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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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)
</TABLE>
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:
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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
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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.
[ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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Common stock, par value $.01 per
share .............................. 3,162,500 Shares $12.00 $37,950,000.00 $13,087.00
</TABLE>
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(1) Includes 412,500 shares which the Underwriters have the option to
purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) Calculated pursuant to Rule 457(a) based on an estimate of the maximum
offering price.
----------------
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>
Votan Corporation
Cross-Reference Sheet Showing Location in Prospectus
of Information Required by Items of Form S-1
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ITEM AND CAPTION LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus .................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ........................................ Inside Front Cover Page of Prospectus; Outside
Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ......................... Prospectus Summary; Risk Factors; Selected
Financial Information
4. Use of Proceeds ................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price ................... Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
6. Dilution .......................................... Risk Factors; Dilution
7. Selling Security Holders .......................... Principal and Selling Stockholders
8. Plan of Distribution .............................. Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Capital Stock to Be Registered .... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Description of Capital
Stock; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel ............ *
11. Information with Respect to the Registrant ....... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; 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 Securities;
Shares Eligible for Future Sale; Legal
Matters; Experts; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act of 1933, As
Amended, Liabilities .............................. *
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* Not Applicable
<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 JUNE 28, 1996
PROSPECTUS
2,750,000 SHARES
[VOTAN LOGO]
Votan Corporation
COMMON STOCK
Of the 2,750,000 shares of Common Stock offered hereby, 1,380,000 shares
are being sold by Votan Corporation ("Votan" or the "Company") and 1,370,000
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 60% 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
intends to apply 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
$700,000, 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
412,500 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.
The date of this Prospectus is , 1996
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 is currently
being 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
<PAGE>
[ARTWORK]
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 and apparatus 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 ("ATM"). 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. on a pilot program utilizing the Company's voice verification
products to authenticate the identity of customers prior to the consummation
of a teller transaction. To date, over 8,000 customers have 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 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
3
<PAGE>
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."
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 abroad.
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 60% of the outstanding shares of Common Stock of the Company
(54% if the Underwriters' over-allotment option is exercised in full). As a
result, MOSCOM will retain the voting power to elect all directors and to
approve other matters required to be voted upon by the stockholders of the
Company.
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 ............................................. 1,380,000 shares
The Selling Stockholder(1) .............................. 1,370,000 shares
Common Stock to be outstanding after this offering(2) .... 6,880,000 shares
For expansion of sales and marketing
activities, research and development,
reimbursement of MOSCOM for certain
formation-related expenses and general
corporate purposes. See "Use of
Use of Proceeds ........................................... Proceeds."
Proposed Nasdaq National Market symbol .................... VOTN
</TABLE>
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(1) Does not include 412,500 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; 275,000 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"); and 55,000
shares reserved for issuance upon the exercise of warrants to be
granted by the Company to Grady & Hatch, Inc., financial advisor to
MOSCOM and the Company, exercisable at 120% of the initial public
offering price (the "G&H 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 three months
ended March 31, 1995 and 1996 and the summary balance sheet data as of March
31, 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 (loss) ...................... 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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THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1996
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Sales .................................... $ 41 $ 56
Gross profit (loss) ...................... (35) 7
Engineering and software development, net 114 111
Net loss ................................. $(279) $ (226)
Net loss per share (1) ................... $(0.04)
Weighted average shares outstanding (2) . 5,500
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MARCH 31, 1996
----------------------
AS ADJUSTED
ACTUAL (3)
-------- ------------
(UNAUDITED)
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BALANCE SHEET DATA:
Working capital (deficit) $(120) $13,222
Total assets .............. 408 13,750
Total liabilities ......... 201 201
Total stockholders' equity 207 13,549
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(1) Pursuant to Securities and Exchange Commission requirements, losses per
share of the Company are 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 1,380,000 shares of Common Stock
offered by the Company at an assumed initial public offering price of
$11.00 per share.
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 March 31, 1996, the Votan division
has accumulated net losses from operations in an amount equal to
approximately $3.7 million and has incurred negative cash flows 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. The Company
anticipates hiring a Vice President, Sales and Marketing and a Chief
Financial Officer in the near future. 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 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
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
6
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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
three-month period ended March 31, 1996, the Company made significant sales
to only six, five, six and three customers, respectively. 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 employees may be incurred prior to the generation of any
associated revenues. The Company has not identified its entire executive
management team. Once in place, the executive management team will have 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
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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 60% of the outstanding shares of
Common Stock (54% 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 of the Company, 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. Currently, there is no formal procedure for resolving
or preventing conflicts that may arise between the Company and MOSCOM with
respect to matters not covered by agreements between them, such as any
conflict that may arise between any director, executive officer or employee
of MOSCOM who also serves as a director of the Company. If such a conflict
were to arise, the inability of the Company to operate free from the
influence of MOSCOM could have a material adverse effect on the Company's
business, financial conditions and results of operations.
