on the
assumptions set forth therein). The financial and numerical
information and data set forth in the Prospectus under
"Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Dividend Policy," "Capitalization," "Dilution," "Selected
Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business,"
"Management," "Certain Transactions," "Principal and Selling
Stockholders," "Description of Capital Stock" and "Shares
Eligible For Future Sale" are fairly presented and prepared
on a basis consistent with the audited financial statements
of the Company.
(viii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and prior to the Closing Time and to each Option
Exercise Time, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (A) the Company
has and will have conducted its business in substantially
the same manner as on June 30, 1996; (B) the Company has not
incurred and will not
-5-
<PAGE>
incur any material liabilities or obligations, direct or
contingent, or enter into any material transactions not in
the ordinary course of business; (C) the Company has not
paid or declared and will not pay or declare any dividends
or other distributions on its capital stock; and (D) there
has not been and will not have been any change in the
capitalization of the Company or any material adverse change
in the business, business prospects, financial condition or
results of operations of the Company.
(ix) Except as set forth in or contemplated by the
Registration Statement and the Prospectus, the Company has
not, at the Closing Time and at each Option Exercise Time
will not have, any material contingent obligations.
(x) Except as set forth in the Registration Statement
and the Prospectus, there are no actions, suits or
proceedings at law or in equity pending, or to the knowledge
of the Company, threatened, against the Company, any of its
assets or any of its officers or directors, which have not
been disclosed to you, before or by any federal, state,
county or local commission, regulatory body, administrative
agency or other governmental body, domestic or foreign,
wherein an unfavorable ruling, decision or finding would
materially adversely affect the Company or its business,
business prospects, financial condition or results of
operations. The Company is not involved in any labor dispute
and, to its knowledge, no such dispute is threatened, which
dispute would have a material adverse effect upon the
business, financial condition or results of operations of
the Company.
(xi) The Company has, and at the Closing Time and at
each Option Exercise Time will have, complied in all
respects with all laws, regulations and orders applicable to
it or its business, the violation of which would have a
material adverse effect upon its legal existence or its
business, financial condition or results of operations. The
Company has, at the Closing Time and at each Option Exercise
Time will have, in all respects performed all of the
material obligations required to be performed by it, and is
not, and at the Closing Time and at each Option Exercise
Time will not be, in default under (there being no existing
state of facts which with notice or lapse of time or both
would constitute a default under) any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement,
letter of credit agreement, bond, debenture, note agreement
or other evidence of indebtedness, lease, contract or other
agreement or instrument to which it is a party or by which
it or any of its property is bound which would have a
material adverse effect upon the business, financial
condition or results of operations of the Company, and, to
the knowledge of the Company and the Selling Stockholder, no
other party under any such agreement or instrument to which
the Company is a party is
-6-
<PAGE>
in default in any respect thereunder which would have a
material adverse effect upon the business, financial
condition or results of operations of the Company.
(xii) The Company (i) keeps books, records and accounts
that, in reasonable detail, accurately and fairly reflect
the transactions and disposition of the assets of the
Company and (ii) maintains a system of internal accounting
controls sufficient to provide reasonable assurances that
(A) transactions are executed in accordance with
management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally
accepted accounting principles and to maintain
accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific
authorization and (D) the recorded accountability for assets
is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any
differences. The Company has not made any payment to any
state, federal or foreign governmental officer or official
or other person charged with similar public or quasi-public
duties (other than payments required or permitted by the
laws of the United States or any jurisdiction thereof).
(xiii) The Company is not in violation of its certificate
of incorporation or by-laws, in each case as amended as of
the date hereof.
(xiv) The outstanding shares of the Common Stock
(including the Shares to be sold by the Selling Stockholder)
have been, and all of the Shares, and the shares of Common
Stock issuable upon exercise of the Warrants, will, upon
issuance and payment therefor, be, duly authorized, validly
issued, fully paid and nonassessable and not subject to
preemptive rights or similar contractual rights to purchase
securities issued by the Company. The shares of Common Stock
issuable upon exercise of the Warrants have been duly and
validly reserved for issuance. The Common Stock and the
Shares conform, and when the Registration Statement becomes
effective and at the Closing Time and at each Option
Exercise Time will conform, to all statements with regard
thereto contained in the Registration Statement and the
Prospectus; and the issuance and sale of the Shares to be
issued and sold by the Company have been duly and validly
authorized.
(xv) The Company has the power and authority to execute
and deliver the Warrants on the terms and conditions set
forth herein and in the Warrants, and has taken all
corporate action necessary therefor; no consent, approval,
authorization or other order of any regulatory agency is
required for such execution or delivery except as may be
required under the Act; and when
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<PAGE>
executed and delivered pursuant to the provisions of this
Agreement, the Warrants will constitute the valid, binding
and legally enforceable obligation of the Company.
(xvi) This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and
binding agreement of the Company enforceable in accordance
with its terms; the performance of the obligations of the
Company under this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms and
provisions of, or constitute a default under (there being no
existing state of events which with notice or lapse of time
or both would constitute a default) or result (or with the
giving of notice or lapse of time or both will result) in
the creation or imposition of any lien, charge or
encumbrance upon the assets or properties of the Company
pursuant to any indenture, mortgage, deed of trust, voting
trust agreement, loan agreement, letter of credit agreement,
bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by which the
Company or any of its properties is bound, or under the
certificate of incorporation or by-laws of the Company or
under any statute or under any order, rule or regulation
applicable to the Company or its business or properties or
of any court or other governmental body; and no consent,
approval, authorization or order of any court or
governmental agency or body is required for the consummation
by the Company of the transactions on its part herein
contemplated, except such as may be required under the Act
or under state securities or blue sky laws.
(xvii) The Company has good and marketable title to all
properties and assets owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as
are described in or referred to in the Prospectus or are not
material or important in relation to the business of the
Company. The Company has valid, subsisting and enforceable
leases for the properties described in the Prospectus as
leased by it, with such exceptions as are not material and
do not interfere with the use made, and proposed to be made,
of such properties by it.
(xviii) There is no document or contract of a character
required to be described in the Prospectus or to be filed as
an exhibit to the Registration Statement which is not
described or filed as required; and no statement,
representation, warranty or covenant made by the Company in
this Agreement or in any certificate or document required by
this Agreement to be delivered to you is, was when made, or
as of the Closing Time or any Option Exercise Time will be,
inaccurate, untrue or incorrect. No transaction has occurred
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<PAGE>
between or among the Company and the Selling Stockholder and
any of their officers, directors or stockholders or any
affiliate of any such officer, director or stockholder that
is required to be described in and is not described in the
Registration Statement and the Prospectus.
(xix) The Company has sufficient trademarks, trade names,
registered service marks, patents, patent applications,
patent rights, licenses, permits, copyright protection and
governmental or other authorizations currently required for
the conduct of its business, and the Company is in all
material respects complying therewith and, to the best
knowledge of the Company and the Selling Stockholder and
except as otherwise set forth in the Prospectus, the
products and services, and the marks associated therewith,
used by the Company do not violate or infringe any
trademarks, trade names, registered service marks, patents,
patent rights, licenses, permits or copyrights held or owned
by any other party. Other than as disclosed in the
Prospectus, the Company has not received any notice of
violation or infringement of or conflict with asserted
rights of others with respect to any trademarks, trade
names, registered service marks, patents, patent rights,
licenses, permits, copyrights or authorizations owned or
used by the Company, or any other person. Other than as
disclosed in the Prospectus, the expiration of any such
trademarks, trade names, registered service marks, patents,
patents rights, licenses, permits, copyrights and
governmental or other authorizations would not materially
adversely affect the business, financial condition or
results of operations of the Company.
(xx) The Company intends to apply its proceeds from the
sale of the Shares for the purposes set forth in the
Prospectus under "Use of Proceeds."
(xxi) The Company is not, and does not intend to conduct
its business in a manner in which it would become, an
"investment company" as defined in Section 3(a) of the
Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xxii) All issuances and sales of securities by the
Company heretofore have been exempt from registration under
the Act and complied in all respects with the provisions of
all applicable federal and state securities laws. No holder
of any securities of the Company has the right to require
registration of shares of the Common Stock or other
securities of the Company because of the filing or
effectiveness of the Registration Statement.
(xxiii) Neither the Company nor any of its officers or
directors or affiliates (as defined in the Rules and
Regulations) has taken or will take, directly or indirectly,
any action designed to stabilize or manipulate the price of
any
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<PAGE>
security of the Company, or which has constituted or which
might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of
the Shares.
(xxiv) Other than its obligations to Grady & Hatch, Inc.
("Grady & Hatch") pursuant to the letter agreement dated as
of September 4, 1996 between the Selling Stockholder and
Grady & Hatch, and as set forth in the Prospectus, the
Company has not, and at the Closing Time and at each Option
Exercise Time will not have, incurred any liability for
finder's or brokerage fees or agent's commissions in
connection with the offer and sale of the Shares, this
Agreement or the transactions hereby contemplated, except
for the Underwriters' discounts and commissions provided for
in this Agreement.
(xxv) The Company has filed all federal, state and local
income and franchise tax returns required to be filed
through the date hereof and have paid all taxes due thereon,
and no tax deficiency has been, nor does the Company have
any knowledge of any tax deficiency which might be asserted
against the Company which could materially adversely affect
the business, financial condition or results of operations
of the Company.
(b) The Selling Stockholder represents and warrants
to each Underwriter that:
(i) The Selling Stockholder (A) has the power and
authority to execute and deliver this Agreement on the terms
and conditions set forth herein; (B) is, and when the
Registration Statement shall become effective and at the
Closing Time will be, the owner of the Shares to be sold by
the Selling Stockholder to the respective Underwriters
pursuant to the terms hereof, in each case free and clear of
all liens, charges, encumbrances and restrictions; (C) has
paid to the Company the full purchase price or consideration
required to be paid for such Shares; and (D) has, and when
the Registration Statement shall become effective and at the
Closing Time will have, the power and authority to convey
good and valid title to such Shares, in each case free and
clear of all liens, charges, encumbrances and restrictions.
(ii) The Selling Stockholder is, and at the Closing Time,
and at each Option Exercise time will be, a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware.
(iii) Neither the execution and delivery or performance
of this Agreement or the consummation of the transactions
herein contemplated nor the
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<PAGE>
compliance with the terms hereof by the Selling Stockholder
will conflict with, or result in a material breach of any of
the terms or provisions of, or constitute a material default
under, any indenture, mortgage, deed of trust, guaranty,
purchase agreement or other agreement or instrument to which
the Selling Stockholder or any of such Selling Stockholder's
property is bound, or under the certificate of incorporation
or by-laws of the Selling Stockholder or under any statute,
order, rule or regulation applicable to the Selling
Stockholder or any of the Selling Stockholder's property of
any court or other governmental agency; and no consent,
approval, authorization or order of any court or
governmental agency or body is required for the consummation
by the Selling Stockholder of the transactions on the
Selling Stockholder's part herein or therein contemplated,
except such as may be required under the Act or under state
securities or blue sky laws.
(iv) At the Closing Time, all stock transfer or other
taxes (other than income taxes) which are required to be
paid in connection with the sale and transfer of the Shares
to be sold by the Selling Stockholder to the several
Underwriters hereunder will have been fully paid or provided
for by the Selling Stockholder and all laws imposing such
taxes will have been fully complied with.
(v) The Selling Stockholder has not, and at the Closing
Time will not have, taken, directly or indirectly, any
action to cause or result in, or which has constituted, or
might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of
the Common Stock to facilitate the sale or the resale of any
of the Shares.
Section 4. (a) Purchase, Sale and Delivery of the Firm
Shares; Closing Time. (i) On the basis of the representations and warranties
contained in this Agreement, and subject to the terms and conditions herein
set forth, (A) the Company agrees to sell to the Underwriters, and the
Underwriters agree to purchase from the Company, 2,000,000 Shares at and for a
price of $___ per Share; and (B) the Selling Stockholder agrees to sell to the
Underwriters, and the Underwriters agree to purchase from the Selling
Stockholder, 850,000 Shares at and for a price of $____ per Share. The number
of Shares to be purchased from the Company and the number of Shares to be
purchased from the Selling Stockholder, respectively (as adjusted by the
Representative to eliminate fractions), by each of the Underwriters shall be
determined by multiplying the aggregate number of such Shares to be sold by
the Company or the Selling Stockholder, as set forth above by a fraction, the
numerator of which is the total number of Firm Shares set forth opposite the
name of such Underwriter in Schedule A hereto and the denominator of which is
the aggregate number of Firm Shares. The obligations of the Underwriters under
this Agreement are several and not joint.
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<PAGE>
(ii) Delivery of the Firm Shares shall be made to you for
the accounts of the respective Underwriters, at your offices at 540 Madison
Avenue, New York, New York, or such other location in the New York
metropolitan area as you shall advise the Company by at least one full
business days' notice in writing, against payment by you on behalf of the
respective Underwriters of the purchase price therefor to the Company and the
Selling Stockholder by delivery of certified or bank cashier's checks payable
in New York Clearing House funds to the order of the Company or the Selling
Stockholder of the respective amounts to which they are entitled, at 10:00
A.M., New York City Time, on ____________ 1996, or on such other time and
business day (Saturdays, Sundays and legal holidays in the City or State of
New York not being considered business days for the purposes of this
Agreement), as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 12 hereof, which time and
date are herein called the "Closing Time." Delivery of the Firm Shares shall
be made in registered form in such name or names and in such denominations as
you shall request by at least two full business days' notice in writing. The
cost of original issue tax stamps and transfer stamps, if any, in connection
with the issuance and delivery or sale of the Firm Shares by the Company to
the respective Underwriters shall be borne by the Company; the cost of
transfer stamps, if any, in connection with the sale of the Firm Shares by the
Selling Stockholder to the respective Underwriters shall be borne by the
Selling Stockholder. The Company and the Selling Stockholder will, severally,
pay and save each Underwriter or its nominees, and any subsequent holder of
the Firm Shares, harmless from any and all liabilities with respect to or
resulting from any failure or delay in paying federal or state stamp and other
transfer taxes, if any, which may be payable or determined to be payable in
connection with the sale by the Company or the Selling Stockholder to such
Underwriter of the Firm Shares or any portion thereof.
(iii) The Company and the Selling Stockholder will make the
certificates for the Firm Shares available to you for examination at the
offices of Ladenburg, Thalmann, & Co., Inc., at 540 Madison Avenue, New York,
New York, or at such other place as you shall request, not later than 2:00
P.M., New York City Time, on the business day next preceding the Closing Time.
(b) Purchase, Sale and Delivery of the Option Shares. (i)
The Selling Stockholder hereby grants to the respective Underwriters an option
(the "Option") to purchase from the Selling Stockholder up to 427,500 Option
Shares, in the same proportion as each Underwriter has agreed to purchase the
Firm Shares, at and for a price of $______ for each Option Share; provided,
however, that the Option may be exercised only for the purpose of covering any
over-allotments which may be made by you in connection with the distribution
and sale of the Firm Shares.
(ii) The Option is exercisable by you in whole or in part at
any time or times on or before 12:00 noon, New York City time, on the day
prior to the Closing Time, and at any time or times thereafter during the
period ending 30 days after the date of the
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<PAGE>
Prospectus (or if such thirtieth day shall be a Saturday, Sunday or holiday,
on the next business day thereafter when the New York Stock Exchange is open
for trading), in each case by giving notice to the Company in the manner
provided in Section 13 hereof, setting forth the number of Option Shares as to
which the Option is being exercised, the name or names in which the
certificates for such Option Shares are to be registered, the denominations of
such certificates and the date of delivery of such Option Shares, which date,
if not the Closing Time, shall not be less than two nor more than three
business days after such notice.
(iii) Upon each exercise of the Option, the Selling
Stockholder shall sell to the respective Underwriters the aggregate number of
Option Shares specified in the notice exercising the Option and the
Underwriters, on the basis of the representations and warranties of the
Company and the Selling Stockholder contained herein and in each certificate
and document contemplated under this Agreement to be delivered to you, but
subject to the terms and conditions of this Agreement, shall purchase from the
Selling Stockholder the aggregate number of Option Shares specified in such
notice.
(iv) Delivery of the Option Shares with respect to which the
Option shall have been exercised shall be made to you for the account of the
respective Underwriters, at your offices at 540 Madison Avenue, New York, New
York, or such other location in the New York metropolitan area as you shall
determine and advise the Selling Stockholder, against payment by you, on
behalf of the respective Underwriters, of the purchase price therefor to the
Selling Stockholder by certified or bank cashier's check or checks payable in
New York Clearing House funds to the order of the Selling Stockholder in the
amount to which the Selling Stockholder is entitled, at 10:00 A.M., New York
City Time, on the date designated in the notice given by you as above provided
for, unless some other place, time and date is agreed upon (such time and date
being herein called an "Option Exercise Time"). The cost of original issue tax
stamps or transfer stamps, if any, in connection with each issuance and
delivery of the Option Shares by the Selling Stockholder to the respective
Underwriters shall be borne by the Selling Stockholder. The Company and the
Selling Stockholder will, severally, pay and save each Underwriter, and any
subsequent holder of Option Shares, harmless from any and all liabilities with
respect to or resulting from any failure or delay in paying federal and state
stamp taxes, if any, which may be payable or determined to be payable as a
result of the sale by the Selling Stockholder to such Underwriter of the
Option Shares or any portion thereof.
(v) The Selling Stockholder will make the certificates for
the Option Shares to be purchased at each Option Exercise Time available to
you for examination at the offices of Ladenburg, Thalmann & Co., Inc., at 540
Madison Avenue, New York, New York, or such other place as you shall request,
not later than 2:00 P.M., New York City time, on the business day next
preceding each Option Exercise Time.
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<PAGE>
(vi) The obligation of the respective Underwriters to
purchase and pay for Option Shares at each Option Exercise Time shall be
subject to compliance as of such date with all the conditions specified in
Section 9 hereof and the delivery to you of opinions, certificates and
letters, each dated the respective Option Exercise Time, substantially similar
in scope to those specified in Section 9 hereof, and to the absence of any
occurrence referred to in Section 11 hereof.
Section 5. Warrants. In order to induce you to enter into
this Agreement, the Company shall execute and deliver to you, in your
individual capacity and not as the Representatives, for an aggregate purchase
price of $2,850, five-year warrants (the "Warrants") to purchase an aggregate
of 285,000 shares of the Common Stock at an exercise price per share equal to
120% of the initial public offering price per share set forth on the cover
page of the Prospectus. The Warrants shall be exercisable beginning one year
from the date of the Prospectus. The Warrants shall be in the form of Exhibit
10.7 to the Registration Statement. Execution and delivery of Warrants,
registered in your name or the names of such of your officers as you shall
notify the Company in writing, shall be made to you, c/o Ladenburg, Thalmann &
Co., Inc., at their offices at 540 Madison Avenue, New York, New York, at the
Closing Time. The cost of original issue tax stamps, if any, in connection
with the execution and delivery of the Warrants shall be borne by the Company.
Section 6. Registration Statement and Prospectus. (a) The
Company will deliver to you, without charge, four fully signed copies of the
Registration Statement and of each amendment thereto, including all financial
statements and exhibits, and to each Underwriter the number of conformed
copies of the Registration Statement and of each amendment thereto, including
all financial statements, but excluding exhibits, as each Underwriter may
reasonably request.
(b) The Company has delivered to each Underwriter, and each
of the Selected Dealers (hereinafter defined), without charge, as many copies
as you have requested of each preliminary prospectus heretofore filed with the
Commission and will deliver to each Underwriter and to others whose names and
addresses are furnished by such Underwriter or a Selected Dealer, without
charge, on the Effective Date, and thereafter from time to time during the
period in which the Prospectus is required by law to be delivered in
connection with sales of Shares by an Underwriter or a dealer, as many copies
of the Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of such amended or supplemented Prospectus) as you may reasonably
request; without limiting the application of this Section 6(b), the Company,
not later than (i) 6:00 PM, New York City time, on the date of determination
of the public offering price, if such determination occurred at or prior to
12:00 Noon, New York City time, on such date or (ii) 9:00 AM, New York City
time, on the business day following the date of determination of the public
offering price, if such determination occurred after 12:00 Noon, New York City
time, on such date, will deliver to the Representatives, without charge, as
many copies of the Prospectus and any
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<PAGE>
amendment or supplement thereto as the Representatives may reasonably request
for purposes of confirming orders that are expected to settle at the Closing
Time.
(c) The Company has authorized the Underwriters to use, and
make available for use by prospective dealers, the preliminary prospectuses,
and authorizes each Underwriter, all dealers (the "Selected Dealers") selected
by you in connection with the distribution of the Shares and all dealers to
whom any of such Shares may be sold by the Underwriters or by any Selected
Dealer, to use the Prospectus, as from time to time amended or supplemented,
in connection with the sale of the Shares in accordance with the applicable
provisions of the Act, the applicable Rules and Regulations and applicable
state law until completion of the public offering of the Shares and for such
longer period as you may request if the Prospectus is required to be delivered
in connection with sales of the Shares by an Underwriter or a dealer.
Section 7. Covenants. (a) The Company covenants and
agrees with each Underwriter that:
(i) After the execution and delivery of this Agreement,
the Company will not, at any time, whether before or after
the Effective Date, file any Term Sheet or any amendment of
or supplement to the Registration Statement or the
Prospectus of which you shall not previously have been
advised and furnished with a copy, or which you or Fulbright
& Jaworski L.L.P. ("counsel for the Underwriters") shall not
have approved, or which is not in compliance with the Act or
the Rules and Regulations.
(ii) If the Registration Statement has not become
effective, the Company will promptly file the Final
Amendment with the Commission and will use its best efforts
to cause the Registration Statement to become effective. If
the Registration Statement has become effective, the Company
will file the Rule 430A Prospectus or other Prospectus or
any Term Sheet that constitutes a part thereof with the
Commission as promptly as practicable, but in no event later
than that permitted by Rules 434 and 424(b). The Company
will promptly advise you (A) when the Registration
Statement, or any post effective amendment thereto, shall
have become effective, or any Term Sheet or any amendments
or supplements to the Prospectus shall have been filed with
the Commission; (B) of any request of the Commission or any
state or other regulatory body for any amendment or
supplement of the Registration Statement or the Prospectus
or for additional information and the nature and substance
thereof; (C) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use
of any preliminary prospectus or prohibiting the offer or
sale of any of the Shares or of the initiation of any
proceedings for such purpose; (D) of any receipt by the
Company of any notification with
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<PAGE>
respect to the suspension of qualification of the Shares for
sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and (E) of the happening of
any event during the periods in which the Prospectus is to
be used in conjunction with the offer or sale of Shares
which makes any material statement made in the Registration
Statement or the Prospectus untrue or which requires the
making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein not
misleading. The Company will use its best efforts to prevent
the issuance of any stop order or any order preventing or
suspending the use of the Registration Statement or
Prospectus and, if such order is issued, to obtain the
lifting thereof as promptly as possible.