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, promotional
discounts, 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
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to fund the Company's operations for at least the next two years. No
assurance can be given that the 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 speech recognition markets, the performance and price of the
Company's and its customers' products and
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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, Inc., Microsoft Corporation, NEC Corp.,
Nuance Communications, Siemens AG, Speech Systems, Inc.,
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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 VAR, OEM and systems integrator
customers 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
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APITAL PRINTING SYSTEMS]
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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 and apparatus 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.
Legal standards relating to the scope of claims and the validity of
patents relating to voice verification and speech recognition technologies
and processes are still evolving, and no assurance can be given as to
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the degree of protection afforded by any patents issued to or licensed by the
Company 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 rights of the Company or its competitors, litigation,
fluctuations in the Company's operating results,
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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 6,880,000 shares of Common Stock that will be outstanding
after this offering, the 2,750,000 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 (i)
the Representatives warrants covering an aggregate of 275,000 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 and (ii) Grady & Hatch, Inc. warrants covering an aggregate of
55,000 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 100,000 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 formation-related expenses and general corporate purposes.
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Accordingly, the 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."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,380,000 shares of
Common Stock offered by the Company are estimated to be approximately $13.3
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 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.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) to give effect to the capitalization of the Company and 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 (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>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
---------- ------------
<S> <C> <C>
Stockholders' Equity:
Preferred stock, $0.01 par value, 100,000 shares
authorized,
none issued and outstanding ............................... -- --
Common stock, $0.01 par value, 10,000,000 shares
authorized, 5,500,000 shares issued and outstanding, pro
forma and 6,880,000 shares issued and outstanding, as
adjusted (1) .............................................. $ 55,000 $ 68,800
Capital in excess of par value ............................. 152,000 13,479,700
---------- ------------
Total ...................................................... $207,000 $13,548,500
========== ============
</TABLE>
- ------------
(1) Excludes 825,000 shares issuable under the Company's Stock Option
Plan adopted in June 1996; 275,000 shares reserved for issuance upon
the exercise of the Representatives' Warrants and 55,000 shares
reserved for issuance upon the exercise of the G & H 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 March 31, 1996 was
approximately $(59,000) or approximately $(0.01) per share. After giving
effect to the sale by the Company of the 1,380,000 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 March 31, 1996 would have been approximately $13.3 million, or
approximately $1.93 per share. This represents an immediate increase in net
tangible book value of $1.94 per share to existing stockholders and an
immediate dilution of $9.07 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) ...... 1.94
---------
Pro forma net tangible book value after this offering (3) .............. 1.93
--------
Dilution in net tangible book value of Common Stock to new investors (3) $ 9.07
========
</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 March 31, 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 5,500,000 79.9% $ 207,000 1.3% $ 0.04
New Investors ........ 1,380,000 20.1 15,180,000 98.7 $11.00
----------- --------- ------------- ---------
Total ............ 6,880,000 100.0% $15,387,000 100.0%
=========== ========= ============= =========
</TABLE>
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 three
months ended March 31, 1995 and 1996 and the selected balance sheet data as
of March 31, 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- -------------------
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 $ 41 $ 56
Cost of sales .......................... 192 204 307 305 329 76 49
-------- -------- -------- ---------- --------- -------- ---------
Gross profit (loss) .................... 314 279 210 288 243 (35) 7
Operating expenses:
Engineering and software development,
net .................................. 93 265 342 579 424 114 111
Sales and marketing ................... 108 239 223 293 323 47 40
General and administrative ............ 130 510 490 418 386 83 82
-------- -------- -------- ---------- --------- -------- ---------
Total operating expenses ............... 331 1,014 1,055 1,290 1,133 244 233
-------- -------- -------- ---------- --------- -------- ---------
Loss from operations ................... (17) (735) (845) (1,002) (890) (279) (226)
Provision for taxes .................... -- -- 1 1 1 -- --
-------- -------- -------- ---------- --------- -------- ---------
Net loss ............................... $(17) $ (735) $ (846) $(1,003) $ (891) $(279) $ (226)
======== ======== ======== ========== ========= ======== =========
Net loss per share (2) ................. $(0.16) $(0.04)
========= =========
Weighted average shares outstanding (3) 5,500 5,500
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- MARCH 31,
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) $(120)
Total assets ............. 555 458 704 613 342 408
Total liabilities ........ 160 196 209 205 224 201
Total divisional equity . 395 262 495 408 118 207
</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, losses per
share of the Company are 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 March 31, 1996, Votan has
accumulated net losses from operations in an amount equal to approximately
$3.7 million and has incurred negative cash flows, 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
three-month period ended March 31, 1996, the
20
<PAGE>
Company made significant sales to only six, five, six and three customers,
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 VARs, OEMs and systems
integrators. 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
QUARTERS ENDED MARCH 31, 1996 AND 1995
Sales increased from $41,000 for the quarter ended March 31, 1995 to
$56,000 for the quarter ended March 31, 1996. The increase was primarily due
to higher sales of the Company's older generation board resulting from
various sales incentives.