(iii) The Company will prepare and file with the
Commission, upon your request, any such amendments of or
supplements to the Registration Statement or the Prospectus,
in form and substance reasonably satisfactory to Brobeck,
Phleger & Harrison L.L.P. ("special counsel for the
Company"), as in the opinion of counsel for the Underwriters
may be necessary or advisable in connection with the
distribution of the Shares or any change in the price at
which, or the terms upon which, the Shares may be offered by
you, and will use its best efforts to cause the same to
become effective as promptly as possible.
(iv) The Company will comply with the Act and the Rules
and Regulations and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules and regulations
thereunder so as to permit the continuance of sales of and
dealings in the Shares under the Act and the Exchange Act.
If at any time when a prospectus is required to be delivered
under the Act an event shall have occurred as a result of
which it is necessary to amend or supplement the Prospectus
in order to make the statements therein, in light of the
circumstances existing at the time of delivery of the
Prospectus not untrue or misleading or to make the
Prospectus comply with the Act, the Company will notify you
promptly thereof and will, subject to the provisions of
Section 7(a)(i) hereof, furnish to you an amendment or
supplement which will correct such statement in accordance
with the requirements of Section 10 of the Act.
(v) The Company will comply with all of the provisions of
any undertakings contained in the Registration Statement.
(vi) The Company will take all reasonable and necessary
actions to furnish to whomever you direct, when and as
requested by you, all necessary documents, exhibits,
information, applications, instruments and papers as may be
required or, in the opinion of counsel for the Underwriters,
reasonably
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<PAGE>
required to permit or facilitate the sale of the Shares. The
Company will use its best efforts to qualify or register the
Shares for sale under the so-called blue sky laws of such
jurisdictions as you shall request, to make such
applications, file such documents and furnish such
information as may be required for such purpose and to
comply with such laws so as to continue such qualification
in effect so long as required for the purposes of the
distribution of the Shares; provided, however, that the
Company shall not be required to qualify as a foreign
corporation in any jurisdiction or to file a consent to
service of process in any jurisdiction in any action other
than one arising out of the offering or sale of the Shares.
(vii) During the period of five years commencing on the
Effective Date, the Company will furnish to each
Representative, in such number of copies as such
Representative may reasonably request, (A) within 120 days
after the end of each fiscal year of the Company, either (1)
a consolidated balance sheet of the Company and its then
consolidated subsidiaries, and a separate balance sheet of
each subsidiary, if any, of the Company the accounts of
which are not included in such consolidated balance sheet,
as of the end of such fiscal year, and consolidated
statements of income and stockholders' equity of the Company
and its consolidated subsidiaries, and separate statements
of income and stockholders' equity of each of the
subsidiaries, if any, of the Company the accounts of which
are not included in such consolidated statements, for the
fiscal year then ended, all in reasonable detail, prepared
in accordance with generally accepted accounting principles,
consistently applied, and all certified by independent
accountants (within the meaning of the Act and the Rules and
Regulations), or (2) the Company's Form 10-K for such fiscal
year as filed with the Commission in accordance with the
Exchange Act; (B) within 60 days after the end of each of
the first three fiscal quarters of each fiscal year, either
(1) similar balance sheets as of the end of such fiscal
quarter and similar statements of income and stockholders'
equity for the fiscal quarter then ended, all in reasonable
detail, and all certified by the Company's principal
financial officer or the Company's principal accounting
officer as having been prepared in accordance with generally
accepted accounting principles, consistently applied, or (2)
the Company's Form 10-Q for such fiscal quarter as filed
with the Commission in accordance with the Exchange Act; (C)
as soon as available, each report furnished to or filed with
the Commission or any securities exchange and each report
and financial statement furnished to the Company's
stockholders generally; and (D) as soon as available, such
other material as such Underwriter may from time to time
reasonably request regarding the financial condition and
operations of the Company and its subsidiaries.
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<PAGE>
(viii) The Company will make generally available to its
security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter
of the Company during which the Effective Date occurs (or 90
days, if such 12-month period coincides with the Company's
fiscal year), an earnings statement of the Company, which
will be in reasonable detail, but need not be audited, and
will cover a period of twelve months commencing after the
Effective Date. Such earnings statement shall comply with
the requirements of Section 11(a) of the Act or Rule 158 of
the Rules and Regulations. During the period of five years
commencing on the Effective Date, the Company will furnish
to its stockholders (A) within 75 days after the end of the
first three fiscal quarters of each fiscal year, quarterly
reports containing unaudited financial information, and (B)
within 120 days after the end of each fiscal year, an annual
report containing audited financial information.
(ix) Counsel for the Company, counsel for the Selling
Stockholder, the Company's accountants and the officers of
the Company will respectively furnish the opinions, the
letters and the certificates referred to in subsections (e),
(f), (g), (h), (i) and (j) of Section 9 hereof, and, in the
event that the Company shall file any amendment to the
Registration Statement relating to the offering of the
Shares or any amendment or supplement to the Prospectus
relating to the offering of the Shares subsequent to the
Effective Date, whether pursuant to subsection (iii) of this
Section 7(a) or otherwise, such counsel, such accountants
and such officers will, at the time of such filing or at
such subsequent time as you shall specify, respectively,
furnish to you such opinions, letters and certificates, each
dated the date of its delivery, of the same nature as the
opinions, the letters and the certificates referred to in
said subsections (e), (f), (g), (h), (i) and (j)
respectively, as you may reasonably request, or, if any such
opinion, letter or certificate cannot be furnished by reason
of the fact that such counsel or such accountants or any
such officer believes that the same would be inaccurate,
such counsel or such accountants or any such officer will
furnish an accurate opinion, letter or certificate with
respect to the same subject matter.
(x) Prior to the later to occur of the termination of the
Option and the Option Exercise Time, the Company will not
issue, directly or indirectly, without your prior consent
and that of counsel for the Underwriters, any press release
or other communication or hold any press conference with
respect to the Company or its activities or this offering.
(xi) The Company will not, without your prior written
consent, sell, contract to sell or otherwise dispose of any
securities, including shares of Common Stock, except the
sale of the Shares or the issuance of the Warrants
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as described in the Prospectus, for a period of one year
after the date of this Agreement; and the Company has caused
the Selling Stockholder and any affiliate thereof, to
deliver to you on or before the date of this Agreement an
agreement, satisfactory in form and substance to you and
counsel for the Underwriters, whereby each agrees, for a
period of one year after the date of this Agreement, not to
offer, pledge, sell or contract to sell, transfer or
otherwise dispose of any shares of Common Stock, directly or
indirectly, without your prior written consent, except for
the sale of Shares to the Underwriters pursuant to this
Agreement.
(xii) The Company will not at any time, directly or
indirectly, take any action designed to or which will
constitute or which might reasonably be expected to cause or
result in the stabilization of the price of the Shares to
facilitate the sale or resale of any of the Shares.
(xiii) The Company will apply the net proceeds from the
sale of the Shares in the manner set forth under "Use of
Proceeds" in the Prospectus. Prior to the application of
such net proceeds, the Company will invest or reinvest such
proceeds only in Eligible Investments (hereinafter defined).
"Eligible Investments" shall mean the following investments
so long as they have maturities of one year or less: (A)
obligations issued or guaranteed by the United States or by
any person controlled or supervised by or acting as an
instrumentality of the United States pursuant to authority
granted by Congress; (B) obligations issued or guaranteed by
any state or political subdivision thereof rated either Aa
or higher, or MIG 1 or higher, by Moody's Investors Service,
Inc. or AA or higher, or an equivalent, by Standard & Poor's
Corporation, both of New York, New York, or their
successors; (C) commercial or finance paper which is rated
either Prime-1 or higher or an equivalent by Moody's
Investors Service, Inc. or A-1 or higher or an equivalent by
Standard & Poor's Corporation, both of New York, New York,
or their successors; and (D) certificates of deposit or time
deposits of banks or trust companies, organized under the
laws of the United States, having a minimum equity of
$500,000,000.
(xiv) During the period of 180 days commencing on the
date hereof, the Company will not, without the prior written
consent of the Representatives, grant options to purchase
shares at a price less than the initial public offering
price per share set forth on the cover page of the
Prospectus.
(xv) The Company has caused the Common Stock to be duly
included for quotation on the Nasdaq Stock Market's National
Market (the "National Market").
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(b) The Selling Stockholder covenants and agrees with each
Underwriter that:
(i) The Selling Stockholder will not, directly or
indirectly, take any action designed to or which will
constitute or which might reasonably be expected to cause or
result in the stabilization of the price of the Shares to
facilitate the sale or the resale of any of the Shares.
(ii) If, subsequent to the date hereof, the Selling
Stockholder shall believe or have any reasonable grounds to
believe that the Prospectus (as amended or as supplemented
if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) contains any untrue
statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading, or that any of
the representations and warranties of the Company or the
Selling Stockholder contained herein or in any certificate
or document contemplated under this Agreement to be
delivered to you are false, the Selling Stockholder will
immediately notify you, as the Representatives, to such
effect.
(iii) The Selling Stockholder will not, without your
prior written consent, directly or indirectly, offer,
pledge, sell, contract to sell, transfer or otherwise
dispose of any shares of Common Stock or any securities
convertible into, or exchangeable or exchangeable for shares
of Common Stock, except the sale of Shares to the
Underwriters pursuant to this Agreement, for a period of one
year after the Effective Date.
(iv) The Selling Stockholder will furnish the
certificates referred to in subsections (h) and (i) of
Section 9 hereof.
Section 8. Expenses. Except as otherwise set forth herein,
the Company will pay and bear all costs, fees, taxes and expenses incident to
the performance of the obligations of the Company and the Selling Stockholder
under this Agreement, including, but not limited to: (a) the costs incident to
the issuance, sale and delivery to the Underwriters of the Shares (except that
the Company will not be responsible for the underwriting discounts and
commissions with respect to shares of Common Stock being sold by the Selling
Stockholder); (b) the costs incident to the preparation, printing and filing
under the Act of each preliminary prospectus, the Prospectus, the Registration
Statement and any amendments or supplements thereof and exhibits thereto; (c)
the costs of distributing the Registration Statement and any post-effective
amendments thereto; (d) the costs of printing and distributing to the
Representatives, the other Underwriters and any Selected Dealers copies of any
preliminary prospectus, the Prospectus, the Registration Statement and any
amendment or supplement to the Prospectus or Registration Statement required
by this Agreement or the Act; (e) the costs of preparation, printing, mailing,
delivery, filing and
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distribution of preliminary and final blue sky memoranda, Underwriter's
Questionnaires and Powers of Attorney, letters to prospective Underwriters,
the Agreement Among Underwriters, the Selling Agreement, this Agreement and
all documents related thereto; (f) the filing fees of the Commission; (g) the
costs of qualification or registration of the Shares in the jurisdictions
referred to in subsection (a)(vi) of Section 7 hereof, including the legal
fees and expenses of counsel for the Underwriters in connection therewith, and
all filing fees in connection therewith; (h) the cost of preparation,
including the legal fees and expenses of counsel for the Underwriters in
connection therewith, of all filings with the National Association of
Securities Dealers, Inc. ("NASD") and all filing fees in connection therewith;
(i) fees and expenses of counsel for the Company, the Company's accountants
and the Company's consultants; (j) fees in connection with the quotation of
the Common Stock on the National Market; and (k) all other costs and expenses
incurred or to be incurred by the Company in connection with the transactions
contemplated by this Agreement. If the Firm Shares are not sold to the
Underwriters because the conditions in Section 9 are not satisfied or this
Agreement is terminated pursuant to Section 11 or Section 12, or by reason of
any failure, refusal or inability on the part of the Company or the Selling
Stockholder to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy the condition or to comply with said
terms be due to the default of any Underwriter, then (and only then) the
Company will pay all reasonable accountable out-of-pocket expenses which you
may incur in connection with this Agreement and the transactions hereby
contemplated, including all fees and expenses of counsel for the Underwriters
in connection therewith. The provisions of this Section 8 are intended to
relieve the Underwriters from payment of the costs and expenses which the
Company hereby agrees to pay and shall not effect any agreement between the
Company and the Selling Stockholder for the sharing of such costs and
expenses.
Section 9. Conditions of the Underwriters' Obligations. The
Underwriters' obligations hereunder to purchase and pay for the Shares are
subject (as of the date hereof, the Closing Time and each Option Exercise
Time) to the accuracy of and compliance with the representations and
warranties of the Company and the Selling Stockholder herein and in each
certificate and document contemplated under this Agreement to be delivered, to
the accuracy of the statements of the Company, of the Selling Stockholder and
of the officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholder of their respective
covenants and agreements hereunder and under each such certificate and
document, and to the following additional conditions:
(a) (i) The Registration Statement shall have
become effective not later than 5:00 P.M., New York City time, on the date of
this Agreement, or at such later time or on such later date as you may agree
to in writing; (ii) if required, the Prospectus or any Term Sheet that
constitutes a part thereof shall have been filed with the Commission pursuant
to Rules 434 and 424(b)(1) or (4) of the Rules and Regulations within the
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applicable time period prescribed for such filing thereunder and in accordance
with the provisions of Section 7(a)(ii) hereof; (iii) at or prior to the
Closing Time, no stop order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Shares under the blue
sky laws of any jurisdiction (whether or not a jurisdiction which you shall
have specified) shall have been issued and no proceeding for that purpose
shall have been initiated or shall be threatened or contemplated by the
Commission or the authorities of any such jurisdiction; (iv) any request for
additional information on the part of the Commission or any such authorities
shall have been complied with to the satisfaction of the Commission or such
authorities and counsel for the Underwriters; (v) the NASD, upon review of the
terms of the public offering of Shares, shall not have objected to such
offering, such terms or the Underwriters' participation in the same; and (vi)
after the date hereof, no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed without your prior consent.
(b) You shall not have advised the Company, and the Selling
Stockholder shall not have advised any Underwriter or the Company, that the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto contains an untrue statement of a fact which is material,
or omits to state a fact which is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Time, there shall be no litigation instituted
against the Company or any of its officers or directors, and between such
dates there shall be no proceeding instituted or threatened against the
Company or any of its officers or directors before or by any federal, state,
county or local commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or proceeding an
unfavorable ruling, decision or finding could materially adversely affect the
Company or its business, financial condition or results of operations.
(d) Each of the representations and warranties of the Company and
the Selling Stockholder contained herein and in each certificate and document
contemplated under this Agreement to be delivered shall be true and correct at
the Closing Time as if made at the Closing Time, and all covenants and
agreements contained herein, and in each such certificate and document, to be
performed on the part of the Company or the Selling Stockholder and all
conditions contained herein and in each such certificate and document to be
fulfilled or complied with by the Company or the Selling Stockholder at or
prior to the Closing Time shall have been duly performed, fulfilled or
complied with.
(e) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, special counsel for the Company shall
furnish to you an opinion, in form and substance satisfactory to you, dated as
of the date of its delivery, to the effect that:
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<PAGE>
(i) The Company is a corporation duly
organized, validly existing and in good standing
under the laws of the state of its incorporation.
The Company has the corporate power and authority
to conduct all of the activities conducted by it,
own or lease all of the assets owned or leased by
it, and conduct its business as described in the
Registration Statement and the Prospectus; and is
duly qualified to do business and in good standing
as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it
and/or the character of the assets owned and leased
by it makes such qualification necessary.
(ii) No authorization, approval, consent
or license of any governmental or regulatory body,
except as may be required under the Act or the blue
sky laws of the various jurisdictions (with respect
to which such counsel need express no opinion), is
required in connection with the (A) authorization,
issuance, transfer, sale or delivery of the Shares
to be sold by the Company; (B) authorization,
issuance or delivery of the Warrants or issuance of
shares of Common Stock upon exercise of the
Warrants; or (C) taking of any action contemplated
herein or if so required all such authorizations,
approvals, consents and licenses have been obtained
and are in full force and effect.
(iii) The Company has authorized and
outstanding capital stock, stock options and
warrants as set forth in the Registration Statement
and the Prospectus. The outstanding shares of the
Common Stock (including the Shares to be sold by
the Selling Stockholder) have been, and all of the
Shares will, upon sale or issuance, and payment
therefor, be, duly authorized, validly issued,
fully paid and nonassessable, are not subject to
pre-emptive rights and have not been issued in
violation of any statutory pre-emptive rights or,
to the best of such counsel's knowledge, similar
contractual rights. The issue and sale of the
Shares by the Company have been duly and validly
authorized. The Common Stock has been duly
authorized for quotation on the National Market.
All issuances of securities by the Company were
exempt from, or complied in all respects with, the
provisions of all applicable federal and state
securities laws. Such opinion delivered at the
Closing Time shall state that each of the Shares is
duly and validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(iv) To the best of such counsel's
knowledge, no holder of any securities of the
Company has the right to require registration of
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<PAGE>
shares of the Common Stock or other securities of
the Company because of the filing or effectiveness
of the Registration Statement. The description of
the Common Stock and the Shares contained in the
Registration Statement and the Prospectus conforms
to the rights set forth in the instruments defining
the same and is in conformity with the requirements
of Item 9 of the Registration Statement.
(v) The Company is not an "investment
company" as defined in Section 3(a) of the
Investment Company Act and, if the Company conducts
its business as set forth in the Registration
Statement and the Prospectus, will not become an
"investment company" and will not be required to
register under the Investment Company Act; the
Company has not been required to make any filings
pursuant to the Exchange Act.
(vi) The Company has full corporate power
and authority to enter into the Warrants. The
Warrants have been duly authorized, and upon due
execution, issuance and delivery, will constitute
the valid, binding and legally enforceable
obligation of the Company. Such opinion delivered
at the Closing Time shall state that the Warrants
have been duly executed, issued and delivered and
constitute the valid and legally enforceable
obligation of the Company. The shares of Common
Stock required to be sold or issued by the Company
upon exercise of the Warrants have been duly
authorized and reserved for sale or issuance, and,
when sold or issued and delivered upon payment of
the exercise price therefor as provided in the
Warrants, will be duly and validly issued, fully
paid and nonassessable.
(vii) The Company has full corporate power
and authority to enter into this Agreement and this
Agreement has been duly authorized, executed and
delivered by the Company.
(viii) The Registration Statement and the
Prospectus, and each amendment thereof or
supplement thereto, comply as to form with, and
appear on their face to be appropriately responsive
in all material respects, to the requirements of
the Act and the Rules and Regulations (except that
no opinion need be expressed as to financial
statements and other financial data contained in
the Registration Statement or the Prospectus).
(ix) All contracts filed as exhibits to
the Registration Statement and the Prospectus have
been fairly summarized or described therein,
conform in all material respects to the
descriptions
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<PAGE>
thereof contained therein and such counsel does not
know of any contracts or documents required to be
so summarized or disclosed or so filed which have
not been so summarized or disclosed or so filed,
and such counsel does not know of any statutes or
regulations or pending or threatened legal or
governmental proceedings required to be disclosed
in the Prospectus which have not been described as
required.
(x) The Registration Statement has become
effective under the Act, and, to the knowledge of
such counsel, no stop order suspending the
effectiveness of the Registration Statement or use
of the Prospectus has been issued and no
proceedings for that purpose have been instituted
or are threatened, pending or contemplated. The
opinion delivered at the Closing Time shall state
that all filings required by Rule 434, Rule 424 and
Rule 430A of the Rules and Regulations have been
made.
(xi) The execution and delivery of this
Agreement by the Company and the Warrants by the
Company, the consummation by the Company of the
transactions herein or therein contemplated, as
applicable, and the compliance with the terms of
this Agreement, the Warrants do not and will not
conflict with or result in a breach of any of the
terms or provisions of or violate or constitute a
default under, the certificate of incorporation or
by-laws of the Company or any indenture, mortgage
or other agreement or instrument known to such
counsel to which the Company is a party or by which
the Company or any of its properties is bound.
(xii) To the best knowledge of such
counsel, the Company has obtained all trademarks,
trade names, patents, patent rights, licenses,
permits and governmental or other authorizations as
set forth in the Prospectus; to the best knowledge
of such counsel, such trademarks, trade names,
patents, patent rights, licenses, permits and
governmental or other authorizations are in full
force and effect and the Company is in all material
respects complying therewith.
(xiii) The real properties described in
the Registration Statement and the Prospectus as
being leased by the Company are held under valid,
subsisting and enforceable leases with only such
exceptions as are not material.
Such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company and
representatives of the independent
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<PAGE>
public accountants for the Company, at which conferences such counsel made
inquiries of such officers, representatives and accountants and discussed the
contents of the preliminary prospectus, the Registration Statement, the
Prospectus, and related matters and, although such counsel is not passing upon
and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
Prospectus, on the basis of the foregoing, nothing has come to the attention
of such counsel which leads them to believe that either the Registration
Statement or any amendment thereto, at the time such Registration Statement or
amendment became effective or the Prospectus or any amendment or supplement
thereto as of its date or the date of such opinion contained or contains any
untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
accounting data included in the Registration Statement or Prospectus).
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Shares
hereunder as counsel for the Underwriters may reasonably request. In rendering
the opinions set forth above, such counsel may rely upon certificates of the
Selling Stockholder, officers of the Company and public officials as to
matters of fact. In rendering such opinion, such counsel may rely as to all
matters of law other than the law of the United States or of the States of New
York and Delaware upon opinions of counsel satisfactory to you, in which case
the opinion shall state that they have no reason to believe that you and they
are not entitled so to rely.
(f) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, Harris, Beach & Wilcox, counsel for the
Selling Stockholder shall furnish you an opinion, in the form and substance
satisfactory to you, dated as of the date of its delivery, to the effect that:
(i) The Selling Stockholder is a corporation,
validly existing and in good standing under the laws of the State
of Delaware.
(ii) No authorization, approval, consent or license
of any governmental or regulatory body, except as may be required
under the Act or the blue sky laws of the various jurisdictions
(with respect to which such counsel need express no opinion), is
required in connection with (A) the transfer, sale or delivery of
the Shares to be sold by the Selling Stockholder; (B) the
execution, delivery and performance of this Agreement by the
Selling Stockholder; or (C) the taking of any action contemplated
herein by the Selling Stockholder, or if so required all such
authorizations, approvals, consents and licenses have been
obtained and are in full force and effect.
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<PAGE>
(iii) Upon delivery of the certificates for the
Shares to be sold by the Selling Stockholder, duly endorsed or
accompanied by duly executed stock powers, and payment therefor
in accordance with the terms hereof, each of the Underwriters
will acquire good title thereto free and clear of any adverse
claim assuming that such Underwriters purchased such Shares in
good faith and without notice (in each case as such term is
defined in the Uniform Commercial Code in effect in the State of
New York) of such adverse claim.
(iv) The Selling Stockholder has full corporate
power and authority to execute and deliver this Agreement and to
sell, transfer and deliver the Shares being sold by the Selling
Stockholder in accordance with the terms hereof and all actions
necessary to effect the transfer of title to such Shares, free
and clear of all claims, encumbrances and defects in title, in
accordance with this Agreement, have been duly completed; and
such opinion delivered at the Closing Time shall state that the
Selling Stockholder has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the
transactions contemplated hereby.
(v) The execution and delivery of this Agreement by
the Selling Stockholder, the consummation by the Selling
Stockholder of the transactions herein contemplated and the
compliance with the terms of this Agreement do not result in a
breach of any of the terms or provisions of or violate or
constitute a default under, the certificate of incorporation or
by-laws of the Selling Stockholder.
In rendering such opinions, Harris, Beach & Wilcox may rely as to
factual matters on the representations and warranties contained in this
Agreement and on certificates of the Selling Stockholder, officers of the
Company and public officials.
(g) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, the Company's accountants shall have
furnished to you a letter, dated as of the date of its delivery, addressed to
you and in form and substance satisfactory to you, to the effect that:
(i) Such accountants are independent certified
public accountants with respect to the Company as required by the
Act and the Rules and Regulations, and the answer to Item 10 of
the Registration Statement is correct insofar as it relates to
them.
(ii) In their opinion the financial statements and
schedules and notes examined by them and included in the
Registration
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<PAGE>
Statement and the Prospectus comply as to form in
all material respects with the applicable
accounting requirements of the Act and the Rules
and Regulations with respect to registration
statements on Form S-1.
(iii) On the basis of inquiries and
procedures conducted by them, including a reading
of the latest available unaudited interim financial
statements of the Company inquiries of officials of
the Company and the Selling Stockholder responsible
for operational, financial and accounting matters,
a reading of the minute books of the Company and
other specified procedures and inquiries, nothing
has come to their attention that caused them to
believe that (A) any unaudited financial statements
of the Company set forth in the Registration
Statement and the Prospectus do not comply as to
form in all material respects with the applicable
accounting requirements of the Act and the Rules
and Regulations or are not fairly presented in
conformity with generally accepted accounting
principles applied on a basis consistent with that
of the audited financial statements; and (B) during
the period from June 30, 1996 to a specified date
not more than five days prior to the date of such
letter there was any change in the capital stock or
debt of the Company, or any decrease in the total
assets or [stockholders' equity] [conform to items
listed on balance sheet] of the Company, each as
compared with the amounts shown in the balance
sheet as of June 30, 1996 included in the
Registration Statement or any decrease from July 1,
1996 to the specified date, on a proportional basis
with the fiscal quarter ended June 30, 1995 in
sales, loss from operations, net loss and net
income per share, except in all instances for
changes, decreases or increases which the
Registration Statement and the Prospectus disclose
have occurred or may occur and except for such
other changes, decreases or increases which you
shall in your sole discretion accept.
(iv) In addition to their examination
referred to in their reports included in the
Registration Statement and the Prospectus and the
inquiries and limited procedures referred to in
clause (iii) above, they have performed other
procedures, not constituting an audit, with respect
to certain numerical data and financial information
appearing in the Registration Statement and the
Prospectus, requested by you and specified in such
letter and have compared such data and information
with the accounting records of the Company and
found them to be in agreement.
(h) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, there shall be furnished to you, on behalf
of the Company, an accurate
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certificate, dated the date of its delivery, signed by each of the chief
executive officer and the chief financial officer of the Company, in form and
substance satisfactory to you, to the effect that:
(i) Each signer of such certificate has
carefully examined the Registration Statement and
the Prospectus and (A) to his knowledge, as of the
date of such certificate, the statements in the
Registration Statement and the Prospectus are and
were true and correct and neither the Registration
Statement nor the Prospectus omits to state a
material fact necessary in order to make the
statements therein, in light of the circumstances
under which they were made, not misleading; (B) in
the case of a certificate delivered after the date
of this Agreement, since the Effective Date, no
event has occurred of which he has knowledge and
which was required by the Act or the Rules and
Regulations to be set forth in a supplement to or
amendment of the Prospectus but which has not been
so set forth; and (C) since the dates as of which
and the periods for which information is given in
the Registration Statement and the Prospectus,
there has not been to his knowledge any adverse
change in the business, financial condition or
results of operations of the Company from that set
forth in the Registration Statement and the
Prospectus, other than changes which the
Registration Statement and the Prospectus
specifically disclose have occurred or may occur
subsequent to the Effective Date.
(ii) No stop order suspending the
effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose
have been commenced or are, to the knowledge of
each signer of such certificate, threatened or
contemplated by the Commission.
(iii) No stop order suspending the
qualification or registration of any of the Shares
under the blue sky laws of any jurisdiction
(whether or not a jurisdiction you shall have
specified) has been issued, and no proceedings for
such purpose have been commenced or are, to the
knowledge of each signer of such certificate,
threatened or contemplated by any jurisdiction.
(iv) The conditions, separately set forth
in such certificate, contained in subsections (a),
(c) and (j) of this Section 9 have been complied
with.
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(v) There has been no breach of any of
the terms or provisions of the agreements referred
to in Section 7(a)(xi) and 7(b)(iii) hereof.
(vi) Each of the representations and
warranties of the Company contained in this
Agreement and in each certificate and document
contemplated under this Agreement to be delivered to
you was, when originally made and is, at the time
such certificate is dated, true and correct.
(vii) Each of the covenants required
herein to be performed by the Company on or prior to
the date of such certificate has been duly, timely
and fully performed and each condition herein
required to be complied with by the Company on or
prior to the date of such certificate has been duly,
timely and fully complied with by the Company.
(i) The Selling Stockholder shall have performed all of the
covenants contained herein and in any certificate or document contemplated
under this Agreement to be delivered to you and required to be performed by
the Selling Stockholder at or prior to the Closing Time, and you shall have
received at the Closing Time a certificate of the Selling Stockholder, dated
as of the Closing Time, to the effect that the representations and warranties
of the Selling Stockholder contained in this Agreement and in each such
certificate and document are true and correct in all respects on and as of the
date of such certificate as if made on and as of such date, and each of the
covenants and conditions required to be performed or complied with by the
Selling Stockholder on or prior to the date of such certificate has been duly,
timely and fully performed or complied with.
(j) The Company and the Selling Stockholder shall have furnished
to you such certificates, in addition to those specifically mentioned herein,
as you may have reasonably requested in a timely manner as to the accuracy and
completeness, at the Closing Time, of any statement in the Registration
Statement or the Prospectus; as to the accuracy, at the Closing Time, of the
representations and warranties of the Company and the Selling Stockholder
herein and in each certificate and document contemplated under this Agreement
to be delivered to you; as to the performance by the Company and the Selling
Stockholder of their respective obligations hereunder and under each such
certificate and document; or as to the fulfillment of the conditions
concurrent and precedent to your obligations hereunder.
(k) Except as contemplated by the Registration Statement and the
Prospectus, since the date hereof, there shall not have been any change in the
capitalization of the Company or any material adverse change in the business,
financial condition or results of operations of the Company or in the value of
the assets of the Company, or any
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<PAGE>
material change, without your consent, in the conduct of the business of the
Company, arising for any reason whatsoever.
(l) Each of the agreements referred to in Section 7(a)(xi) and
7(b)(iii) hereof shall have been delivered to you and there shall have been no
breach of any such agreement.
(m) All corporate proceedings and other legal matters relating to
the sale and transfer of the Shares, this Agreement, the Warrants, the
Registration Statement, the Prospectus and other related matters shall be
reasonably satisfactory in all material respects to counsel for the
Underwriters, who shall have furnished to you at the Closing Time such
opinion, in form and substance reasonably satisfactory to you, with respect to
the sufficiency of the aforementioned corporate proceedings and other legal
matters as you may reasonably require; and the Company shall have furnished to
such counsel such records and documents as such counsel may have reasonably
requested in a timely manner for the purpose of enabling them to pass upon
such matters.
(n) The Common Stock shall be authorized for quotation on the
National Market.
All of the opinions, letters, evidence and certificates
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel for the Underwriters. You reserve the right
to waive any condition hereinabove set forth. Each opinion, certificate,
letter or other document required to be delivered at the Closing Time shall
also be required to be delivered at each Option Exercise Time.
Section 10. Indemnification and Contribution. (a) The Company and the
Selling Stockholder, jointly and severally, agree to indemnify and hold
harmless each Underwriter and each person who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act and
each and all of them, from and against any and all losses, claims, damages,
liabilities or actions, joint or several (including any investigation, legal
or other expense incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
an Underwriter or they or any of them may become subject under the Act, the
Exchange Act or otherwise but only insofar as such losses, claims, damages,
liabilities or actions arise out of, or are based upon, (i) any untrue
statement or alleged untrue statement made by the Company or the Selling
Stockholder in Section 3 of this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto or in any application or other document executed by the
Company or the Selling Stockholder based upon written information furnished by
or on behalf of the Company or the Selling Stockholder filed in any
jurisdiction in order to register or qualify the Shares under the securities
laws thereof or filed
-31-
<PAGE>
with the Commission, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) the employment by the Company or the Selling
Stockholder of any device, scheme or artifice to defraud, or the engaging by
the Company or the Selling Stockholder in any act, practice or course of
business which operates or would operate as a fraud or deceit, or any
conspiracy with respect thereto, in which the Company or the Selling
Stockholder shall participate, in connection with the issuance and sale of any
of the Shares; provided, however, that the indemnity agreement contained in
this subsection shall not extend to any Underwriter in respect of any such
losses, claims, damages, liabilities or actions arising out of, or based upon,
any such untrue statement or alleged untrue statement or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information furnished in writing to the Company through you or on behalf of
any Underwriter specifically for use in connection with the preparation of the
Registration Statement, any preliminary prospectus or the Prospectus or any
such amendment or supplement thereto, and provided, further, that if any
preliminary prospectus or Prospectus contained any alleged untrue statement or
allegedly omitted to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and such
statement or omission shall have been corrected in a revised preliminary
prospectus or in the Prospectus or in an amended or supplemented Prospectus,
the Company and the Selling Stockholder shall not be liable to any Underwriter
or controlling person under this subsection (a) with respect to such alleged
untrue statement or alleged omission to the extent that any such loss, claim,
damage or liability of such Underwriter or controlling person results from the
fact that such Underwriter sold Shares to a person to whom there was not sent
or given, at or prior to the written confirmation of such sale, such revised
preliminary prospectus or Prospectus or amended or supplemented Prospectus.
The Company and the Selling Stockholder agree to pay any legal and other
expenses for which it is liable under this subsection (a) from time to time
(but not more frequently than monthly) within 30 days after its receipt of a
bill therefor.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who shall have signed the Registration Statement, each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act and the Selling Stockholder to the same extent
as the foregoing indemnity from the Company and the Selling Stockholder to
such Underwriter, but in each case to the extent, and only to the extent, that
any statement in or omission from or alleged omission from the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in writing
to the Company by such Underwriter specifically for use in connection with the
preparation of the Registration Statement, any preliminary prospectus or the
Prospectus or any such amendment or supplement thereto; provided, however,
that the obligation of each Underwriter to indemnify the Company and the
Selling Stockholder under the provisions of this subsection (b) shall be
limited to the
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<PAGE>
product of the number of Shares purchased by such Underwriter and the initial
public offering price set forth on the cover page of the Prospectus. Each
Underwriter agrees to pay any legal and other expenses for which it is liable
under this subsection (b) from time to time (but not more frequently than
monthly) within 30 days after receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsections (a) or (b) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsections, such indemnified party shall promptly notify such indemnifying
party in writing of the commencement thereof; but the omission so to notify
the indemnifying party of any such action shall not release the indemnifying
party from any liability it may have to such indemnified party otherwise than
on account of the indemnity agreement contained in subsection (a) or (b) of
this Section 10. In case any such action is brought against an indemnified
party and it notifies an indemnifying party of the commencement thereof, the
indemnifying party against which a claim is to be made will be entitled to
participate therein at its own expense and, to the extent that it may wish, to
assume at its own expense the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that (i) if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
based upon advice of counsel that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party and representation of both parties
by the same counsel would be inappropriate due to actual or potential
differing interests between them, the indemnified party shall have the right
to select separate counsel to assume such legal defenses and otherwise to
participate in the defense of such action on behalf of such indemnified party
or parties; and (ii) in any event, the indemnified party shall be entitled to
have counsel chosen by such indemnified party participate in, but not conduct,
the defense at such indemnified party's own expense. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 10 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel); (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action; or (iii) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. An indemnifying
party shall not be liable for any settlement of any action or proceeding
effected without its written consent.
-33-
<PAGE>
(d) In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in subsection
(a) or (b) of this Section 10 is unavailable in accordance with its terms, the
Company, the Selling Stockholder and, subject to the limitations set forth
below, the Underwriters shall contribute to the aggregate losses, claims,
damages and liabilities, of the nature contemplated by said indemnity
agreement, incurred by the Company, the Selling Stockholder and one or more
Underwriters, in such proportions as are applicable to reflect the relative
benefits received by the Company and the Selling Stockholder, on the one hand,
and the Underwriters, on the other hand, from the offering of the Shares;
provided, however, that if such allocation is not permitted by applicable law
or if the indemnified party failed to give the notice required under
subsection (c) of this Section 10, then the relative fault of the Company and
the Selling Stockholder, on the one hand, and the Underwriters, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages and liabilities and other relevant equitable
considerations will be considered together with such relative benefits. The
relative benefits received by the Company and the Selling Stockholder, on the
one hand, and the Underwriters, on the other hand, shall be deemed to be in
such proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company and the Selling Stockholder bear to the total underwriting discount
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus and in the notes thereto. The relative fault of
the Company and the Selling Stockholder, on the one hand, and of the
Underwriters, on the other, shall be determined by reference to, among other
things, whether in the case of an untrue statement or alleged untrue statement
of a material fact or the omission or alleged omission to state a material
fact, such statement or omission relates to information supplied by the
Company or the Selling Stockholder, on the one hand, or by the Underwriters,
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company, the Selling Stockholder and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this subsection
(d) were determined by pro-rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in this
subsection (d). The amount paid or payable by the indemnified party as a
result of the losses, claims, damages or liabilities referred to above in this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending against or appearing as a third-party witness in any such action
or claim. Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares purchased by it were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay in respect of any loss, claim, damage,
liability or action covered by this Section and (ii) no person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this subsection (d), each
person, if
-34-
<PAGE>
any, who controls an Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act shall have the same rights to contribution
as such Underwriter. The Underwriters' obligations to contribute pursuant to
this subsection (d) are several in proportion to their respective underwriting
commitments and not joint.
(e) The respective indemnity and contribution agreements by
the Underwriters, the Selling Stockholder and the Company contained in
subsections (a), (b), (c) and (d) of this Section 10, and the respective
covenants, representations and warranties of the Company and the Selling
Stockholder set forth in Sections 2, 3, 4, 5, 6, 7 and 8 hereof, shall remain
operative and in full force and effect regardless of (i) any investigation
made by any Underwriter, on its behalf or by or on behalf of any person who
controls an Underwriter, the Company or any controlling person of the Company,
any director or officer of the Company or the Selling Stockholder; (ii)
acceptance of any of the Shares and payment therefor; or (iii) any termination
of this Agreement, and shall survive the delivery of the Shares, and any
successor of any Underwriter or the Company, or of any person who controls any
Underwriter or the Company, as the case may be, or the Selling Stockholder
shall be entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by the
Underwriters, the Company and the Selling Stockholder contained in subsections
(a), (b), (c) and (d) of this Section 10 shall be in addition to any liability
which the Underwriters, the Company and the Selling Stockholder may otherwise
have.
Section 11. Termination. This Agreement (except for the
provisions of Sections 8 and 10 hereof) may be terminated by you by notifying
the Company and the Selling Stockholder at any time:
(a) prior to the earliest of (i) 11:00 a.m.,
New York City time, on the business day immediately following the date hereof,
(ii) the time of release by the Representatives for publication of the first
newspaper advertisement which subsequently is published with respect to the
Shares or (iii) the time when the Shares are first generally offered by the
Representatives to dealers by letter or telegram;
(b) at or prior to the Closing Time if any of the
conditions specified in Section 9 hereof shall not have been fulfilled when
and as required by this Agreement to be fulfilled or if any of the covenants,
representations or warranties contained herein or in any certificate or
document contemplated under this Agreement to be delivered to you shall not
have been satisfied or fulfilled within the respective times herein provided
for, unless compliance therewith or performance or satisfaction thereof shall
have been expressly waived by you in writing; or
(c) at or prior to the Closing Time if any one or
more of the following shall have occurred or have been established between the
time of your execution of this Agreement and the Closing Time and in your
judgment the same has made or makes
-35-
<PAGE>
it inadvisable or impracticable for you generally to proceed with the
offering, sale, delivery, or collection of payment for, the Shares pursuant to
the public offering contemplated by this Agreement: (i) a general suspension
of, or a general limitation on prices for, trading in securities on the New
York Stock Exchange, American Stock Exchange, the National Market or in the
over-the-counter market; (ii) any new legal or regulatory restriction
affecting the distribution of securities generally or of the Shares; (iii) a
material adverse change in general market or economic conditions, either
domestic or foreign, from such conditions on the date hereof; (iv) a
declaration of a banking moratorium by Federal or New York State authorities;
(v) any outbreak of major hostilities or other national or international
calamity; (vi) a material interruption in the mail service or other means of
communications within the United States; (vii) an action by any government in
respect of its monetary affairs which, in your opinion, has a material adverse
effect on the United States securities markets; or (viii) any material adverse
change or any material adverse development involving a prospective change not
contemplated in the Registration Statement in or affecting particularly the
business or properties of the Company.
Your right to terminate will not be waived or otherwise
relinquished because you do not give the required notice of termination prior
to the time that the event giving rise to the right to terminate shall have
ceased to exist, provided that you give the required notice prior to the
Closing Time.
Section 12. Default of Underwriters. If any Underwriter or
Underwriters default in their obligation to take and pay for Firm or Option
Shares and the aggregate number of Firm or Option Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the aggregate number of Firm or Option Shares, as the case may be, the
other Underwriters shall be obligated severally in proportion to their
respective commitments hereunder to purchase the Firm or Option Shares which
such defaulting Underwriter or Underwriters agreed but failed to purchase. If
any Underwriter or Underwriters so default and the aggregate number of Firm or
Option Shares with respect to which such default or defaults occur is more
than 10% of the aggregate number of Firm or Option Shares, as the case may be,
and arrangements satisfactory to you for the purchase of such Firm or Option
Shares by other persons (who may include one or more of the non-defaulting
Underwriters including you) are not made within 36 hours after such default,
this Agreement may be terminated by you without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be paid
or reimbursed by the Company pursuant to Section 8 and except for the
provisions of Section 10 hereof. In the event of any default by one or more
Underwriters as described in this Section 12, the Representatives shall have
the right to postpone the Closing Time or the Option Exercise Time, as the
case may be, established as provided in Section 4 hereof for not more than
seven business days in order that any necessary changes may be made in the
arrangements or documents for the purchase and delivery of the Firm Shares or
Option Shares, as the case may be. As used in this Agreement, the term
"Underwriter" includes any
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<PAGE>
person substituted for an Underwriter under this Section 12. Nothing herein
shall relieve a defaulting Underwriter from liability for its default.
Section 13. Notice. Except as otherwise expressly provided
in this Agreement, whenever advice or a notice, objection, designation,
request or report is given or is required by the provisions of this Agreement
to be given, such advice, notice, objection, designation, request or report
shall be in writing and shall be delivered by first-class mail, postage
prepaid, nationally recognized courier or by telecopy, (a) if to the Company,
addressed to it and delivered at Votan Corporation, 7020 Koll Center Parkway,
Pleasanton, California, 94566 (telecopier number (510) 426-6767), Attention:
John A. White, President and Chief Executive Officer, with a copy to Brobeck,
Phleger & Harrison L.L.P., 1301 Avenue of the Americas, New York, New York
10019 (telecopier number (212) 586- 7878), Attention: Richard A. Plumridge,
Esq.; (b) if to the Selling Stockholder, addressed to it and delivered at
Moscom Corporation, 3750 Monroe Avenue, Pittsford, New York 14534 (telecopier
number ( ) ), Attention: Albert J. Montevecchio, President and Chief Executive
Officer, with a copy to Robert L. Boxer, Esq., at the same address; and (c) if
to you or the Underwriters, addressed to Ladenburg, Thalmann & Co. Inc., and
delivered at 540 Madison Avenue, New York, New York 10022 (telecopier number
212-872-1730), Attention: Peter M. Graham, with a copy to Fulbright & Jaworski
L.L.P., 666 Fifth Avenue, New York, New York 10103 (telecopier number
212-752-5958), Attention: Richard H. Gilden, Esq.; or at such other address or
telecopier number as a party hereto may give notice in accordance herewith.
Section 14. Miscellaneous. (a) This Agreement is made solely
for the benefit of the Underwriters, the Selling Stockholder and the Company,
the Company's directors, the Company's officers who shall have signed the
Registration Statement and any controlling person referred to in Section 10
hereof, and their respective successors and assigns, and no other person,
partnership, association or corporation shall acquire or have any right under
or by virtue of this Agreement. The term "successor" or the term "successors
and assigns" as used in this Agreement shall not include any buyer, as such,
of any of the Shares from the Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
(b) The information in the Prospectus under the section
"Underwriting" with respect to (i) the names of, and number of Shares to be
purchased by, each of the Underwriters and (ii) the amounts of the selling
concession and reallowance shall constitute the only information furnished in
writing by or on behalf of the several Underwriters for use in connection with
the preparation of the Registration Statement as originally filed or in any
amendment thereto, any preliminary prospectus or the Prospectus as the case
may be.