Gross profit increased from a gross loss of $35,000 for the quarter ended
March 31, 1995 to a gross profit of $7,000 for the quarter ended March 31,
1996. The increase in gross profit was primarily due to lower amortization of
software development costs relating to the Company's VoiceLock product which
was fully amortized as of June 1995.
Engineering and software development expenses, net, decreased from
$114,000 for the quarter ended March 31, 1995 to $111,000 for the quarter
ended March 31, 1996, net of amount capitalized of $31,000 for the quarter
ended March 31, 1996. The capitalized amount in the quarter ended March 31,
1996 related to enhancements to the Company's new generation board.
21
<PAGE>
Selling and marketing expenses decreased from $47,000 for the quarter
ended March 31, 1995 to $40,000 for the quarter ended March 31, 1996 due to
the absence of sales commissions resulting from a shift from international to
domestic sales.
General and administrative expenses decreased from $83,000 for the quarter
ended March 31, 1995 to $82,000 for the quarter ended March 31, 1996.
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 offset by higher
amortization expenses related to the release of the Company's new generation
board.
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.
22
<PAGE>
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 $315,000 for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 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."
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 and apparatus 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. on a pilot program
utilizing the Company's voice verification products to authenticate the
identity of customers prior to the consummation of a teller transaction. To
date, over 8,000 customers have 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."
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. After the consummation of this offering, MOSCOM will own
approximately 60% of the outstanding shares of Common Stock of the Company
(54% if the Underwriters' over-allotment option is exercised in full). As a
result, MOSCOM will retain the voting power to elect all directors and to
approve other matters required to be voted upon by the stockholders of the
Company.
24
<PAGE>
INDUSTRY BACKGROUND
Speech is typically the most natural and convenient means of human
communication. Due to the increasing availability of low-cost digital signal
processors and microprocessors, 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.
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
25
<PAGE>
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 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 alternatives fail to meet
the market's need for enhanced security of various telephonic transactions,
Internet applications and computer networks that are both secure and
commercially feasible. 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
same 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.
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THE VOTAN SOLUTION
Votan offers its customers a single vendor solution developed to the
customer'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 customer-supplied
system or supply the complete system on a turnkey basis. The Company
addresses the limitations of competing applications with commercially
feasible 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
telephone networks, the noisy lobby of a bank or retail store or the
inherently noisy cellular-telephone environment.
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 its proprietary algorithms, provides the system with
greater latitude 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 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 development 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.
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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 products utilizing its proprietary
technologies 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 better securing both systems and transactions on a
cost-effective basis.
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 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 voice
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 voice verification
and speech recognition 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."
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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
technologies are currently being utilized by The Chase Manhattan Bank, N.A.
in a pilot program called "XtraSecure." 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. To date, over 8,000 customers have
enrolled in this program.
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.
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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 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 and apparatus. 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
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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 33 units of the new generation four port board in each of the
years ended December 31, 1994 and 1995 and the three-month period ended March
31, 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.
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
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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. See "Certain
Transactions--MOSCOM Relationship."
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 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.
As of June 28, 1996, the Company employed one person in marketing. The
Company intends to significantly expand its sales and marketing force.
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 (28%,
12%, 11% and 6%, respectively), 30% of sales (21% and 9%, respectively) and
74% of sales (56%, 12% and 6%, respectively). For the period ended March 31,
1996, sales to three customers, respectively, accounted for 100% of sales
(44%, 39% and 17%, respectively).
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 $142,000 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 period ended March 31, 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
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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 identify, and
ultimately disregard, 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 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 and apparatus 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
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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.
Legal standards relating to the scope of claims and the validity of
patents relating to voice verification and speech recognition technologies
and processes are still evolving, and no assurance can be given as to the
degree of protection afforded by any patents issued to or licensed by the
Company 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, 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
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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."