(c) This Agreement shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company,
the Selling Stockholder and you relating to the sale of any of the Shares.
-37-
<PAGE>
(d) No change, amendment or supplement to, or waiver of,
this Agreement or any term, provision or condition contained herein, shall be
valid or of any effect unless in writing and signed by the party against whom
such is asserted.
(e) This Agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to contracts made
and to be performed therein without giving effect to the principles of
conflicts of law thereof. If any action or proceeding shall be brought by any
of the Underwriters in order to enforce any right or remedy under this
Agreement, the Company and the Selling Stockholder hereby consent to and
submit to, the jurisdiction of the courts of the State of New York and of any
federal court sitting in the Borough of Manhattan, City of New York. The
Company and the Selling Stockholder agree that process in any such action or
proceeding may be served in the manner provided by New York law for service on
foreign persons, as appropriate.
(f) This Agreement may be signed in two or more counterparts
with the same effect as if the signatures to each counterpart were upon a
single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
-38-
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Company, the Selling Stockholder and you.
Very truly yours,
Votan Corporation
By:___________________________
John A. White
President and Chief
Executive Officer
MOSCOM Corporation
By:________________________________
Albert J. Montevecchio
President and Chief
Executive Officer
Accepted as of the date
first above written
LADENBURG, THALMANN & CO. INC.
KAUFMAN BROS., L.P.
By: Ladenburg, Thalmann & Co. Inc.
By:___________________________________
Acting on behalf of itself and as the Representative of the other
Underwriters named in Schedule A attached hereto.
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<PAGE>
SCHEDULE A
Number
Name of Underwriter of Shares
- -------------------- ---------
Ladenburg, Thalmann & Co. Inc.
Kaufman Bros., L.P.
---------
Total 2,850,000
=========
-40-
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VOTAN CORPORATION
Votan Corporation, a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is Votan Corporation. The date of filing
of its original Certificate of Incorporation with the Secretary of State was
June 6, 1996.
2. This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Certificate of Incorporation of
said corporation and has been duly adopted in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of
Delaware by written consent of the holders of all of the outstanding stock
necessary to approve such action in accordance with the provisions of Section
228 of the General Corporation Law of the State of Delaware.
3. The text of the Restated Certificate of Incorporation is hereby
amended and restated to read herein as set forth in full:
FIRST. The name of the Corporation is: Votan Corporation
SECOND. The address of its registered office in the State of Delaware is
1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is CT Corporation System.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 20,000,000 shares of Common Stock, $0.01 par value
per share (the "Common Stock") and 1,000,000 shares of Preferred Stock, $0.01
par value (the "Preferred Stock"). The Preferred Stock may have such
designations, rights and preferences as may be determined by the Board of
Directors.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
<PAGE>
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SIXTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this corporation, as the
case may be, and also on this corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment.
EIGHTH. The Corporation may, to the fullest extent permitted by
section 145 of the General Corporation Law of Delaware, as amended from time
to time, indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at
the request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid
- 2 -
<PAGE>
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make
such repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of
Directors of the Corporation.
The indemnification rights provided in this Article Eighth (i) shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. The Corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the Corporation or
other persons serving the Corporation and such rights may be equivalent to, or
greater or less than, those set forth in this Article.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Pleasanton, California, on September 6, 1996.
/s/ William E. O'Connor
----------------------------
WILLIAM E. O'CONNOR
SECRETARY
- 3 -
AMENDED AND RESTATED
BY-LAWS
OF
VOTAN CORPORATION
<PAGE>
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - Stockholders............................................................................... 1
1.1 Place of Meetings.................................................................... 1
1.2 Annual Meeting....................................................................... 1
1.3 Special Meetings..................................................................... 1
1.4 Notice of Meetings................................................................... 1
1.5 Voting List.......................................................................... 2
1.6 Quorum............................................................................... 2
1.7 Adjournments......................................................................... 2
1.8 Voting and Proxies................................................................... 2
1.9 Action at Meeting.................................................................... 2
1.10 Action without Meeting............................................................... 3
ARTICLE 2 - Directors.................................................................................. 3
2.1 General Powers....................................................................... 3
2.2 Number; Election and Qualification................................................... 3
2.3 Enlargement of the Board............................................................. 3
2.4 Tenure............................................................................... 3
2.5 Vacancies............................................................................ 3
2.6 Resignation.......................................................................... 4
2.7 Regular Meetings..................................................................... 4
2.8 Special Meetings..................................................................... 4
2.9 Notice of Special Meetings........................................................... 4
2.10 Meetings by Telephone Conference Calls............................................... 4
2.11 Quorum............................................................................... 4
2.12 Action at Meeting.................................................................... 5
2.13 Action by Consent.................................................................... 5
2.14 Removal.............................................................................. 5
2.15 Committees........................................................................... 5
2.16 Compensation of Directors............................................................ 5
ARTICLE 3 - Officers................................................................................... 6
3.1 Enumeration.......................................................................... 6
3.2 Election............................................................................. 6
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3.3 Qualification........................................................................ 6
3.4 Tenure............................................................................... 6
3.5 Resignation and Removal.............................................................. 6
3.6 Vacancies............................................................................ 6
3.7 Chairman of the Board and Vice-Chairman of the Board................................. 7
3.8 President............................................................................ 7
3.9 Vice Presidents...................................................................... 7
3.10 Secretary and Assistant Secretaries.................................................. 7
3.11 Treasurer and Assistant Treasurers................................................... 8
3.12 Salaries............................................................................. 8
ARTICLE 4 - Capital Stock.............................................................................. 8
4.1 Issuance of Stock.................................................................... 8
4.2 Certificates of Stock................................................................ 8
4.3 Transfers............................................................................ 9
4.4 Lost, Stolen or Destroyed Certificates............................................... 9
4.5 Record Date.......................................................................... 9
ARTICLE 5 - Indemnification............................................................................ 10
ARTICLE 6 - General Provisions......................................................................... 11
6.1 Fiscal Year.......................................................................... 11
6.2 Corporate Seal....................................................................... 11
6.3 Waiver of Notice..................................................................... 11
6.4 Voting of Securities................................................................. 12
6.5 Evidence of Authority................................................................ 12
6.6 Certificate of Incorporation......................................................... 12
6.7 Transactions with Interested Parties................................................. 12
6.8 Transactions with MOSCOM Corporation................................................. 13
6.9 Severability......................................................................... 13
6.10 Pronouns............................................................................. 13
ARTICLE 7 - Amendments................................................................................. 13
7.1 By the Board of Directors............................................................ 13
7.2 By the Stockholders.................................................................. 13
7.3 Certain Limitations.................................................................. 13
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AMENDED AND RESTATED
BY-LAWS
OF
VOTAN CORPORATION
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors or the President (which date shall not be a legal
holiday in the place where the meeting is to be held) at the time and place to
be fixed by the Board of Directors or the President and stated in the notice
of the meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient. If no annual meeting is held in accordance with the
foregoing provisions, a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these By-Laws to the annual meeting of the stockholders shall be
deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called
at any time by the President or by the Board of Directors. Business transacted
at any special meeting of stockholders shall be limited to matters relating to
the purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the
meeting is called. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the corporation.
<PAGE>
1.5 Voting List. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, at a place within the city
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time of the meeting, and
may be inspected by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be
held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
stockholder is present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify any stockholder
of any adjournment of less than 30 days if the time and place of the adjourned
meeting are announced at the meeting at which adjournment is taken, unless
after the adjournment a new record date is fixed for the adjourned meeting. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise
provided in the Certificate of Incorporation. Each stockholder of record
entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons
to vote or act for him by written proxy executed by the stockholder or his
authorized agent and delivered to the Secretary of the corporation. No such
proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of shares
of stock of that class representing a majority of the votes cast on a matter)
shall decide any matter to be voted upon by the stockholders at such meeting,
except when a different vote is required by express provision of law, the
Certificate of Incorporation or these By-Laws. When a quorum is present at any
meeting, any election by stockholders shall be determined by a plurality of
the votes cast on the election.
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1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote on such action were present and voted. Prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or
the Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by
resolution of the stockholders or the Board of Directors, but in no event
shall be less than one. The number of directors may be decreased at any time
and from time to time either by the stockholders or by a majority of the
directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of
stockholders by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be
increased at any time and from time to time by the stockholders or by a
majority of the directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. A director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office, and a director chosen to
fill a position resulting from an increase in the number of directors shall
hold office until the next annual meeting of stockholders and until his
successor is elected and qualified, or until his earlier death, resignation or
removal.
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2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some
other event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination
is made shall be given notice of the determination. A regular meeting of the
Board of Directors may be held without notice immediately after and at the
same place as the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, President, two or more
directors, or by one director in the event that there is only a single
director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be duly given to
each director (i) by giving notice to such director in person or by telephone
at least 48 hours in advance of the meeting, (ii) by sending a telegram or
telex, or delivering written notice by hand, to his last known business or
home address at least 48 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such
director so disqualified; provided, however, that in no case shall less than
one-third (1/3) of the number so fixed constitute a quorum. In the absence of
a quorum at any such meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice other than announcement
at the meeting, until a quorum shall be present.
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2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law,
the Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the
written consents are filed with the minutes of proceedings of the Board or
committee.
2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors, except that the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares of such
class or series.
2.15 Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Each such committee shall keep minutes and make
such reports as the Board of Directors may from time to time request. Except
as the Board of Directors may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors.
2.16 Compensation of Directors. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
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ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents,
Assistant Treasurers, and Assistant Secretaries. The Board of Directors may
appoint such other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing him, or until his earlier death, resignation
or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event.
Any officer may be removed at any time, with or without cause, by
vote of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month
or by the year or otherwise, unless such compensation is expressly provided in
a duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for
such period as it may determine any offices other than those of President,
Treasurer and Secretary. Each such successor shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified, or until his earlier death, resignation or removal.
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3.7 Chairman of the Board and Vice-Chairman of the Board. The Board
of Directors may appoint a Chairman of the Board and may designate the
Chairman of the Board as Chief Executive Officer. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess
such powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the
Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the
corporation. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the President, the Vice President (or if there shall be more than one, the
Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the President and when so performing shall have all the
powers of and be subject to all the restrictions upon the President. The Board
of Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on
documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one,
the Assistant Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
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In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office
of treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws,
to disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any unissued balance of the authorized
capital stock of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of Directors in such
manner, for such consideration and on such terms as the Board of Directors may
determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or
in the name of the corporation by, the Chairman or Vice-Chairman, if any, of
the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation. Any or all of the signatures on the certificate
may be a facsimile.
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Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have
conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by
the Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to such stock, regardless of any transfer,
pledge or other disposition of such stock until the shares have been
transferred on the books of the corporation in accordance with the
requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue
a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and
conditions as the Board of Directors may prescribe, including the presentation
of reasonable evidence of such loss, theft or destruction and the giving of
such indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of
or to vote at any meeting of stockholders or to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to
any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice is
given, or, if notice is waived, at the close of business on the day before the
day on which the meeting is held. The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day
on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - Indemnification
The corporation may, to the fullest extent authorized under the laws
of the State of Delaware, as those laws may be amended and supplemented from
time to time, indemnify any director, officer, employee and/or agent made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of being a director, officer
and/or employee of the corporation or a predecessor corporation or, at the
corporation's request, a director or officer of another corporation, provided,
however, that the corporation shall indemnify any such agent in connection
with a proceeding initiated by such agent only if such proceeding was
authorized by the Board of Directors of the corporation. The indemnification
provided for in this Article 5 shall: (i) not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement
or vote of stockholders or disinterested directors or otherwise, both as to
action in their official capacities and as to action in another capacity while
holding such office, (ii) continue as to a person who has ceased to be a
director, officer, employee and/or agent, as the case may be, and (iii) inure
to the benefit of the heirs, executors and administrators of such a person.
The corporation's obligation to provide indemnification under this Article 5
shall be offset to the extent of any other source of indemnification or any
otherwise applicable insurance coverage under a policy maintained by the
corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is
or was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is
a party to an action, suit or proceeding brought by the corporation and
approved by a majority of the Board of Directors of the corporation which
alleges willful misappropriation of corporate assets by such agent, disclosure
of confidential information in violation of such agent's fiduciary or
contractual obligations to the corporation or any other willful and deliberate
breach in bad faith of such agent's duty to the corporation or its
stockholders.
The foregoing provisions of this Article 5 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is
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in effect, and any repeal or modification thereof shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf
of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article 5 of all directors,
officers and employees who are determined by the corporation or otherwise to
be or to have been "fiduciaries" of any employee benefit plan of the
corporation which may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Article 5, be
interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines."
ARTICLE 6 - General Provisions
6.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall end on the
last day of December in each year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or
any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
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<PAGE>
6.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
6.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to
time.
6.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or
between the corporation and any other corporation, partnership, association,
or other organization in which one or more of the directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or a committee of
the Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(3) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee of the Board of Directors, or the
stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
- 12 -
<PAGE>
6.8 Transactions with MOSCOM Corporation. All contracts or
transactions between the corporation and MOSCOM Corporation, which require the
approval of the Board of Directors of the corporation, shall be approved by a
committee of the Board of Directors consisting solely of Directors not
otherwise affiliated with the corporation or MOSCOM Corporation.
6.9 Severability. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not
affect or invalidate any other provision of these By-Laws.
6.10 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 7 - Amendments
7.1 By the Board of Directors. These By-Laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the
Board of Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
7.3 Certain Limitations. Notwithstanding any provision otherwise set
forth herein, until such time as MOSCOM Corporation holds less than twenty
percent (20%) of the capital stock of the corporation, the provisions of
Section 6.8 hereto may not be amended or repealed without the approval of the
holders of a majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote, excluding any shares held by
MOSCOM Corporation.
(The remainder of this page is intentionally left blank.)
- 13 -
</TABLE>
September 6, 1996
Votan Corporation
7020 Koll Center Parkway
Pleasanton, California 94566
Ladies and Gentlemen:
We have assisted in the preparation and filing by Votan Corporation (the
"Company") of a Registration Statement on Form S-1, as amended through September
6, 1996 (the "Registration Statement"), with the Securities and Exchange
Commission, relating to the sale of up to 3,277,500 shares of Common Stock (the
"Shares"), par value $0.01 per share, including 2,000,000 shares to be offered
by the Company, 850,000 shares of Common Stock to be sold by MOSCOM Corporation
("MOSCOM") and 427,500 shares of Common Stock to be sold by MOSCOM as part of
the underwriters' over-allotment option. A form of underwriting agreement (the
"Underwriting Agreement") has been filed as an exhibit to the Registration
Statement.
We have examined such records and documents and have made such
examination of laws as we considered necessary to form a basis for the opinion
set forth herein. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with the originals of all documents submitted to us as copies
thereof.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized and, when sold and paid for in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully paid and
nonassessble.
We hereby consent to the use of our name in the Registration Statement
under the caption "Legal Matters" in the related Prospectus and consent to the
filing of this opinion as an exhibit thereto.
Very truly yours,
By: /s/ Brobeck, Phleger & Harrison LLP
-----------------------------------
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
BUSINESS CENTER LEASE
1. BASIC LEASE TERMS
<TABLE>
<CAPTION>
<S> <C>
a. DATE OF LEASE EXECUTION: July 8, 1996
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b. TENANT: Votan Corporation, a Delaware Corporation
---------------------------------------------------------------------------------
Trade Name: Votan
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Address (Leased Premises): 6920 Koll Center Parkway, Suite 214
---------------------------------------------------------------------------------
Pleasanton, California 94566 Building/Unit C/214
---------------------------------------------------------------------------------
Address (For Notices): same
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
c. LANDLORD: BERNAL CORPORATE PARK
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Address (For Notices): 7011 Koll Center Parkway, Suite 210
---------------------------------------------------------------------------------
Pleasanton, California 94566
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TENANT'S USE OF PREMISES: Administrative offices & storage of electronic
d. components
---------------------------------------------------------------------------------
e. PREMISES AREA: 12,587 rentable square feet
---------------------------------------------------------------------------------
f. PROJECT AREA: 119,923 square feet
---------------------------------------------------------------------------------
g. PREMISES PERCENT OF PROJECT: 10.495%
---------------------------------------------------------------------------------
h. TERM OF LEASE: Commencement: December 1, 1996 Expiration: November 30, 2001
---------------------------------------------------------------------------------
Number of Months: 60
---------------------------------------------------------------------------------
i. BASE MONTHLY RENT: $14,412.11
---------------------------------------------------------------------------------
RENT ADJUSTMENT:
j. (1) Step Increase. The provisions of section 4.b.(1) apply as follows:
</TABLE>
<TABLE>
<CAPTION>
EFFECTIVE DATE OF NEW BASE
RENT INCREASE MONTHLY RENT
--------------------- ----------------
<S> <C>
06/01, 1998 $15,293.20
12/01, 1999 $15,922.55
, 19 $
, 19 $
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
k. ANNUAL EXPENSE BASE:
Expense Rate $ In 1997 and thereafter Tenant pays operating expenses above the actual 1996 operating
expenses. Please see Section 4 (c).
---------------------------------------------------------------------------------
Premises Area Square Feet X
------------------------------------------
Annual Expense Base $
------------------------------------------
l. PREPAID RENT: $0.00
-------------------------------------------
m. TOTAL SECURITY DEPOSIT: $14,412.11, including a $1,441.21 non-refundable cleaning fee.
---------------------------------------------------------------------------------
n. BROKER(S): N/A
---------------------------------------------------------------------------------
o. GUARANTORS: N/A
---------------------------------------------------------------------------------
p. ADDITIONAL SECTIONS:
Additional sections of this lease numbered 28 through 34 are attached hereto and made a part hereof. If
none, so state in the following space ___________.
q. ADDITIONAL EXHIBITS:
Additional exhibits lettered D through D-I are attached hereto and made a part hereof. If none, so state in
the following space __________.
</TABLE>
1
.
<PAGE>
2. PREMISES. Landlord leases to Tenant the Premises described in Section 1
and in Exhibit A (the "Premises"), located in this Project described on
Exhibit B (the "Project"). Landlord reserves the right to modify
Tenant's percentage of the Project as set forth in Section 1 if the
Project size is increased through the development of additional
property. By entry on the Premises, Tenant acknowledges that it has
examined the Premises and accepts the Premises in their present
condition, subject to any additional work Landlord has agreed to do.
3. TERM. The term of this Lease is for the period set forth in Section 1,
commencing on the date in Section 1. If Landlord, for any reason,
cannot deliver possession of the Premises to Tenant upon commencement
of the term, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting from such
delay. In that event, however, there shall be a rent abatement covering
the period between the commencement of the term and the time when
Landlord delivers possession to Tenant, and all other terms and
conditions of this Lease shall remain in full force and effect,
provided, however, that if Landlord cannot deliver possession of the
Premises to Tenant, this Lease shall be void. If a delay in possession
is caused by Tenant's failure to perform any obligation in accordance
with this Lease, the term shall commence as set forth in Section 1 and
there shall be no reduction of rent between the commencement of the
term and the time Tenant takes possession.
4. RENT.
A. BASE RENT. Tenant shall pay to Landlord monthly base rent in the
initial amount in Section 1 which shall be payable monthly in advance
on the first day of each and every calendar month ("Base Monthly Rent")
provided, however, the first month's rent is due and payable upon
execution of this Lease. FAILURE TO PAY RENT BY THE TENTH (10TH) SHALL
CONSTITUTE A DEFAULT OF THE LEASE. If the term of this Lease contains
any rental abatement period, Tenant hereby agrees that if Tenant
breaches the Lease and/or abandons the Premises before the end of the
Lease term, or if Tenant's right to possessions is terminated by
Landlord because of Tenant's breach of the Lease, Landlord shall, at
its option, (1) void the rental abatement period; and (2) recover from
Tenant, in addition to any damages due Landlord under the terms and
conditions of the Lease, rent prorated for the duration of the rental
abatement period at a rental rate equivalent to the effective Base
Monthly Rent.
For purposes of Section 467 of the Internal Revenue Code, the parties
to this Lease hereby agree to allocate the stated rents, provided
herein, to the periods which correspond to the actual rent payments as
provided under the terms and conditions of this agreement.
B. RENT ADJUSTMENT.
1) STEP INCREASE. Base Monthly Rent shall be increased periodically
to the amounts and at the times set forth in Section 1.j.
C. EXPENSES. The purpose of this Section 4.c. is to ensure that Tenant
bears a share of all Expenses related to the use, maintenance,
ownership, repair or replacement, and insurance of the Project.
Accordingly, beginning on the date Tenant takes possession of the
Premises, Tenant shall pay to Landlord that portion of Tenant's share
of Expenses related to the Project which is in excess of the Annual
Expense Base shown in Section 1. NOTWITHSTANDING ANYTHING CONTAINED TO
THE CONTRARY, TENANT'S PROPORTIONATE SHARE OF OPERATING EXPENSES SHALL
NOT INCREASE BY MORE THAN FOUR PERCENT (4%) PER ANNUM EXCEPT FOR TAXES,
INSURANCE AND UTILITIES WHICH SHALL NOT BE SUBJECT TO SUCH LIMITATION.
1) EXPENSES DEFINED. The term "Expenses" shall mean all costs and
expenses of the ownership, operation maintenance, repair or
replacement, and insurance of the Project, including without
limitation, the following costs:
(a) All supplies, materials, labor, equipment, and utilities used
in or related to the operation and maintenance of the Project;
(b) All maintenance, management, janitorial, legal, accounting,
insurance, and service agreement costs related to the Project;
(c) All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without limitation,
air conditioning systems, sidewalks, landscaping, service areas,
driveways, parking areas (including resurfacing and restriping
parking areas), walkways, building exteriors (including painting),
signs and directories, repairing and replacing roofs, walls, etc.
These costs may be included either based on actual expenditures or
the use of an accounting reserve based on past cost experience for
the Project.
(d) Amortization (along with reasonable financing charges) of
capital improvements made to the Project which may be required by
any government authority or which will improve the operating
efficiency of the Project (provided, however, that the amount of
such amortization for improvements not mandated by government
authority shall not exceed in any year the amount of costs
reasonably determined by Landlord in its sole discretion to have
been saved by the
2
<PAGE>
expenditure either through the reduction or minimizations of
increases which would have otherwise occurred).
(e) Real Property Taxes including all taxes, assessments (general
and special) and other impositions or charges which may be taxed,
charged, levied, assessed or imposed upon all or any portion of or
in relation to the Project or any portion thereof, any leasehold
estate in the Premises or measured by rent from the Premises,
including any increase caused by the transfer, sale or encumbrance
of the Project or any portion thereof. "Real Property Taxes" shall
also include any form of assessment, levy, penalty, charge or tax
(other than estate, inheritance, net income, or franchise taxes)
imposed by any authority having a direct or indirect power to tax
or charge, including, without limitation, any city, county, state,
federal or any improvement or other district, whether such tax is
(1) determined by the area of the Project or the rent or other
sums payable under this Lease; (2) upon or with respect to any
legal or equitable interest of Landlord in the Project or any part
thereof; (3) upon this transaction or any document to which Tenant
is a party creating a transfer in any interest in the Project; (4)
in lieu of or as a direct substitute in whole or in part of or in
addition to any real property taxes on the Project; (5) based on
any parking spaces or parking facilities provided in the Project;
or (6) in consideration for services, such as police protection,
fire protection, street, sidewalk and roadway maintenance, refuse
removal or other services that may be provided by any governmental
or quasi-government agency from time to time which were formerly
provided without charge or with less charge to property owners or
occupants.
2) ANNUAL ESTIMATE OF EXPENSES. When Tenant takes possession of the
Premises, Landlord shall estimate Tenant's portion of Expenses for
the remainder of the calendar year based on the Tenant's portion of
the Project Area set forth in Section 1. At the commencement of each
calendar year thereafter, Landlord shall estimate Tenant's portion
of Expenses for the coming year based on the Tenant's portion of the
Project Area set forth in Section 1.
3) MONTHLY PAYMENT OF EXPENSES. If Tenant's portion of said estimate
of Expenses shows an increase for the remainder of the calendar year
over the Annual Expense Base, as set forth in Section 1, Tenant
shall pay to Landlord, as additional rent, such estimated increase
in monthly installments of one-twelfth (1/12) beginning on the date
Tenant takes possession of the Premises. If Tenant's portion of said
estimate of Expenses shows an increase for subsequent calendar years
over the Annual Expense Base, as set forth in Section 1, Tenant
shall pay Landlord, as additional rent, such estimated increase in
monthly installments of one-twelfth (1/12) beginning on January 1 of
the forthcoming calendar year, and one-twelfth (1/12) on the first
day of each succeeding calendar month. As soon as practical
following each calendar year, Landlord shall prepare an accounting
of actual Expenses incurred during the prior calendar year and such
accounting shall reflect Tenant's share of Expenses. If the
additional rent paid by Tenant under this Section 4.c.3 during the
preceding calendar year was less than the actual amount of Tenant's
share of Expenses, Landlord shall so notify Tenant and Tenant shall
pay such amount to Landlord within thirty (30) days of receipt of
such notice. Such amount shall be deemed to have accrued during the
prior calendar year and shall be due and payable from Tenant even
though the term of this Lease has expired or this Lease has been
terminated prior to Tenant's receipt of this notice. Tenant shall
have thirty (30) days from receipt of such notice to contest the
amount due; failure to so notify Landlord shall represent final
determination of Tenant's share of expenses. If Tenant's payments
were greater than the actual amount, then such overpayment shall be
credited by Landlord to all present rent due under this Section
4.c.3.
D. RENT WITHOUT OFFSET AND LATE CHARGE. All rent shall be paid by
Tenant to Landlord monthly in advance on the first day of every
calendar month, at the address shown in Section 1, or such other place
as Landlord may designate in writing from time to time. All rent shall
be paid without prior demand or notice without any deduction or offset
whatsoever. All rent shall be paid in lawful currency of the United
States of America. All rent due for any partial month shall be prorated
at the rate calculated by dividing the number of days for which rent is
due by the actual number of days in the month and multiplied by the
applicable monthly rate. Tenant acknowledges that late payment by
Tenant to Landlord of any rent or other sums due under this Lease will
cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such cost being extremely difficult and impracticable to
ascertain. Such costs include, without limitation, processing and
accounting charges and late charges that may be imposed on Landlord by
the terms of any encumbrance or note secured by the Premises.
Therefore, if any rent or other sum due from Tenant is not received by
the eleventh of each month, Tenant shall pay to Landlord an additional
sum equal to 10% of such overdue payment. Landlord and Tenant hereby
agree that such late charge represents a fair and reasonable estimate
of the costs that Landlord will incur by reason of any such late
payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of
the late charge shall not be deemed a waiver of any other default.
Additionally, all such delinquent rent or other sums, plus this late
charge, shall bear interest at the then maximum lawful rate permitted
to be charged by Landlord. Any payments of any kind returned for
insufficient funds will be subject to an additional handling charge of
$25.00, and thereafter, Landlord may require Tenant to pay all future
payments of rent or other sums due by money order or cashier's check.
3
<PAGE>
5. PREPAID RENT. Upon the execution of this Lease, Tenant shall pay to
Landlord the prepaid rent set forth in Section 1, and if Tenant is not
in default of any provisions of this Lease, such prepaid rent shall be
applied toward the rent due to the last month of the term. Landlord's
obligations with respect to the prepaid rent are those of a debtor and
not of a trustee, and Landlord can commingle the prepaid rent with
Landlord's general funds. Landlord shall not be required to pay Tenant
interest on the prepaid rent. Landlord shall be entitled to immediately
endorse and cash Tenant's prepaid rent; however, such endorsement and
cashing shall not constitute Landlord's acceptance of this Lease. In
the event Landlord does not accept this Lease, Landlord shall return
said prepaid rent.
6. DEPOSIT. Upon execution of this Lease, Tenant shall deposit the
security deposit set forth in Section 1 with Landlord, in part as
security for the performance by Tenant of the provisions of this Lease
and in part as a cleaning fee. If Tenant is in default, Landlord can
use the security deposit or any portion of it to cure the default or to
compensate Landlord for any damages sustained by Landlord resulting
from Tenant's default. Upon demand, Tenant shall immediately pay to
Landlord a sum equal to the portion of the security deposit expended or
applied by Landlord to maintain the security deposit in the amount
initially deposited with Landlord. In no event with Tenant have the
right to apply any part of the security deposit to any rent or other
sums due under this Lease. If Tenant is not in default at the
expiration or termination of this Lease, Landlord shall return the
entire security deposit to Tenant, except for 10% of first month's rent
or $125, whichever is greater, which Landlord shall retain as a
nonrefundable cleaning fee. Landlord's obligations with respect to the
deposit are those of a debtor and not of a trustee, and Landlord can
commingle the security deposit with Landlord's general funds. Landlord
shall not be required to pay Tenant interest on the deposit. Landlord
shall be entitled to immediately endorse and cash Tenant's prepaid
deposit; UPON LANDLORD'S ACCEPTANCE OF LEASE however, such endorsement
and cashing shall not constitute Landlord's acceptance of this Lease.
In the event Landlord does not accept this Lease, Landlord shall return
said prepaid deposit.
7. USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises
solely for the purposes set forth in Section 1 and for no other purpose
without obtaining the prior written consent of Landlord. Tenant
acknowledges that neither Landlord nor any agent of Landlord has made
any representation or warranty with respect to the Premises or with
respect to the suitability of the Premises or the Project for the
conduct of Tenant's businesses, nor has Landlord agreed to undertake
any modification, alteration or improvement to the Premises or the
Project, except as provided in writing in this Lease. Tenant
acknowledges that Landlord may from time to time, at its sole
discretion, make such modifications, alterations, deletions or
improvements to the Project as Landlord may deem necessary or
desirable, without compensation or notice to Tenant. Tenant shall
promptly comply with all laws, ordinances, orders and regulations
affecting the Premises and the Project, including, without limitation,
any rules and regulations that may be attached to this Lease and to any
reasonable modifications to these rules and regulations as Landlord may
adopt from time to time. Tenant shall not do or permit anything to be
done in or about the Premises or bring or keep anything in the Premises
that will in any way increase the premiums paid by Landlord on its
insurance related to the Project or which will in any way increase the
premiums for fire or casualty insurance carried by other tenants in the
Project. Tenant will not perform any act or carry on any practices that
may injure the premises or the Project; that may be a nuisance or
menace to other tenants in the Project; or that shall in any way
interfere with the quiet enjoyment of such other tenants. Tenant shall
not use the Premises for, sleeping, washing clothes, cooking or the
preparation, manufacture or mixing of anything that might emit any
objectionable odor, noises, vibrations or lights onto such other
tenants. If sound insulation is required to muffle noise produced by
Tenant on the Premises, Tenant at its own cost shall provide all
necessary insulation. Tenant shall not do anything on the Premises
which will overload any existing parking or service to the Premises.
Pets and/or animals of any type shall not be kept on the Premises.
8. SIGNAGE. All signing shall comply with rules and regulations set forth
by Landlord as may be modified from time to time. Current rules and
regulations relating to signs are described on Exhibit C. Tenant shall
place no window covering (e.g., shades, blinds, curtains, drapes,
screens, or tinting materials), stickers, signs, lettering, banners or
advertising or display material on or near exterior windows or doors if
such materials are visible for the exterior of the Premises, without
Landlord's prior written consent. Similarly, Tenant may not install any
alarm boxes, foil protection tape or other security equipment on the
Premises without Landlord's prior written consent. Any material
violating this provision may be destroyed by Landlord without
compensation to Tenant.
9. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed
upon its business operations as well as upon all trade fixtures,
leasehold improvements merchandise and other personal property in or
about the Premises.
10. PARKING. Landlord grants to Tenant and Tenant's customers, suppliers,
employees and invitees, a non-exclusive license to use the designated
parking areas in the Project for the use of motor vehicles during the
term of this Lease. Landlord reserves the right at any time to grant
similar non-exclusive use of other tenants, to promulgate rules and
regulations relating to the use of such parking areas, including
reasonable restrictions on parking by tenants and employees, to
designate specific spaces for the use of any tenant, to make changes in
the parking layout from time to time, and to establish reasonable time
limits on parking. Overnight parking is prohibited for automobiles
only, and any automobile violating this or any other vehicle regulation
adopted by Landlord is subject to removal at the owner's expense.
4
<PAGE>
11. UTILITIES. Tenant shall pay for all water, gas, heat, light, power,
sewer, electricity, telephone or other service metered, chargeable or
provided to the Premises. Landlord reserves the right to install
separate meters for any such utility and charge tenant for the cost of
such installation.
12. MAINTENANCE. Landlord shall maintain, in good condition, the structural
parts of the Premises, which shall include only the foundations,
bearing and exterior walls (excluding glass), subflooring and roof
(excluding skylights), the unexposed electrical, plumbing and sewerage
systems, including without limitation, those portions of the systems
lying outside the Premises, exterior doors (excluding glass), window
frames, gutters and downspouts on the Building and the heating,
ventilating and air conditioning systems servicing the Premises;
provided, however, the cost of all such maintenance shall be considered
"Expenses" for purposes of Section 4.c. Except as provided above,
Tenant shall maintain and repair the Premises in good condition,
including, without limitation, maintaining and repairing all walls,
floors, ceilings, interior doors, exterior and interior windows and
fixtures as well as damage caused by Tenant, its agents, employees or
invitees. Upon expiration or termination of this Lease, Tenant shall
surrender the Premises to Landlord in the same condition as existed at
the commencement of the term, except for reasonable wear and tear or
damage caused by fire or other casualty for which Landlord has received
all funds necessary for restoration of the Premises from insurance
proceeds.
13. ALTERATIONS. Tenant shall not make any alteration to the Premises, or
to the Project, including any changes to the existing landscaping,
without Landlord's prior written consent. If Landlord gives its consent
to such alterations, Landlord may post notices in accordance with the
laws of the state in which the Premises are located. Any alterations
made shall remain on and be surrendered with the Premises upon
expiration or termination of this Lease, except that Landlord may,
within 30 days before or 30 days after expiration of the term, elect to
require Tenant to remove any alterations which Tenant may have made to
the Premises. If Landlord so elects, at its own cost Tenant shall
restore the Premises to the condition designated by Landlord in its
election, before the last day of the term or within 30 days after
notice of its election is given, which ever is later.
Should Landlord consent in writing to Tenant's alternation of the
Premises, Tenant shall contract with a contractor approved by Landlord
for the construction of such alterations, shall secure all appropriate
governmental approvals, and permits, and shall complete such
alterations with due diligence in compliance with plans and
specifications approved by Landlord. All such construction shall be
performed in a manner which will not interfere with the quiet enjoyment
of other tenants of the Project. Tenant shall pay all costs for such
construction and shall keep the Premises and the Project free and clear
of all mechanics' liens which may result from construction by Tenant.
14. RELEASE AND INDEMNITY. As material consideration to Landlord, Tenant
agrees that Landlord shall not be liable to Tenant for any damage to
Tenant or Tenant's property from any cause, and Tenant waives all
claims against Landlord for damage to persons or property arising for
any reason, except for damage resulting from Landlord's breach it its
express obligations under this Lease which Landlord has not cured
within a reasonable time after receipt of written notice of such breach
from Tenant. Tenant shall indemnify and hold Landlord harmless from all
damages arising out of any damage to any person or property occurring
in, on or about the Premises or Tenant's use of the Premises or
Tenant's breach of any term of this Lease.
15. INSURANCE. Tenant, at its cost, shall maintain public liability and
property damage insurance and product liability insurance with a single
combined liability limit of $1,000,000, insuring against all liability
of Tenant and its authorized representatives arising out of or in
connection with Tenant's use or occupancy of the Premises. Public
liability insurance, products liability insurance and property damage
insurance shall insure performance by Tenant of the indemnity
provisions of Section 14. Landlord shall be named as additional insured
and the policy shall contain cross-liability endorsements. On all its
personal property, at its cost, Tenant shall maintain a policy of
standard fire and extended coverage insurance with vandalism and
malicious mischief endorsements and "all risk" coverage on all Tenant's
improvements and alterations in or about the Premises, to the extent of
at least 90% of their full replacement value. The proceeds from any
such policy shall be used by Tenant for the replacement of personal
property and the restoration of Tenant's improvements or alterations.
All insurance required to be provided by Tenant under this Lease shall
release Landlord from any claims for damage to any person or the
Premises and the Project, and to Tenant's fixtures, personal property,
improvements and alterations in or on the Premises or the Project,
caused by or resulting from risks insured against under any insurance
policy carried by Tenant in force at the time of such damage. All
insurance required to be provided by Tenant under this Lease: (a) shall
be issued by insurance companies authorized to do business in the state
in which the premises are located with a financial rating of at least
an A+XII status as rated in the most recent edition of Best's Insurance
Reports; (b) shall be issued as a primary policy; and (c) shall contain
an endorsement requiring at least 30 days prior written notice of
cancellation to Landlord and Landlord's lender, before cancellation or
change in coverage, scope or amount of any policy. Tenant shall deliver
a certificate or copy of such policy together with evidence of payment
of all current premiums to Landlord within 30 days of execution of this
Lease. Tenant's failure to provide evidence of such coverage to
Landlord may, in Landlord's sole discretion, constitute a default under
this lease.
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16. DESTRUCTION. If during the term, the Premises or Project are more than
10% destroyed from any cause, or rendered inaccessible or unusable from
any cause, Landlord may, in its sole discretion, terminate this Lease
by delivery of notice to Tenant within 30 days of such event without
compensation to Tenant. If in Landlord's estimation, the Premises
cannot be restored within 90 days following such destruction, the
Landlord shall immediately notify Tenant and Tenant may terminate this
Lease by delivery of notice to Landlord within 30 days of receipt of
Landlord's notice. If Landlord does not terminate this Lease and If in
Landlord's estimation the Premises can be restored within 90 days, then
Landlord shall commence to restore the Premises in compliance with then
existing laws and shall complete such restoration with due diligence.
In such event, this Lease shall remain in full force and effect, but
there shall be an abatement of rent between the date of destruction and
the date of completion or restoration, based on the extent to which
destruction interferes with Tenant's use of the Premises.
17. CONDEMNATION
A. DEFINITIONS. The following definitions shall apply. (1) "Condemnation"
means (a) the exercise of any governmental power of eminent domain,
whether by legal proceedings or otherwise by condemnor and (b) the
voluntary sale or transfer by Landlord to any condemnor either under
threat of condemnation or while legal proceedings for condemnation are
proceeding; (2) "Date of Taking" means the date the condemnor has right
to possession of the property being condemned; (3) "Award" means all
compensation, sums or anything of value awarded, paid or received on a
total or partial condemnation; and (4) "Condemnor" means any public or
quasi-public authority or private corporation or individual, having
power of condemnation.
B. OBLIGATIONS TO BE GOVERNED BY LEASE. If during the term of the Lease
there is any taking of all or any part of the Premises or the Project,
the rights and obligations of the parties shall be determined pursuant
to this Lease.
C. TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking. If any
portion of the Premises is taken by condemnation, this Lease shall
remain in effect, except that Tenant can elect to terminate this Lease
if the remaining portion of the Premises is rendered unsuitable for
Tenant's continued use of Premises. If Tenant elects to terminate this
Lease, Tenant must exercise its right to terminate by giving notice to
Landlord within thirty (30) days after the nature and extent of the
taking have been finally determined. If Tenant elects to terminate this
Lease, Tenant shall also notify Landlord of the date of termination
which date shall not be earlier than thirty (30) days nor later than
ninety (90) days after Tenant has notified Landlord of its election to
terminate; except that this Lease shall terminate on the date of taking
if the date of taking falls on a date before the date of termination as
designated by Tenant. If any portion of the Premises is taken by
condemnation and this Lease remains in full force and effect, on the
date of taking the rent shall be reduced by an amount in the same ratio
as the total number of square feet in the Premises taken bears to the
total number of square feet in the Premises immediately before the date
of taking.
18. ASSIGNMENT OR SUBLEASE. Tenant shall not assign or encumber its
interest in this Lease or the Premises or sublease all or any part of
the Premises or allow any other person or entity (except Tenant's
authorized representatives, employees, invitees, or guests) to occupy
or use all or any part of the Premises without first obtaining
Landlord's consent, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD.
which Landlord may withhold in its sole discretion. Any assignment,
encumbrance or sublease without Landlord's written consent shall be
voidable and at Landlord's election, shall constitute a default. If
Tenant is a partnership, a withdrawal or change, voluntary, involuntary
or by operation of law of any partner, or the dissolution of the
partnership, shall be deemed a voluntary assignment. If Tenant consists
of more than one person, a purported assignment, voluntary or
involuntary or by operation of law from one person to the other shall
be deemed a voluntary assignment. If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant,
or sale or other transfer of a controlling percentage of the capital
stock of Tenant, or the sale of at least 25% of the value of the assets
of Tenant shall be deemed a voluntary assignment. The phrase
"controlling percentage" means ownership of and right to vote stock
possessing at least 25% of the total combined voting power of all
classes of Tenant's capital stock issued, outstanding and entitled to
vote for election of directors. This Section 18 shall not apply to
corporations the stock of which is traded through an exchange or over
the counter. Fifty percent of all rent received by Tenant from its
subtenants, if they occupy all of the space, in excess of the rent
payable by Tenant to Landlord under this Lease shall be paid to
Landlord, or any (fifth percent of) sums to be paid by an assignee to
Tenant in consideration of the assignment of this Lease shall be paid
to Landlord. If Tenant requests Landlord to consent to a proposed
assignment or subletting, Tenant shall pay to Landlord, whether or not
consent is ultimately given, $100 or Landlord's reasonable attorney's
fees incurred in connection with such request, whichever is greater.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including without limitation the
transfer of this Lease by testacy or intestacy). Each of the followings
acts shall be considered an involuntary assignment: (a) If Tenant is or
becomes bankrupt or insolvent, makes an assignment for the benefit of
creditors; or institutes proceedings under the Bankruptcy Act in which
Tenant is the bankrupt; or if Tenant is a partnership or consists of
more than one person or entity, if any partner of the partnership or
other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; or (b) If a writ of
attachment or execution is levied on this Lease; or (c) If in any
proceeding or action to which Tenant is a party, a receiver is
appointed with authority to take possession of the Premises. An
involuntary assignment shall constitute a default by Tenant and
Landlord shall have the right to elect to terminate this Lease, in
which case this Lease shall not be treated as an asset of Tenant.
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19. DEFAULT. The occurrence of any of the following shall constitute a
default by Tenant. (a) A failure to pay rent or other charge when due;
(b) Abandonment and vacation of the Premises (failure to occupy and
operate the Premises for ten (10) consecutive days shall be deemed an
abandonment and vacation); or (c) Failure to perform any other
provision of this Lease. TENANT SHALL HAVE A TEN (10) DAY GRACE PERIOD
AFTER RECEIPT OF WRITTEN NOTICE OF DEFAULT TO CURE SUCH DEFAULT.
20. LANDLORD'S REMEDIES. Landlord shall have the following remedies if
Tenant is in default. (These remedies are not exclusive; they are
cumulative and in addition to any remedies now or later allowed by
law): Landlord may terminate Tenant's right to possession of the
Premises at any time. No act by Landlord other than giving notice to
Tenant shall terminate this Lease. Acts of maintenance, efforts to
relet the Premises, or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. Upon
termination of Tenant's right to possession, Landlord has the right to
recover from Tenant: (1) The worth of the unpaid rent that had been
earned at the time of termination of Tenant's right to possession; (2)
The worth of the amount of the unpaid rent that would have been earned
after the date of termination of Tenant's right to possession; (3) Any
other amount, including court, attorney, and collection costs,
necessary to compensate Landlord for all detriment proximately caused
by Tenant's default. "The worth," as used for Item 20(1) in this
Paragraph 20 is to be computed by allowing interest at the maximum rate
an individual is permitted to charge by law or 12%. , whichever is
greater. "The worth at the time of the award" as used for Item 20(2)
in this Paragraph 20 is to be computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time
of termination of Tenant's right of possession. 12%.