EMPLOYEES
As of June 28, 1996, the Company employed 11 persons, including eight in
engineering and software development, one in sales and marketing and two 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 lease on this 3,002-square-foot
facility will terminate on July 14, 1998, subject to renewal at the Company's
option. The Company is planning to relocate to a larger facility in 1996,
which 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.
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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) .... 59 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, Secretary and Director
Ronald C. Lundy (3) ............... 44 Treasurer
</TABLE>
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Mr. Lundy is serving as the Treasurer of the Company until the
retention of a full-time Chief Financial Officer by the Company. Mr.
Lundy does not receive any compensation from the Company for his
services.
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, Secretary 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.
Ronald C. Lundy has served as Treasurer of the Company since June 1996.
Concurrent with his service to the Company, Mr. Lundy has served as Treasurer
of MOSCOM since August 1993. From January 1984 to August 1993, Mr. Lundy
served as MOSCOM's corporate controller.
KEY EMPLOYEES
The following table sets forth certain information with respect to certain
key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- -------- -------------------------------
<S> <C> <C>
Steven D. Love ...... 41 Principal Research Engineer
Stephen P. Gill .... 58 Chief Scientist
Graeme R. Kinsey .... 50 Senior Product Manager
</TABLE>
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
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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.
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. Prior to the consummation of this
offering, the Company intends to enter into an employment agreement with Mr.
Vail. Pursuant to his agreement, Mr. Vail will be appointed to serve on the
Board of Directors of the Company and shall continue to serve on the Board of
Directors following this offering.
As soon as possible after the date of this Prospectus, the Company intends
to appoint two independent members 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."
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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. 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
During the year ended December 31, 1995, Mr. Vail served as an executive
officer of MOSCOM. For the year ended December 31, 1995, Mr. Vail received
from MOSCOM a salary of $112,000, a cash bonus of $5,000 and other
compensation in the amount of $17,111 consisting primarily of (i) personal
use of a MOSCOM company car, (ii) life insurance premiums paid by MOSCOM,
(iii) MOSCOM contributions to the MOSCOM 401(k) plan and (iv) medical
expenses reimbursed by MOSCOM. No MOSCOM stock options were granted to Mr.
Vail during the year ended December 31, 1995. As of December 31, 1995, Mr.
Vail owned currently exercisable options to purchase 15,000 shares of MOSCOM
common stock with an estimated value of $87,800 (calculated by subtracting
the exercise price of the options from the market value of the underlying
MOSCOM common stock using the December 29, 1995 closing price of MOSCOM
common stock on the Nasdaq National Market of $8.12 per share). Mr. White was
not employed by MOSCOM or the Company during the year ended December 31,
1995. In the future, Messrs. White and Vail will receive compensation to be
paid by the Company in accordance with their respective employment
agreements. See "--Employment Agreements."
1996 STOCK OPTION PLAN
Pursuant to the terms of the Formation, stock options 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 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, 50% of which become exercisable thirty months from
the date of his employment agreement and the remaining 50% become exercisable
sixty months after the date of his employment agreement. Pursuant to the
terms of the proposed employment agreement with
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<PAGE>
Mr. Vail, the Company expects to grant Mr. Vail an option under the 1996 Plan
to purchase 50,000 shares of Common Stock. Mr. Vail's options are to become
exercisable in three annual installments of 17,000, 17,000 and 16,000
respectively, beginning one year from the date of his employment agreement.
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, Mr. White will be entitled to
receive a minimum base salary of $180,000 per year, plus annual
performance-based bonuses in an amount up to 50% of his base salary. 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
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<PAGE>
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).
Prior to the consummation of this offering, the Company intends to enter
into an employment agreement with Richard C. Vail, the Company's Executive
Vice President, for a two-year term. Pursuant to his agreement, Mr. Vail will
be entitled to receive a minimum base salary of $130,000 per year, plus
annual performance-based bonuses in an amount up to 50% of his base salary.
In addition, pursuant to his agreement, until July 1, 1997, Mr. Vail will be
entitled to receive certain sales commissions relating to the Company's sales
of certain of its products and applications to The Chase Manhattan Bank, N.A.
The agreement will require Mr. Vail to devote his full time, attention and
energies to the Company's business. The agreement will contain restrictive
covenants pursuant to which Mr. Vail will agree not to compete with the
Company for a period of one year following termination of his employment. The
agreement will also prohibit 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 will provide that, if Mr. Vail is
terminated without "good cause" (as such term is defined in Mr. Vail's
employment agreement), then Mr. Vail will be entitled to receive any unpaid
compensation accrued through the last day of his employment and certain
"severance payments" (as such term shall be defined in Mr. Vail's employment
agreement). In addition, pursuant to the terms of his agreement, Mr. Vail's
MOSCOM pension will be continued by the Company with full credit for 11 years
of service with MOSCOM for vesting and benefit calculations. In connection
therewith, Votan has agreed to assume the MOSCOM pension fund liability with
respect to Mr. Vail's vesting and benefit obligations. See "Certain
Transactions--MOSCOM Relationship."