21. ENTRY ON PREMISES. Landlord and its authorized representatives shall
have the right to enter the Premises at all reasonable times for any of
the following purposes: (a) To determine whether the Premises are in
good condition and whether Tenant is complying with its obligations
under this Lease; (b) To do any necessary maintenance and to make any
restoration to the Premises or the Project that Landlord has the right
or obligation to perform; (c) To post "for sale" signs at any time
during the term, to post "for rent" or "for lease" signs during the
last ninety (90) days of the term, or during any period while Tenant is
in default; (d) To show the Premises to prospective brokers, agents,
buyers, tenants, or persons interested in leasing or purchasing the
Premises, at any time during the term; or (e) To repair, maintain or
improve the Project and to erect scaffolding and protective barricades
around and about the Premises but not so as to prevent entry to the
Premises and to do any other act or thing necessary for the safety or
preservation of the Premises or the Project. Landlord shall not be
liable in any manner for any inconvenience, disturbance, loss of
business, nuisance, or other damage arising out of Landlord's entry
onto the Premises as provided in this Section 21. Tenant shall not be
entitled to an abatement or reduction of rent if Landlord exercises any
rights reserved in this Section 21. Landlord shall conduct its activities
on the Premises as provided herein in a manner that will cause the least
inconvenience, annoyance or disturbance to Tenant. For each of these
purposes, Landlord shall at all times have and retain a key with which
to unlock all the doors in, upon and about the Premises, excluding
Tenant's vaults and safes. Tenant shall not alter any lock or install a
new or additional lock or bolt on any door of the Premises without
prior written consent of Landlord. If Landlord gives its consent,
Tenant shall furnish Landlord with a key for any such lock.
22. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at
the election of Landlord or any mortgagee or any beneficiary of a Deed
of Trust with a lien on the Project or any ground lessor with respect
to the Project, this Lease shall be subject and subordinate at all
times to (a) all ground leases or underlying leases which may now exist
or hereafter be executed affecting the Project, and (b) the lien of any
mortgage or Deed of Trust which may now exist or hereafter be executed
in any amount for which the Project, ground leases or underlying
leases, or Landlord's interest or estate in any of said items is
specified as security. In the event that any ground lease or underlying
lease terminates for any reason or any mortgage or Deed of Trust is
foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord, at the
option of such successor in interest. Tenant covenants and agrees to
execute and deliver, upon demand by Landlord and in the form requested
by Landlord, any additional documents evidencing the priority or
subordination of this Lease with respect to any such ground leases or
underlying leases or the lien of any such mortgage or Deed of Trust.
Tenant hereby irrevocably appoints Landlord as attorney-in-fact of
Tenant to execute, deliver and record any such document in the name and
on behalf of Tenant.
Tenant, within ten (10) days from notice from Landlord, shall execute
and deliver to Landlord, in recordable form, certificates stating that
this Lease is not in default, is unmodified and in full force and
effect, or in full force and effect as modified, and stating the
modifications. This certificate should also state the amount of current
monthly rent, the dates to which rent has been paid in advance, and the
amount of any security deposit and prepaid rent. Failure to deliver
this certificate to Landlord within ten (10) days shall be conclusive
upon Tenant that this Lease is in full force and effect and has not
been modified except as may be represented by Landlord.
23. NOTICE. Any notice, demand, request, consent, approval, or communication
desired by either party or required to be given, shall be in writing and
served either personally or sent by prepaid certified first class mail,
addressed as set forth in Section 1. Either party may change its
address by notification to the other party. Notice shall be
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deemed to be communicated forty-eight (48) hours from the time of
mailing, or from the time of service as provided in this Section 23.
24. WAIVER. No delay or omission in the exercise of any right or remedy by
Landlord shall impair such right or remedy or be construed as a waiver.
No act or conduct of Landlord, including without limitation, acceptance
of the keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by Tenant before the expiration of the term.
Only written notice from Landlord to Tenant shall constitute acceptance
of the surrender of the Premises and accomplish termination of the
Lease. Landlord's consent to or approval of any act by Tenant requiring
the Landlord's consent or approval shall not be deemed to waive
or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant. Any waiver by Landlord of any default must be
in writing and shall not be a waiver of any other default concerning
the same of any other provision of the Lease.
25. SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the term,
Tenant shall surrender to Landlord the Premises and all Tenant
Improvements and alterations in good condition, except for ordinary
wear and tear and alterations Tenant has the right or is obligated to
remove under the provisions of Section 13 herein. Tenant shall remove
all personal property including, without limitation, all wallpaper,
paneling and other decorative improvements or fixtures and shall
perform all restoration made necessary by the removal of any
alterations of Tenant's personal property before the expiration of the
term, including for example, restoring all wall surfaces to their
condition prior to the commencement of this Lease. Landlord can elect
to retain or dispose of in any manner Tenant's personal property not
removed from the Premises by Tenant prior to the expiration of the
term. Tenant waives all claims against Landlord for any damage to
Tenant resulting from Landlord's retention or disposition of Tenant's
personal property. Tenant shall be liable to Landlord for Landlord's
cost for storage, removal, or disposal of Tenant's personal property.
If Tenant, with Landlord's consent, remains in possession of the
Premises after expiration or termination of the term, or after the date
in any notice given by Landlord to Tenant terminating this Lease, such
possession by Tenant shall be deemed to be a month-to-month tenancy
terminable on written 30-day notice at any time, by either party. All
provisions of this Lease, except those pertaining to term and rent,
shall apply to the month-to-month tenancy. Tenant shall pay monthly
rent in an amount equal to 125% of Rent for the last full calendar
month during the regular term plus 100% of said last month's estimate
of Tenant's share of Expenses pursuant to Section 4.c.3.
26. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant agrees that, in the event of any actual or alleged
failure, breach or default of this Lease by Landlord, if Landlord is a
partnership:
a. The sole and exclusive remedy shall be against the partnership and
its partnership assets;
b. No partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
c. No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
d. No partner of Landlord shall be required to answer or otherwise
plead to any service or process;
e. No judgment may be taken against any partner of Landlord;
f. Any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
g. No writ of execution will ever be levied against the assets of any
partner of Landlord;
h. These covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing provisions shall be applicable
to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
27. MISCELLANEOUS PROVISIONS.
a. TIME OF ESSENCE. Time is of the essence of each provision of this
Lease.
b. SUCCESSOR. This Lease shall be binding on and inure to the benefit
of the parties and their successors, except as provided in Section 18
herein.
c. LANDLORD'S CONSENT. Any consent required by Landlord under this
Lease must be granted in writing and may be withheld by Landlord in its
sole and absolute discretion.
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d. COMMISSIONS. Each party represents that it has not had dealings with
any real estate broker, finder, or other person with respect to this
Lease in any manner, except for the broker identified in Section 1, who
shall be compensated by Landlord.
e. OTHER CHARGES. If Landlord becomes a party to any litigation
concerning this Lease, the Premises, or the Project, by reason of any
act or omission of Tenant or Tenant's authorized representatives,
Tenant shall be liable to Landlord for reasonable attorney's fees and
court costs incurred by Landlord in the litigation whether or not such
litigation leads to actual court action. Should the court render a
decision which is thereafter appealed by any party thereto, Tenant
shall be liable to Landlord for reasonable attorney's fees and court
costs incurred by Landlord in connection with such appeal.
If either party commences any litigation against the other party or
files an appeal of a decision arising out of or in connection with the
Lease, the prevailing party shall be entitled to recover from the other
party reasonable attorney's fees and costs of suit. If Landlord employs
a collection agency to recover delinquent charges, Tenant agrees to pay
all collection agency and attorneys' fees charged to Landlord in
addition to rent, late charges, interest, and other sums payable under
this Lease. Tenant shall pay a charge of $75 to Landlord for preparation
of a demand for delinquent rent.
f. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
Landlord of the project, the same shall operate to release Landlord
from any liability under this Lease, and in such event Landlord's
successor in interest shall be solely responsible for all obligations
of Landlord under this Lease.
g. INTERPRETATION. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the Premises are
located. This Lease constitutes the entire agreement between the
parties with respect to the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the context of this Lease,
the singular shall include the plural, and the masculine shall include
the feminine and/or neuter. "Party" shall mean Landlord or Tenant. If
more than one person or entity constitutes Landlord or Tenant, the
obligations imposed upon that party shall be joint and several. The
enforceability, invalidity, or illegality of any provision shall not
render the other provisions unenforceable, invalid or illegal.
28. ASSESSMENTS.
A. DEFINITION OF ASSESSMENTS. Tenant acknowledges that the
"assessments" described in Section 4.c.1(e) of the Lease may include
assessment districts or other funding mechanisms, including but not
limited to, improvements districts, maintenance districts, special
service zones or districts, or any combination thereof (collectively
hereafter called "Assessments Districts") for the construction,
alteration, expansion, improvements, completion, repair, operation, or
maintenance, as the case may be, of on-site or off-site improvements,
or services, or any combination thereof, as required by the City of
Pleasanton (the "City") as a condition of approving the development of
Bernal Corporate Park, of which Premises are a part. These Assessment
Districts may provide, among other things, the following improvements
or services: streets, curbs, interchanges, highways, traffic noise
studies and mitigation measures, traffic control systems and expansion
of city facilities to operate same, landscaping and lighting
maintenance services, maintenance of flood control facilities, water
storage and distribution facilities, fire apparatus, manpower, and
other fire safety facilities, and sports facilities.
B. CONSENT TO FORMATION. Tenant hereby consents to the formation of any
and all of the Assessment Districts and waives any and all rights of
notice and any and all rights of protest in connection with formation
of the Assessment Districts and agrees to execute all documents
including, but not limited to, formal waivers of notice and protest,
evidencing such consent and waiver upon request of Landlord of the
City.
C. NO INCREASES IN ASSESSMENT EXPENSE. Notwithstanding the Provisions
for payment of increases or new Assessment as expenses in Section 4.c.,
Landlord agrees that, during the term of this Lease, Tenant shall not
be liable for any increases in Bernal Corporate Park Assessments, or
Assessments imposed or levied after the execution date of the lease set
forth in Section 1.a.
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29. COVENANTS, CONDITIONS AND RESTRICTIONS. Reference is hereby made to that
certain Declaration of Covenants, Conditions and Restrictions for Bernal
Corporate Park recorded February 18, 1987, Series No. 87-046032 of
Official Records, Chicago Title Insurance Company. Landlord and Tenant
agree that they are fully bound by the above-named Declaration.
30. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
30.1 EMISSIONS. Tenant shall not:
a. Permit any vehicles on the premises to emit exhaust which is in
violation of any governmental law, rule, regulation or requirement;
b. Discharge, emit or permit to be discharged or emitted, any liquid,
solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as
reasonably determined by Lessor or any governmental entity, does, or
may, pollute or contaminate the same, or is, or may become, radioactive
or does, or may, adversely effect the (1) health or safety of persons,
wherever located, whether on the premises or anywhere else (2)
condition, use or enjoyment of the premises of any other real or
personal property, whether on the premises or anywhere else, or (3)
premises or any of the improvements thereto or thereon including
buildings, foundations, pipes, utility lines, landscaping or parking
areas;
c. Produce, or permit to be produced, any intense glare, light or heat
except within an enclosed or screened area and then only in such manner
that the glare, light or heat shall not be discernible from outside the
premises;
d. Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of any real property outside the
premises, or which will create a nuisance or violate any governmental
law, rule, regulation or requirement;
e. Create, or permit to be created, any ground vibration that is
discernible outside the premises;
f. Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation in which is harmful or
hazardous to any person or property in, or about the premises, or
anywhere else.
30.2 STORAGE AND USE.
a. Storage. Subject to the uses permitted and prohibited to Tenant
under this Lease, Tenant shall store in appropriate leak proof
containers all solid, liquid, or gaseous matter, or any combination
thereof, which matter, if discharged or emitted into the atmosphere,
the ground or any body of water, does or may (1) pollute or contaminate
the same, (2) adversely affect the (i) health or safety of persons,
whether on the premises or anywhere else, (ii) condition, use or
enjoyment of the premises or any real or personal property, whether on
the premises or anywhere else, or (iii) premises or any of the
improvements thereto or thereon.
b. Use. In addition, without Landlord's prior written consent, Tenant
shall not use, store or permit to remain on the premises any solid,
liquid, or gaseous matter which is, or may become, radioactive. If
Landlord does give its consent, Tenant shall store the materials in
such a manner that no radioactivity will be detectable outside a
designated storage area and Tenant shall use the materials in such a
manner that (1) no real or personal property outside the designated
storage area shall become contaminated thereby or (2) there are and
shall be no adverse effects on the (i) health or safety of persons,
whether on the premises or anywhere else, (ii) condition, use or
enjoyment of the premises or any real or personal property thereon or
therein, (iii) premises or any of the improvements thereto and thereon.
30.3 DISPOSAL OF WASTE.
a. Refuse Disposal. Tenant shall not keep any trash, garbage, waste or
other refuse on the premises except in sanitary containers and shall
regularly and frequently remove same from the premises. Tenant shall
keep all incinerators, containers or other equipment used for the
storage or disposal of such materials in a clean and sanitary condition.
b. Sewage Disposal. Tenant shall properly dispose of all sanitary
sewage and shall not use the sewage disposal system (1) for the
disposal of anything except sanitary sewage or (2) excess of the lesser
of the amount (a) reasonably contemplated by the uses permitted under
this Lease or (b) permitted by any governmental entity. Tenant shall
keep the sewage disposal system free of all obstructions and in good
operating condition.
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c. Disposal of Other Waste. Tenant shall properly dispose of all
other waste or other matter delivered to, stored upon, located
upon or within, used on, or removed from, the premises in such a
manner that it does not, and will not, adversely affect the (1)
health or safety of persons, wherever located, whether on the
premises or the Project, (2) condition, use or enjoyment of the
premises or any other real or personal property, wherever located,
whether on the premises or the Project, or (3) premises or any of
the improvements thereto or thereon including buildings,
foundations, pipes, utility lines, landscaping or parking areas.
30.4 COMPLIANCE WITH LAW. Notwithstanding any other provision in the
Lease to the contrary, Tenant shall comply with all laws, statutes,
ordinances, regulations, rules and other governmental requirements in
complying with its obligations under this lease, and in particular,
relating to the storage, use and disposal of hazardous or toxic
matter. In particular, Tenant shall comply at all times with the City
of Pleasanton's Transportation Systems Management Ordinance (TSM
Ordinance, Chapter 17.24, Pleasanton Municipal Code), as said
Ordinance may be amended from time to time.
30.5 INDEMNIFICATION. Tenant shall defend, indemnify and hold Landlord
harmless from any loss, claim, liability or expense, including
attorney's fees and costs, arising out of or in connection with its
failure to observe or comply with the provisions of this Lease.
30.6 STORAGE REQUIREMENTS: Tenant warrants that it shall not store,
shelve, rack, or in any manner keep combustible or flammable objects
higher than twelve (12) feet from the finished floor, and any object
containing plastic material higher than five (5) feet from the
finished floor, with no storage or shelves, or other obstructions
above the plastic storage.
31. PROJECT PLANNING
If Landlord requires the Premises for use in conjunction with another
suite or for other reasons connected with the Project planning
program, upon notifying Tenant in writing, Landlord shall have the
right to relocate Tenant to other space in the Project, at Landlord's
sole cost and expense, and the terms and conditions of the original
Lease shall remain in full force and effect, except that a revised
EXHIBIT A reflecting the location of the new space shall be attached
to and become a part of this Lease. However, if the new space does
not meet with Tenant's approval, Tenant shall have the right to
terminate this Lease effective thirty (30) days after written notice
to Landlord, which notice shall be given within ten (10) days after
receipt of Landlord's notification.
32. Upon occupancy of Suite 214 at 6920 Koll Center Parkway, Tenant's
lease for Suite 142 at 7020 Koll Center Parkway will terminate.
33. Option Period: Provided that Tenant is not in default hereunder
either at the time of exercise or at the time the extended term
commences, Tenant shall have the option to extend the initial five
(5) year term of this Lease for an extended five (5) years on the
same terms, covenants and conditions provided herein, except that
upon such renewal the monthly base rent due hereunder shall be
determined pursuant to Paragraph 33.B. Tenant shall exercise its
option by giving Landlord written notice ("Option Notice") at least
one hundred eighty (180) days prior to the expiration of the initial
term of this Lease.
B. Option Period Monthly Rent. The Monthly Rent for the Option
Period, which shall include the initial Monthly Rent and all
adjustments, shall be determined as follows:
(i) The parties shall have fifteen (15) days after Landlord receives
the Option Notice within which to agree on the Monthly Rent for the
Option Period based upon the then fair market rental value of the
Premises as defined in Paragraph 33.B (iii). If the parties agree on
the Monthly Rent for the Option Period within fifteen (15) days, they
shall immediately execute an amendment to this Lease stating the
Monthly Rent for the Option Period.
(ii) If the parties are unable to agree on the Monthly Rent for the
Option Period within fifteen (15) days, then, the Monthly Rent for
the Option Period shall be the then current fair market rental value
of the Premises as determined in accordance with Paragraph 33.B (iv).
(iii) The "the fair market rental value of the Premises" shall be
defined to mean the fair market rental value of the Premises as of
the commencement of the Option Period, taking into consideration the
uses permitted under this Lease, the quality, size, design and
location of the Premises, and the rent for comparable buildings
located in Pleasanton. In no event shall the fair market monthly
value of the Premises for the Option Period be less than the Monthly
Rent last payable under the Lease.
(iv) Within seven (7) days after the expiration of the fifteen (15)
day period set forth in Paragraph 33.B(ii), each party, at its cost
and by giving notice to the other party, shall appoint a real estate
appraiser with at least five (5) years' full time commercial
appraisal experience in the area in which the Premises are located to
appraise and set the then fair market rental value of the Premises
for the Option Period. If a party does not appoint an appraiser
within ten (10) days after the other party has given notice of the
name of its appraiser,
11
<PAGE>
the single appraiser appointed shall be the sole appraiser and shall set
the then fair market rental value of the Premises. If the two (2)
appraisers are appointed by the parties as stated in this paragraph,
they shall meet promptly and attempt to set the then fair market rental
value of the Premises. If they are unable to agree within thirty (30)
days after the second appraiser has been appointed, they shall attempt
to elect a third appraiser meeting the qualifications stated in this
paragraph within ten (10) days after the last day the two (2) appraisers
are given to set the then fair market rental value of the Premises. If
they are unable to agree on the third appraiser, either of the parties
to this Lease, by giving ten (10) days' notice to the other party, can
apply to the then President of the Alameda County Real Estate Board or
to the then Presiding Judge of the Alameda County Superior Court, for
the selection of a third appraiser who meets the qualifications stated
in this paragraph. Each of the parties shall bear one-half (1/2) of the
cost of appointing the third appraiser and of paying the third
appraiser's fee. The third appraiser, however selected, shall be a
person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser,
a majority of the appraisers shall set the then fair market value of
the Premises. If a majority of the appraisers are unable to set the
then fair market rental value of the Premises within the stipulated
period of time, the three (3) appraisals shall be added together and
the total divided by three (3); the resulting quotient shall be the
then fair market rental value of the Premises.
If, however, the low appraisal and/or the high appraisal are/is more
than ten percent (10%) lower and/or higher than the middle appraisal,
the low appraisal and/or the high appraisal shall be disregarded. If
only one appraisal is disregarded, the remaining two (2) appraisals
shall be added together and their total divided by two (2); the
resulting quotient shall be the then fair market rental value of the
Premises. If both the low appraisal and the high appraisal are
disregarded as stated in this paragraph, the middle appraisal shall
be the then fair market rental value of the Premises.
After the then fair market rental value of the Premises has been set,
the appraisers shall immediately notify the parties and the Monthly
rent for the Option Period shall be such amount. This option is
personal to Votan Corporation, a Delaware Corporation.
34. First Right of Notification: Tenant is granted the first right of
notification of any adjacent vacancies during the initial term of the
Lease and option periods.
BERNAL CORPORATE PARK, a joint venture between Principal Mutual Life Insurance
Company, an Iowa Corporation and Patrician Associates, Inc., a California
Corporation
By: Patrician Associates, Inc., a California Corporation, Joint Venture
Partner
By: /s/ JOHN N. URBAN
--------------------
John N. Urban
Vice President
By: /s/ D.D. BALLARD
--------------------
D.D. Ballard
Counsel
By: Principal Mutual Life Insurance Company, an Iowa Corporation, Joint
Venture Partner
By: /s/ TIMOTHY E. MINTON
--------------------
Timothy E. Minton
Director & Secretary
Commercial Real Estate Reporting and Computer Services
By: /s/ MICHAEL S. DUFFY
--------------------
Michael S. Duffy
Assistant Director
Commercial Real Estate/Equities
TENANT: Votan Corporation, a Delaware Corporation
By: /s/ JOSHUA WHITE
--------------------
Joshua White
Its: CEO and President
12
<PAGE>
NORTH CREEK
BERNAL CORPORATE PARK
PLEASANTON, CALIFORNIA
EXHIBIT A
"The Premises"
To Follow
<PAGE>
BERNAL CORPORATE PARK
PLEASANTON, CALIFORNIA
[logo]
EXHIBIT B
"The Project"
<PAGE>
EXHIBIT C
SIGN CRITERIA
NORTH CREEK BUSINESS PARK
PLEASANTON, CALIFORNIA
1. SIGN CRITERIA.
This criteria establishes the uniform policies for Tenant sign identification
for lease space with North Creek Business Park. These criteria have been
established for the purpose of maintaining the overall appearance of the
Project. Conformance will be strictly enforced. Any sign installed which does
not conform to the sign criteria will be brought into conformity at the
expense of the Tenant.
A. GENERAL REQUIREMENTS.
1. Lettering and installation shall be paid for by the Tenant. All copy
design has been previously approved by Landlord. Landlord shall be
responsible for installation of the sign. Tenant shall reimburse
Landlord for the sign cost (including installation cost) within
thirty (30) days of receipt of an invoice. Said sign cost shall be
$600.00 for a maximum of twenty(20) characters. Each additional
character shall be $25.00 per character. LANDLORD WILL ARRANGE TO
HAVE TENANT'S NAME RE-INSTALLED ON THE MONUMENT SIGN ON KOLL CENTER
PARKWAY AND ON THE BUILDING AT TENANT'S EXPENSE.
2. Tenant shall be responsible for the maintenance of its sign and the
fulfillment of all sign requirements for these criteria throughout
the term of its lease.
B. GENERAL SPECIFICATIONS.
1. Measurements: To be determined.
2. Tenant shall be allowed one sign regardless of size of occupancy.
3. No electrical or audible signs will be allowed.
4. Upon removal of any sign by the Tenant, any damage to the sign
backing or the building will be repaired by Tenant. Tenant will
remove the lettering portion of the sign prior to lease termination.
The backing shall become the property of the Landlord and shall
remain affixed to the building.
5. Except as provided herein, no advertising placards, banners,
pennants, names, insignia, trademarks, or other descriptive material
shall be affixed or maintained upon any automated machine, glass
panes of the building, building exterior, landscaped area, streets,
or parking or common area of the Project.
6. Sign criteria are subject to change as may be determined by the
Landlord's reasonable judgment.
7. Current rules and regulations relating to signs shall be established
by Landlord in its sole and absolute discretion, and when completed
shall become part of this Lease and marked Exhibit "C1".
INITIAL
Lessor ----
Lessee ----
13
<PAGE>
EXHIBIT "D"
TENANT IMPROVEMENTS
Landlord shall, at Landlord's expense, remodel the space per Ambiance
Associates plan dated 7/03/96 including new carpet and paint throughout.
INITIAL
Landlord-----
Tenant ------
14
<PAGE>
EXHIBIT D-I
Page 1 of 2
MOSCOM Corporation/6920 Koll Center Parkway/Suite 214/Pleasanton, California
94566
10,680 Rentable Square Feet
<PAGE>
BUDGET PRICING NOTES
ALL ELEC/TELE/DATA OUTLETS NOT LABELED
"N" (NEW) ARE EXISTING TO REMAIN
1. INSTALL NEW CEILING GRID & BLDG STD LIGHTING AT ANY AREAS (EXCEPT SHIPPING/
RECEIVING) THAT DO NOT CURRENTLY HAVE DROPPED CEILINGS.
2. UNLESS NOTED OTHERWISE (SEALED; JCT; (E) SHEET VINYL) ALL AREAS TO RECEIVE
NEW BLDG STD. GLUE-DOWN CARPET & RUBBER BASE
3. ALL WALLS TO RECEIVE NEW BLDG. STD. FLAT PAINT.
4. PROVIDE SEPARATE ADD-ALTERNATE PRICE FOR ACCORDIAN ROOM DIVIDER @TRAINING.
5. RE-ROUTE & BALANCE (E) HVAC (TRAINING ROOM IN PARTICULAR) FOR NEW OCCUPANT
LOADS. PROVIDE HVAC AT ANY NEW DROPPED CEILING AREAS THAT WERE PREVIOUSLY
UNCONDITIONED
6. RELOCATE (E) DOORS FOR RE-USE WHEREVER POSSIBLE.
EXHIBIT D-1
Page 2 of 2
MOSCOM Corporation/6920 Koll Center Parkway/Suite 214/Pleasanton, California
94566
10,680 Rentable Square Feet
F&J DRAFT: 9/6/96
VOTAN CORPORATION
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1 ______________ Shares
FOR VALUE RECEIVED, Votan Corporation, a Delaware
corporation (the "COMPANY"), hereby certifies that ____________________ or its
permitted assigns, is entitled to purchase from the Company, at any time or
from time to time commencing on October __, 1997 and prior to 5:00 P.M., New
York City time, on October __, 2001, ___________________________ Thousand
(________) fully paid and non-assessable shares of the common stock, $.01 par
value per share, of the Company for an aggregate purchase price of $__________
(computed on the basis of $______1 per share). (Hereinafter, (i) said common
stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as
the "COMMON STOCK," (ii) the shares of the Common Stock purchasable hereunder
or under any other Warrants (as hereinafter defined) are referred to
individually as a "WARRANT SHARE" and collectively as the "WARRANT SHARES,"
(iii) the aggregate purchase price payable for the Warrant Shares hereunder is
referred to as the "AGGREGATE WARRANT PRICE," (iv) the price payable for each
of the Warrant Shares hereunder is referred to as the "PER SHARE WARRANT
PRICE," (v) this Warrant, all similar Warrants issued on the date hereof and
all Warrants hereafter issued in exchange or substitution for this Warrant or
such similar Warrants are referred to as the "WARRANTS" and (vi) the holder of
this Warrant is referred to as the "HOLDER" and the holder of this Warrant and
all other Warrants or Warrant Shares issued upon the exercise of any Warrant
are referred to as the "HOLDERS.") The Aggregate Warrant Price is not subject
to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of
Warrant Shares shall be adjusted by dividing the Aggregate Warrant Price by
the Per Share Warrant Price in effect immediately after such adjustment.
1. EXERCISE OF WARRANT. (a) The Holder may exercise this Warrant, in
whole or in part, as follows:
(i) By presentation and surrender of this Warrant
to the Company at the address set forth in Subsection 9(a) hereof,
with the Subscription Form annexed hereto (or a reasonable facsimile
thereof) duly executed and accompanied by payment of the Per Share
Warrant Price for each Warrant Share to be purchased.
- --------
1 120% of public offering price.
<PAGE>
Payment for Warrant Shares shall be made by certified or official
bank check payable to the order of the Company; or
(ii) By presentation and surrender of this Warrant
to the Company at the address set forth in Subsection 9(a) hereof,
with a Cashless Exercise Form annexed hereto (or a reasonable
facsimile thereof) duly executed (a "CASHLESS EXERCISE"). Such
presentation and surrender shall be deemed a waiver of the Holder's
obligation to pay all or any portion of the Aggregate Warrant Price.
In the event of a Cashless Exercise, the Holder shall exchange its
Warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares being exercised by a
fraction, the numerator of which shall be the difference between the
then current market price per share of the Common Stock and the Per
Share Warrant Price, and the denominator of which shall be the then
current market price per share of Common Stock. For purposes of any
computation under this Section 1(a)(ii), the then current market
price per share of Common Stock at any date shall be deemed to be the
average for the thirty consecutive business days immediately prior to
the Cashless Exercise of the daily closing prices of the Common Stock
on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted
to trading on any such exchange, the closing prices as reported by
the Nasdaq National Market, or if not then listed on the Nasdaq
National Market, the average of the highest reported bid and lowest
reported asked prices as reported by the National Association of
Securities Dealers, Inc. electronic inter-dealer quotation system
("NASDAQ") or if not then publicly traded, the fair market price of
the Common Stock as reasonably determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must
be exercised for a number of whole shares of the Common Stock, and the Holder
is entitled to receive a new Warrant covering the Warrant Shares which have
not been exercised and setting forth the proportionate part of the Aggregate
Warrant Price applicable to such Warrant Shares. Upon such surrender of this
Warrant, the Company will (i) issue a certificate or certificates, in such
denominations as are requested for delivery by the Holder, in the name of the
Holder for the largest number of whole shares of the Common Stock to which the
Holder shall be entitled and, if this Warrant is exercised in whole, in lieu
of any fractional share of the Common Stock to which the Holder shall be
entitled, pay to the Holder cash in an amount equal to the fair value of such
fractional share (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercisable in part, pursuant to
the provisions of this Warrant. The Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
-2-
<PAGE>
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times (a)
have authorized and in reserve, and will keep available, solely for issuance
or delivery upon the exercise of this Warrant, the shares of the Common Stock
and other securities and properties as from time to time shall be receivable
upon the exercise of this Warrant, free and clear of all restrictions on sale
or transfer and free and clear of all preemptive rights and rights of first
refusal and (b) if the Company hereafter lists its Common Stock on any
national securities exchange, keep the shares of the Common Stock receivable
upon the exercise of this Warrant authorized for listing on such exchange upon
notice of issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall
hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of its Common Stock any shares of capital stock of the Company, the Per Share
Warrant Price shall be adjusted so that the Holder upon the exercise hereof
shall be entitled to receive the number of shares of Common Stock or other
capital stock of the Company which he would have owned immediately following
such action had such Warrant been exercised immediately prior thereto. An
adjustment made pursuant to this Subsection 3(a) shall become effective
immediately after the record date in the case of a dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision, combination or reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares
of Common Stock evidences of its indebtedness, any other securities of the
Company or any cash, property or other assets (excluding a subdivision,
combination or reclassification, or dividend or distribution payable in shares
of Common Stock, referred to in Subsection 3(a), and also excluding cash
dividends or cash distributions paid out of net profits legally available
therefor if the full amount thereof, together with the value of other
dividends and distributions made substantially concurrently therewith or
pursuant to a plan which includes payment thereof, is equivalent to not more
than 5% of the Company's net worth) (any such nonexcluded event being herein
called a "SPECIAL DIVIDEND"), the Per Share Warrant Price shall be adjusted by
multiplying the Per Share Warrant Price then in effect by a fraction, the
numerator of which shall be the then current market price of the Common Stock
(defined as the average for the thirty consecutive business days immediately
prior to the record date of the daily closing price of the Common Stock as
reported by the national securities exchange upon which the Common Stock is
then listed or if not listed on any such exchange, the average of the closing
prices as reported by Nasdaq National Market, or if not then listed on the
Nasdaq National Market, the average of the highest reported bid and lowest
reported asked prices as reported by NASDAQ, or if not then publicly traded,
the fair market price as reasonably determined by the Company's Board of
Directors) less the fair market value (as reasonably determined by the
Company's Board of Directors) of the
-3-
<PAGE>
evidences of indebtedness, cash, securities or property, or other assets
issued or distributed in such Special Dividend applicable to one share of
Common Stock and the denominator of which shall be such then current market
price per share of Common Stock. An adjustment made pursuant to this
Subsection 3(b) shall become effective immediately after the record date of
any such Special Dividend.
(c) In case of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Company as an entirety or substantially as an entirety,
or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), the Holder of this Warrant shall have the
right thereafter to receive on the exercise of this Warrant the kind and
amount of securities, cash or other property which the Holder would have owned
or have been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or
conveyance had this Warrant been exercised immediately prior to the effective
date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as
may reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(c) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than thirty days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting primarily of
securities shall be deemed a consolidation or merger for the foregoing
purposes.
(d) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants
representing the right to purchase a majority of the Warrant Shares subject to
all outstanding Warrants may appoint a firm of independent public accountants
of recognized national standing reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established herein, necessary to
preserve the purchase rights represented by the Warrants. Upon receipt
-4-
<PAGE>
of such opinion, the Company will promptly mail a copy thereof to the Holder
of this Warrant and shall make the adjustments described therein. The fees and
expenses of such independent public accountants shall be borne by the Company.
(e) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any adjustments
which by reason of this Subsection 3(e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; provided
further, however, that adjustments shall be required and made in accordance
with the provisions of this Section 3 (other than this Subsection 3(e)) not
later than such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or Common Stock
issuable upon exercise hereof. All calculations under this Section 3 shall be
made to the nearest cent or to the nearest 1/100th of a share, as the case may
be. Anything in this Section 3 to the contrary notwithstanding, the Company
shall be entitled to make such reductions in the Per Share Warrant Price, in
addition to those required by this Section 3, as it in its discretion shall
deem to be advisable in order that any stock dividend, subdivision of shares
or distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(f) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall cause the
Chief Financial Officer of the Company to prepare a certificate (confirmed and
verified, in writing, by independent public accountants of recognized standing
selected by the Board of Directors (who may be the regular auditors of the
Company)) setting forth the Per Share Warrant Price and the number of Warrant
Shares after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the
manner of computing the same and cause copies of such certificate to be mailed
to the Holders of the Warrants.
(g) If the Board of Directors of the Company shall (i)
declare any dividend or other distribution with respect to the Common Stock,
other than a cash dividend subject to the first parenthetical in Subsection
3(b), (ii) offer to the holders of shares of Common Stock any additional
shares of Common Stock, any securities convertible into or exercisable for
shares of Common Stock or any rights to subscribe thereto, or (iii) propose a
dissolution, liquidation or winding up of the Company, the Company shall mail
notice thereof to the Holders of the Warrants not less than 15 days prior to
the record date fixed for determining stockholders entitled to participate in
such dividend, distribution, offer or subscription right or to vote on such
dissolution, liquidation or winding up.
(h) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital
-5-
<PAGE>
stock of the Company, the Board of Directors (whose determination shall be
conclusive and shall be described in a written notice to the Holder of any
Warrant promptly after such adjustment) shall determine the allocation of the
adjusted Per Share Warrant Price between or among shares or such classes of
capital stock or shares of Common Stock and other capital stock.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not
subject to preemptive rights or rights of first refusal, and the Company will
take all such actions as may be necessary to assure that the par value or
stated value, if any, per share of the Common Stock is at all times equal to
or less than the then Per Share Warrant Price. The Company further covenants
and agrees that it will pay, when due and payable, any and all Federal and
state stamp, original issue or similar taxes which may be payable in respect
of the issue of any Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time during the
period commencing on August __, 1997, and ending on August __, 2001, the
Holder and/or the Holders of any other Warrants and/or Warrant Shares who or
which shall hold, as amended, not less than 50% of the Warrants and/or Warrant
Shares outstanding at such time and not previously sold pursuant to this
Section 5 shall request that the Company file, under the Securities Act of
1933 (the "ACT"), a registration statement under the Act covering not less
than 50% of the Warrant Shares issued or issuable upon the exercise of the
Warrants and not so previously sold, the Company will (i) promptly notify each
Holder of the Warrants and each holder of Warrant Shares not so previously
sold that such registration statement will be filed and that the Warrant
Shares which are then held, and/or may be acquired upon exercise of the
Warrants by the Holder and such Holders, will be included in such registration
statement at the Holder's and such Holders' request, (ii) cause such
registration statement to be filed with the Securities and Exchange Commission
within forty-five days of such request and to cover all Warrant Shares which
it has been so requested to include, (iii) use its best efforts to cause such
registration statement to become effective as soon as practicable and (iv)
take all other action reasonably necessary under any Federal or state law or
regulation of any governmental authority to permit all Warrant Shares which it
has been so requested to include in such registration statement to be sold or
otherwise disposed of, and will maintain such compliance with each such
Federal and state law and regulation of any governmental authority for the
earlier of a period of 180 days or such other period necessary for such
Holders to effect the proposed sale or other disposition. The Company shall be
required to effect a registration or qualification pursuant to this Subsection
5(a) on one occasion only.
(b) Notwithstanding anything to the contrary set forth in
Subsection 5(a), the Company shall not be obligated to register any Warrant
Shares hereunder if: (i) such
-6-
<PAGE>
Warrant Shares can be publicly sold by the Holder thereof without registration
under the Act and without any volume or other material limitations, (ii) a
registration statement covering such Warrant Shares has been declared
effective and they have been disposed of pursuant to such effective
registration statement, (iii) such Warrant Shares are transferred on the open
market pursuant to any available exemption under the Act, (iv) such Warrant
Shares have been otherwise transferred and the Company has delivered new
certificates or other evidences of ownership for them not subject to any stop
transfer order or other restriction on transfer and not bearing any legend
restricting transfer in the absence of an effective registration or an
exemption from the registration requirements of the Act, (v) they have been
sold, assigned, pledged, hypothecated or otherwise disposed of by the Holder
in a transaction in which the Holder's rights hereunder are not assigned or
assignable, or (vi) the Holder acquired such Warrant Shares pursuant to a
Cashless Exercise of this Warrant, as described in Section 1(a) hereof. In
addition, if the Company shall furnish to Holders requesting a registration
statement pursuant to Section 5(a), a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to
the Company and its stockholders for such registration statement to be filed
and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer taking action with
respect to such filing for a period of not more than 90 days after receipt of
the request of the Holders; provided, however, that the Company may not
utilize this right more than once in any twelve-month period.
(c) The Company agrees that if, at any time and from time to
time during the period commencing on August __, 1997, and ending on August __,
2003, the Board of Directors of the Company shall authorize the filing of a
registration statement (any such registration statement being hereinafter
called a "SUBSEQUENT REGISTRATION STATEMENT") under the Act (otherwise than
pursuant to Subsection 5(a) hereof, or other than a registration statement on
Form S-8 or other form which does not include substantially the same
information as would be required in a form for the general registration of
securities) in connection with the proposed offer of any of its securities by
it or any of its stockholders, the Company will (i) promptly notify the Holder
and each of the Holders, if any, of other Warrants and/or Warrant Shares not
previously sold pursuant to this Section 5 that such Subsequent Registration
Statement will be filed and that the Warrant Shares which are then held,
and/or which may be acquired upon the exercise of the Warrants, by the Holder
and such Holders, will, at the Holder's and such Holders' request, be included
in such Subsequent Registration Statement, (ii) upon the written request of a
Holder made within 20 days after the giving of such notice by the Company,
include in the securities covered by such Subsequent Registration Statement
all Warrant Shares which it has been so requested to include, (iii) use its
best efforts to cause such Subsequent Registration Statement to become
effective as soon as practicable and (iv) take all other action reasonably
necessary under any Federal or state law or regulation of any governmental
authority to permit all Warrant Shares which it has been so requested to
include in such Subsequent Registration Statement to be sold or otherwise
disposed of, and will maintain such compliance with each
-7-
<PAGE>
such Federal and state law and regulation of any governmental authority for
the earlier of a period of 180 days or such other period necessary for the
Holder and such Holders to effect the proposed sale or other disposition.
Notwithstanding any other provision of this Section 5(c), if the managing
underwriters advise the Holders in writing that marketing factors require a
limitation of the number of shares to be registered in such Subsequent
Registration Statement, then the number of Warrant Shares that may be included
in the underwriting shall be allocated among all Holders thereof in proportion
(as nearly as practicable) to the amount of Warrant Shares owned by each
Holder.
(d) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant
Shares and each underwriter of such Warrant Shares with such copies of the
prospectus, including the preliminary prospectus, conforming to the Act (and
such other documents as each such Holder or each such underwriter may
reasonably request) in order to facilitate the sale or distribution of the
Warrant Shares, (ii) use its best efforts to register or qualify such Warrant
Shares under the blue sky laws (to the extent applicable) of such jurisdiction
or laws (to the extent applicable) of such jurisdiction or jurisdictions as
the Holders of any such Warrant Shares and each underwriter of Warrant Shares
being sold by such Holders shall reasonably request and (iii) take such other
actions as may be reasonably necessary or advisable to enable such Holders and
such underwriters to consummate the sale or distribution in such jurisdiction
or jurisdictions in which such Holders shall have reasonably requested that
the Warrant Shares be sold. Nothing contained in this Warrant shall be
construed as requiring a Holder to exercise its Warrant prior to the closing
of an offering pursuant to a registration statement referred to in Subsection
5(a) or 5(b).
(e) The Company shall furnish to each Holder participating
in an offering pursuant to a registration statement under this Section 5 and
to each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under
the underwriting agreement), and (ii) a "comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered
to underwriters in underwritten public offerings of securities.
-8-
<PAGE>
(f) The Company shall enter into an underwriting agreement
with the managing underwriters selected by Holders holding 50% of the Warrant
Shares requested to be included in a registration statement filed pursuant to
Section 5(a), subject to the consent of the Company, such consent not to be
unreasonably withheld. Such agreement shall be reasonably satisfactory in form
and substance to the Company, each Holder and such managing underwriters, and
shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that type
used by the managing underwriter. The Holders shall be parties to any
underwriting agreement relating to an underwritten sale of their Warrant
Shares. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as
they may relate to such Holders and their intended methods of distribution.
(g) The Company shall pay all expenses incurred in
connection with any registration statement or other action pursuant to the
provisions of this Section 5, excluding the fees and expenses of counsel
representing the Holders of Warrant Shares included in any such registration
statement and any underwriting discounts and applicable transfer taxes
relating to the Warrant Shares.
(h) The Company will indemnify, and, if such indemnity is
unavailable, will agree to just and equitable contribution to, the Holders of
Warrant Shares which are included in each registration statement referred to
in Subsections 5(a) and 5(b), and the underwriters of such Warrant Shares,
substantially to the same extent as the Company has indemnified, and agreed to
just and equitable contribution to, the underwriters (the "UNDERWRITERS") of
its public offering of Common Stock pursuant to the Underwriting Agreement
(the "Underwriting Agreement"), dated September __, 1996, by and among the
Company, Ladenburg, Thalmann & Co. Inc., Kaufman Bros., L.P., MOSCOM
Corporation, as the Selling Stockholder, and the other underwriters named in
Schedule A thereto. Each selling Holder of Warrant Shares, severally and not
jointly, will indemnify and hold harmless the Company, its directors, its
officers who shall have signed any such registration statement and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act to the same extent as the foregoing indemnity from the Company, but in
each case to the extent, and only to the extent, that any statement in or
omission from or alleged omission from such registration statement, any final
prospectus, or any amendment or supplement thereto was made in reliance upon
information furnished in writing to the Company by such selling Holder
specifically for use in connection with the preparation of such registration
statement, any final prospectus or any such amendment or supplement thereto;
provided, however, that the obligation of any Holder of Warrant Shares to
indemnify the Company under the provisions of this Subsection (g) shall be
limited to the excess of (1) the product of (A) the number of Warrant Shares
being sold by the selling Holder and (B) the market price of the Common Stock
on the date of the sale to the public of such Warrant Shares over (2) the
aggregate amount, if any, paid to the Company by such Holder in connection
with the issuance of such Warrant Shares.
-9-
<PAGE>
6. LIMITED TRANSFERABILITY. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder (a) except in compliance
with the provisions of the Act, (b) until the first anniversary hereof except
(i) to any successor firm or corporation of Ladenburg, Thalmann & Co. Inc. or
Kaufman Bros., L.P., (ii) to any of the officers of Ladenburg, Thalmann & Co.
Inc. or Kaufman Bros., L.P. or of any such successor firm or (iii) in the case
of an individual, pursuant to such individual's last will and testament or the
laws of descent and distribution, and is so transferable only upon the books
of the Company which it shall cause to be maintained for the purpose. The
Company may treat the registered Holder of this Warrant as he or it appears on
the Company's books at any time as the Holder for all purposes. All Warrants
issued upon the transfer or assignment of this Warrant will be dated the same
date as this Warrant, and all rights of the Holder thereof shall be identical
to those of the Holder.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
9. NOTICES. All notices and other communications required or
permitted to be given under this Warrant shall be in writing and shall be
deemed to have been duly given if delivered personally or by facsimile
transmission, or sent by recognized overnight courier or by certified mail,
return receipt requested, postage paid, to the parties hereto as follows:
(a) if to the Company at 7020 Koll Center Parkway,
Pleasanton, California 94566, Attn.: John A. White,
facsimile no. (510) 426-6767, or such other address as the
Company has designated in writing to the Holder, or
(b) if to the Holder at Attn.: _______________________,
facsimile no. __________________, at
____________________________________, or such other address
or facsimile number as the Holder has designated in writing
to the Company.
10. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
-10-
<PAGE>
11. APPLICABLE LAW. This Warrant shall be governed by and construed
in accordance with the law of the State of New York without giving effect to
the principles of conflicts of law thereof.
IN WITNESS WHEREOF, Votan Corporation, has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Secretary this ____ day of August, 1996.
VOTAN CORPORATION
By:
---------------------------------
John A. White
President and Chief Executive Officer
ATTEST:
- --------------------------------------------------
William E. O'Connor
Chief Financial Officer,
Treasurer and Secretary
[Corporate Seal]
-11-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby
sells, assigns and transfers unto __________________________ the foregoing
Warrant and all rights evidenced thereby, and does irrevocably constitute and
appoint _______________________, attorney, to transfer said Warrant on the
books of Votan Corporation.
Dated: Signature:
------------------- --------------------
Address:
----------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns
and transfers unto ____________________________ the right to purchase
______________ shares of the Common Stock of Votan Corporation covered by the
foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer that part of said Warrant on the
books of Votan Corporation.
Dated: Signature:
------------------- --------------------
Address:
----------------------
-12-
<PAGE>
SUBSCRIPTION FORM
To be executed upon exercise of Warrant pursuant to Section 1(a)(i))
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section
1(a)(i), and tenders herewith payment of the purchase price in full in the
form of cash or a certified or official bank check in the amount of
$___________.
Please issue a certificate or certificates for such Common
Stock in the name of, and pay any cash for any fractional share to:
Name
----------------------------
(Please Print Name, Address and Social
Security No.)
Address
-------------------------------
-------------------------------
Social Security Number
-----------------
Signature
-----------------------------
NOTE: The above signature should
correspond exactly with the name on the
first page of this Warrant or with the
name of the assignee appearing in the
assignment form below.
Date
----------------------------------
And if said number of shares shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder.
-13-
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender
_______ shares purchasable under this Warrant for such shares of Common Stock
issuable in exchange therefor pursuant to the Cashless Exercise provisions of
the within Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common
Stock in the name of, and pay cash for fractional shares to:
Name
----------------------------
(Please Print Name, Address and Social
Security No.)
Address
-------------------------------
-------------------------------
Social Security Number
-----------------
Signature
-----------------------------
NOTE: The above signature should
correspond exactly with the name on the
first page of this Warrant or with the
name of the assignee appearing in the
assignment form below.
Date
-------------------------------------
And if said number of shares shall not be all the shares
exchangeable or purchasable under the within Warrant, a new Warrant is to be
issued in the name of the undersigned for the balance remaining of the shares
purchasable thereunder.
-14-
VALUE ADDED RESELLER AGREEMENT
BETWEEN
VOTAN CORPORATION
AND
MOSCOM CORPORATION
This Agreement entered into effective September 6, 1996, between:
----------- -
VOTAN CORPORATION, a Delaware Corporation with its
principal office located at
7020 Koll Center Parkway #142
Pleasanton, California 94566 ("VOTAN")
and
MOSCOM CORPORATION, a Delaware corporation with its
principal office located
3750 Monroe Avenue
Pittsford, New York 14534 ("VAR")
establishes the terms and conditions under which VAR shall acquire from VOTAN,
the Products described in Schedule A (the "Products"). In consideration for
the mutual promises contained herein, the parties agree to the following:
1. TERM: The initial term of this Agreement shall be two (2) years
commencing on the date indicated above unless earlier terminated in
accordance with the terms herein. After this period, the Agreement shall
continue until terminated by either party by the sending of written
notice at least one hundred eighty (180) days prior to the effective
date of termination. VAR may place orders for the Products during the
contract term for delivery no later than thirty (30) days after the
termination date.
2. DISTRIBUTION RIGHTS: VOTAN hereby grants VAR non-exclusive rights to
sub-license object code versions of the Products worldwide (except for
the United States) in combination with value adding hardware or software
and subject to VOTAN's standard end-user license agreement (or a form
substantially similar thereto). VAR agrees that it shall arrange for
each end-user to execute VOTAN's standard form of end-user agreement (or
a form substantially similar thereto) and that no sublicense of a Product
shall be made without such agreement having been signed. VAR may use its
own VARs and/or subdistributors to sublicense the Products to end-users,
provided that such VARs and/or subdistributors (i) are bound in writing
to all the limitations and restrictions in this Agreement and (ii) are
obligated to ensure that all end-users of the Products execute VOTAN's
standard form of end-user license agreement or an alternative form of
agreement reasonably acceptable to Votan. VAR shall be responsible and
liable for its own, its VARs' and its subdistributors' compliance with
such obligations, limitations and restrictions.
3. RESTRICTIONS: VAR shall not (and shall not allow any third party,
including but not limited to its own VARs and subdistributors, to (i)
decompile, disassemble, or otherwise reverse engineer or attempt to
reconstruct or discover any source code or underlying ideas or algorithms
of the Products by any means whatsoever, (ii) remove any product
identification, copyright, trademark or other notices from any Products,
or (iii) sell, provide, lease, lend, use for timesharing or service
bureau purposes, or allow access to the Products or use of the Products
on the Internet or any other network, or otherwise use or allow third
parties to use the Products, except as expressly authorized hereunder.
<PAGE>
4. PRICE: VOTAN agrees to sell and VAR agrees to buy the Products at the
prices specified in Schedule A. These prices shall be subject to change
by VOTAN commencing twenty three (23) months from the effective date of
this Agreement. A price change shall take effect with respect to orders
received thirty (30) or more days after written notice of the price
change has been sent to VAR. VOTAN agrees that prices charged VAR under
this Agreement shall not exceed prices paid for the Products by other
VOTAN value added resellers under comparable terms and conditions. VAR
shall be entitled to any lower prices offered by VOTAN to its other value
added resellers provided that (i) VAR accepts comparable restrictions and
limitations imposed in respect of the Products at such prices and (ii)
any considerations received by VOTAN prior to the offer of the lower
prices to the other value added reseller are non-refundable.
5. RIGHTS TO TECHNOLOGY: VAR agrees that VOTAN will retain exclusive
ownership to the technologies and any intellectual property rights
(including, but not limited to, patents, copyrights, trade secrets and
trademarks) related to the Products existing as of the date of this
Agreement subject only to the license provided herein. In the event new
technology related to the Products is developed by either party in
connection with this Agreement, the developing party shall have exclusive
rights to such technology including the right to patent and license such
technology.
6. PAYMENT TERMS: Payment is due thirty (30) days from date of invoice. If
payment is not received by VOTAN by the due date, VAR shall be liable to
VOTAN for interest of 1 1/2% (one and one-half percent) per month on the
unpaid invoice amount from the date of invoice. Should payment not be made
when due, VAR shall reimburse VOTAN for its cost of collection, including
but not limited to reasonable attorney's fees.
7. TAXES: Unless otherwise specified, prices shown do not include
applicable excise, sales, use or other taxes and import duties and fees
imposed upon the sale and/or delivery of the Products. Any such taxes,
duties and fees shall be payable by VAR whether or not specified on the
invoice. In lieu of the payment of taxes, VAR shall provide VOTAN with a
tax-exemption certificate in a form acceptable to the appropriate taxing
authority. In the event that VOTAN is required to pay any such taxes,
duties or fees, VAR shall reimburse VOTAN in full.
8. FREIGHT AND INSURANCE: Delivery will be made F.O.B. VOTAN's facility in
Pleasanton, California with title and risk of loss passing to VAR upon
delivery of the Products to a carrier. VAR shall pay all freight costs
incurred in delivery to the designated destination. In the absence of
specific instructions, shipment shall be made in a manner determined by
VOTAN to be appropriate and VOTAN shall bear no responsibility for such
determination if made in good faith.
9. ORDERS AND DELIVERIES: Shipments shall be initiated by written purchase
orders sent to VOTAN by the VAR. VOTAN shall acknowledge orders and
confirm or modify the requested delivery date. Delivery may not be
scheduled more than thirty (30) days beyond the termination date of this
Agreement. Minimum order quantities, if applicable, are specified in
Schedule A. There shall be no force or effect given to any different or
additional terms of any purchase order, confirmation or similar form even
if signed by the parties after the date hereof.
10. ACCEPTANCE: VAR's acceptance of Products shall occur upon delivery unless
VOTAN is notified in writing within twenty (20) days of shipment, that the
Products do not conform to the warranty set forth below.
11. WARRANTY: VOTAN warrants that the Products manufactured by VOTAN will be
free from defects in material and workmanship in accordance with VOTAN's
specifications under the normal use and service for which they were
designed until the earlier of ninety (90) days from shipment by VAR to an
end user or one hundred twenty (120) days from shipment by VOTAN to VAR.
VOTAN does not warrant that the Products are error free.
2
<PAGE>
VOTAN's obligation under this warranty is limited solely to replacing,
repairing, or issuing credit (at VOTAN's discretion) for any Products
which are returned during the warranty period provided that: (a) VOTAN is
promptly notified in writing upon discovery of such defects; (b) a return
authorization number is obtained from an authorized representative of
VOTAN; (c) the defective Products are returned to VOTAN, freight charges
prepaid by VAR and; (d) VOTAN's examination of the Products shall
disclose, to its satisfaction, that such defects exist and have not been
caused by misuse, neglect, improper repair or alteration or accident. All
replacement or repair parts will be shipped F.O.B. VAR's facility in the
United States.
VOTAN shall under no circumstances, be liable for any special, indirect or
consequential damages caused by failure of the Products including, without
limitation, any loss of profits or loss of use of the Products. THE ABOVE
WARRANTIES ARE THE ONLY WARRANTIES MADE BY VOTAN AND ARE MADE EXPRESSLY IN
LIEU OF ALL OTHER WARRANTIES WHETHER EXPRESS, IMPLIED, OR STATUTORY,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
VAR has no authority to alter or enlarge the warranties or representations
of VOTAN as set forth herein. In the event VAR makes unauthorized
warranties, representations or guarantees in connection with the sale of a
system containing the Products, VAR shall hold harmless and indemnify
VOTAN for any expenses, claims, damages or liability of any nature arising
from or related to such unauthorized representations, warranties or
guarantees, including but not limited to its attorney's fees.
12. LIMITED LIABILITY: NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
OTHERWISE, VOTAN WILL NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF
THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER
LEGAL OR EQUITABLE THEORY (I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE
OF THE PAYMENTS PAID TO VOTAN BY VAR HEREUNDER DURING THE TWELVE MONTH
PERIOD PRIOR TO THE DATE THE CAUSE OF ACTION AROSE OR (II) FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST DATE OR (III) FOR COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
13. TRAINING: Installation, maintenance and product training will be provided
by VOTAN to VAR in accordance with the fees specified in Schedule B. These
charges shall be subject to change on thirty (30) days written notice
commencing twenty three (23) months after the effective date of this
Agreement and shall not exceed the amounts charged other VOTAN VAR's for
comparable services.
VOTAN will maintain a certification program for all training courses.
VOTAN will certify only those VAR employees who satisfactorily complete a
VOTAN training course and are qualified, in VOTAN's opinion, to install
and maintain the Products. Certification shall be valid up to a specified
revision level of the Products. VAR agrees that only appropriately
certified employees of VAR shall be assigned to install or maintain the
Products.
14. MARKETING AND TECHNICAL SUPPORT. VOTAN agrees to provide sales,
installation, system administration, technical support and engineering and
customization services at the charges specified in Schedule B. These
charges will be subject to change on thirty (30) days notice commencing
twenty three (23) months after the effective date of this Agreement and
shall not exceed the amounts charged other VOTAN VAR's for comparable
services.
15. DOCUMENTATION: One (1) set of end user documentation, will be supplied by
VOTAN with each Product unit delivered. Additional sets of Product
documentation may be purchased from VOTAN. VAR shall have the right to
translate and reproduce such documentation but all rights including, but
not limited to, any copyrights in such translations shall be owned by
VOTAN.
3
<PAGE>
16. DESIGN CHANGES: VOTAN reserves the right to make changes in design to
improve Products performance, reliability or manufacturing costs and VAR
agrees to accept such modified Products provided such modifications do not
adversely affect Products performance.
17. PATENT INFRINGEMENT: VOTAN agrees to indemnify VAR for its direct costs
and awarded damages and to defend VAR in the event VAR is alleged by any
third party to infringe on a patent by virtue of VAR's use or sale of the
Products, provided (a) such alleged infringement is not caused by
modification or addition made to the Products by VAR, (b) VAR promptly
notifies VOTAN of such allegation and gives authority, information and
assistance reasonably needed by Votan in defense of such claim, (c) VOTAN
has sole control over the defense and negotiations for a settlement or
compromise and (d) VOTAN will not be liable for any settlement it does not
approve in writing. Notwithstanding the foregoing, VOTAN shall have no
liability to VAR for any indirect or consequential damages, including but
not limited to lost revenue or income.
18. FORCE MAJEURE: VOTAN shall not be liable for any delays in performance
hereunder due to acts of God, war, labor interruptions, inability to
obtain materials or transportation, or any other causes beyond the
reasonable control of VOTAN. VOTAN will notify VAR in the event such
delays occur.
19. DEFAULT: Should VAR fail to make any payment due VOTAN under this
Agreement or breach any other material provision of this Agreement and
such failure continues for a period of five business days after delivery
of written notice of such default by VOTAN to VAR, then VOTAN may, in
addition to all other remedies provided hereunder and at law, alter the
terms of payment for subsequent deliveries, withhold deliveries, terminate
this agreement upon delivery of written notice, and/or cancel any
outstanding purchase orders, whether accepted by VOTAN or not. Said action
shall not be deemed to be a breach by VOTAN of this agreement.
20. CONFIDENTIAL INFORMATION: Except as expressly stated herein, VOTAN grants
no patent, license or other proprietary rights to the Products and retains
for itself, on an exclusive basis, all proprietary rights in and to all
designs, engineering specifications, programs and other information
relating to the Products. It is acknowledged and agreed to by VAR that the
above-referenced proprietary information, to the extent obtained directly
or indirectly from VOTAN, may not be used or discussed without the written
consent of VOTAN except as necessary for installation, operation,
maintenance or sale of the Products or a system containing the Products.
The obligations of VAR pursuant to this section shall survive termination
of this Agreement. Upon termination of this Agreement, all such
confidential information shall be returned to VOTAN at VOTAN's request.
Notwithstanding the foregoing, nothing herein shall be deemed to prevent
use by VAR of information available to it from third parties not in
violation of an agreement with VOTAN or as a result of VAR's own research
and development.
21. GOVERNING LAW: This Agreement shall be construed and interpreted in
accordance with the laws of The State of California. In the event a
dispute arises under or with respect to this Agreement, the parties agree
that the courts of the State of California shall have exclusive
jurisdiction over such dispute.
22. NOTICES: Written notice pursuant to this Agreement may be made by
mail, postage prepaid, or by a facsimile or telex.
23. SEVERABILITY: If any provision of this Agreement shall be determined to be
unenforceable or illegal, it shall be deemed severable from the other
provisions which shall remain valid and enforceable.
4
<PAGE>
24. ACCEPTANCE OF TERMS: Sale of the Products shall be made on the terms,
conditions and warranties contained herein which shall take precedence
over and may not be modified by any terms and conditions on any purchase
order, confirmation or similar form even if signed by the parties after
the date hereof. The terms and conditions of this Agreement may only be
modified in a written amendment signed by an authorized officer of both
parties. Failure of VOTAN to object to provisions contained in any
communication from VAR shall not be construed as a waiver of these terms
and conditions nor an acceptance of any such provision.
VOTAN CORPORATION MOSCOM CORPORATION
By: /s/ By: /s/
-------------------------- -----------------------------
, Title , Title
Date: 9/6/96 Date: 9/6/96
------------------------ ---------------------------
5
<PAGE>
SCHEDULE A
PRODUCTS:
VOTAN's application software for the bank teller verification system.
PRODUCT LICENSE FEE:
For each end-user licensed to use a Product, VAR shall pay to VOTAN a royalty
at the rate of $1,800 for the application software per system or $1,800 for
the application software per Branch, whichever results in the greater
aggregate amount for such end-user. For purposes of this Agreement, "System"
shall mean a single personal computer that incorporates up to four Model 2400
computer boards; any personal computer that incorporates more than four Model
2400 computer boards shall be counted as more than one Personal Computer, with
25% of the royalty due for a Personal Computer due for each additional Model
2400 computer board (e.g., for a personal computer with five Model 2400
computer boards 125% of the royalty for one Personal Computer shall be due).
For purposes of this Agreement, "Branch" shall mean a single building that
houses a branch or other office of an end-user.
VOTAN CORPORATION MOSCOM CORPORATION
By: /s/ By: /s/
-------------------------- -----------------------------
, Title , Title
Date: 9/6/96 Date: 9/6/96
------------------------ ---------------------------
6
<PAGE>
SCHEDULE B
SERVICE FEES
Supply of services by VOTAN shall be subject to the parties reaching agreement
in writing as to the scope and nature of the services, on a case-by-case
basis. VAR shall pay VOTAN for the services supplied by VOTAN at the following
rates:
Training - $1,000 per day plus living and travel expenses.
Installation - $1,000 per day plus living and travel expenses.
System Administration - $125 per hour.
Technical Support - $125 per hour.
Engineering - $125 per hour.
Software Customization - $125 pr hour.
VOTAN CORPORATION MOSCOM CORPORATION
By: /s/ By: /s/
-------------------------- -----------------------------
, Title , Title
Date: 9/6/96 Date: 9/6/96
------------------------ ---------------------------
MOSCOM (LOGO)
September 4, 1996
Mr. E. Drew Sikorski
International Director
Grady & Hatch, Inc.
Gridley Building, Suite 403A
Syracuse, New York 13202
Dear Drew:
On behalf of MOSCOM Corporation, I am pleased to document the agreement reached
between MOSCOM Corporation and Grady & Hatch, Inc. MOSCOM retained Grady & Hatch
on February 6, 1996 to assist MOSCOM in selling a portion of its Votan Division
through an initial public offering (IPO). Grady & Hatch's role has been to
select and introduce MOSCOM management to suitable investment banking firms to
act as lead underwriter for an IPO of Votan, to assist MOSCOM in evaluating and
negotiating with underwriters and otherwise assisting MOSCOM as reasonably
requested to facilitate the completion of the IPO. Grady & Hatch has not been
engaged to assist in distributing or selling securities on behalf of MOSCOM or
Votan.
In consideration for the services to be provided, Grady & Hatch will be paid the
following compensation guaranteed by MOSCOM as indicated below:
1. Reimbursement by MOSCOM for expenses incurred by Grady & Hatch after
February 6, 1996, in performance of the services outlined herein for which
receipts or other itemized accounting is presented to MOSCOM. Any
expenditures in excess of $500 must be approved by MOSCOM in advance.
2. The lesser of one percent (1%) of the gross dollar proceeds of the IPO or
$250,000. Of that amount, $100,000 will be non-contingent and payable upon
the signing of this agreement and the balance will be contingent and payable
upon settlement date of the IPO through an underwriter introduced to MOSCOM
by Grady & Hatch, Inc.
The contingent compensation described in Section 2 above will be paid to Grady &
Hatch if the IPO is completed prior to February 6, 1997, through a lead
underwriter introduced to MOSCOM by Grady & Hatch notwithstanding prior
termination of this agreement. MOSCOM agrees that is has been introduced by
Grady & Hatch to Ladenburg, Thalmann & Co.
Grady & Hatch agrees that its retainer by MOSCOM is non-exclusive and that
MOSCOM shall have the right to speak to investment bankers either directly or
indirectly without the intercession of Grady & Hatch and that if the IPO is
completed through an underwriter not introduced to MOSCOM by Grady & Hatch, then
Grady & Hatch shall not be entitled to the compensation described in sections 2
and 3 above. Upon MOSCOM's request, Grady & Hatch agrees to refrain from
contacting any specifically named investment banking firm regarding Votan.
Mr. Sikorski
Page 2
September 4, 1996
MOSCOM agrees to indemnify Grady & Hatch from and against any losses, claims,
damages or liabilities (or actions, including securityholder actions, in respect
thereof) related to or arising out of Grady & Hatch's engagement hereunder or
its role in connection herewith, and will reimburse Grady & Hatch for all
reasonable expenses (including counsel fees and disbursements) as they are
incurred by Grady & Hatch in connection with investigating, preparing for or
defending any such action or claim, whether or not in connection with pending or
threatened litigation in which Grady & Hatch is a party. MOSCOM will not,
however, be responsible for any claims, liabilities, losses, damages or expenses
which are finally judicially determined to have resulted primarily from the bad
faith or gross negligence of Grady & Hatch.
Grady & Hatch may rely, without independent verification, on the accuracy and
completeness of all information furnished to Grady & Hatch. MOSCOM will provide
Grady & Hatch with all financial and other information requested by Grady &
Hatch for the purposes of rendering Grady & Hatch's services pursuant to this
agreement.
MOSCOM agrees that following the closing of the IPO, Grady & Hatch may place
advertisements in financial and other newspapers and journals at its own expense
describing its services to MOSCOM hereunder subject to the written prior
approval of the company and the lead underwriter.
MOSCOM and Grady & Hatch acknowledge and agree that there are no brokers,
representatives or other persons which have an interest in compensation due to
Grady & Hatch from any transaction contemplated herein.
This agreement may not be amended or modified except in writing and shall be
governed by and construed in accordance with the laws of the State of New York.
This restatement and modification of the agreement supersedes in its entirety
all prior agreements between the parties hereto and shall be construed as the
only agreement between MOSCOM or Votan and Grady & Hatch.
We look forward to working with you toward our common goal of a successful Votan
public offering. Please confirm your concurrence with the content of this letter
by signing below.
Sincerely,
/s/ ROBERT L. BOXER
Robert L. Boxer
Vice President
Corporate Counsel
/cs
GRADY & HATCH, INC.
By: /s/ E. DREW SIKORSKI Date: 9-5-96
--------------------------- ---------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Rochester, New York,
September 6, 1996
I hereby consent to be named as a designated director of the Board of Directors
of Votan Corporation in Amendment Number 1 to the Registration Statement on Form
S-1 of Votan Corporation, as filed on September 6, 1996.
/s/ Donald G. Heitt
- ------------------------
Donald G. Heitt
Chairman
Dated September 5, 1996
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