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
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individuals whether or not the claim asserted is based on matters that
antedate the adoption of the 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 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
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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.
After the completion of this offering, MOSCOM will own approximately 60%
of the outstanding shares of common stock of the Company (54% 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.
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."
42
<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 June 28, 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 BENEFICIAL OWNERSHIP
PRIOR TO THIS AFTER THIS
NUMBER OF
OFFERING(1) OFFIERING(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% 1,370,000 4,130,000 60%(2)
Albert J. Montevecchio (3)(4)
3750 Monroe Ave. Pittsford, NY 14534 10,000 * 10,000 *
John A. White (3)
7020 Koll Center Parkway,
Pleasanton, California 94566 ........ 120,000 1.7 120,000 1.7
Richard C. Vail (3)
7020 Koll Center Parkway,
Pleasanton, California 94566 ........ 50,000 * 50,000 *
Ronald C. Lundy (3)
3750 Monroe Ave. Pittsford, NY 14534 -- -- -- --
All executive officers and directors
as a group (4 persons) .............. 180,000 2.6% 180,000 2.6%
</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) Includes 41,250 shares of Votan Common Stock subject to sale upon the
exercise of a four-year purchase option, commencing one year from the
date of this Prospectus, to be granted by MOSCOM to Grady & Hatch,
Inc., upon terms and conditions substantially similar to the G&H
Warrant. See "Underwriting."
(3) Consists of options to purchase shares of Common Stock, none of which
are currently exercisable.
(4) 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.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the Company's authorized capital
stock will consist of 10,000,000 shares of Common Stock, par value $0.01 per
share, and 100,000 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 330,000 shares of Common Stock issuable upon the
exercise of outstanding options or 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 60% of the outstanding shares of Common Stock
(54% 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 100,000 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 Grady & Hatch, Inc., an
advisor to MOSCOM and the Company (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, at any time
after the Company becomes eligible to file a registration statement on Form
S-3, the Holders may require the Company to file registration statements
under the Securities Act on Form S-3 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."
44
<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.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 6,880,000 shares
of Common Stock outstanding. Of these shares, the 2,750,000 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
4,130,000 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, 4,130,000 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
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 June 28, 1996, no options were outstanding under the 1996 Stock Option
Plan. 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 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 330,000 shares reserved for issuance upon
exercise of the Representatives' Warrants and the G&H Warrants. See
"Underwriting."
46
<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., 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.
-----------
Total ....................... 2,750,000
</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 412,500 additional shares of Common Stock at the same price per share as
the initial 2,750,000 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 2,750,000 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 275,000
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.
The Company has also agreed to issue to Grady & Hatch, Inc., an advisor to
MOSCOM and the Company, for its own account, warrants (the "G&H Warrants") to
purchase 55,000 shares of Common Stock on substantially the same terms as the
Representatives' Warrants. In addition, MOSCOM has agreed to issue a purchase
option to Grady & Hatch, Inc., to purchase 41,250 shares of Common Stock
owned by MOSCOM with terms similar to the G&H Warrants.
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 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
47
<PAGE>
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.
48
<PAGE>
VOTAN
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 and Divisional Equity ... F-4
Statements of Cash Flows .......................... F-5
Notes to Financial Statements ..................... F-6
</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 (a division of
MOSCOM Corporation) as of December 31, 1995 and 1994, and the related
statements of operations and divisional 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 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
A DIVISION OF MOSCOM CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................ $ 2,000 $ 8,000 $ 18,000
Accounts receivable ............................. 108,000 2,000 63,000
Other assets .................................... 1,000 -- --
---------- ---------- -----------
Total current assets ........................... 111,000 10,000 81,000
---------- ---------- -----------
PROPERTY AND EQUIPMENT, net ...................... 87,000 63,000 61,000
---------- ---------- -----------
OTHER ASSETS:
Capitalized software, net of accumulated
amortization of $216,000 and $195,000 in 1994
and 1995, respectively ......................... 415,000 269,000 266,000
---------- ---------- -----------
Total other assets ............................ 415,000 269,000 266,000
---------- ---------- -----------
$613,000 $342,000 $408,000
========== ========== ===========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accrued payroll, commissions and related taxes . $ 16,000 $ 17,000 $ 24,000
Deferred compensation ........................... 189,000 207,000 177,000
---------- ---------- -----------
Total current liabilities ...................... 205,000 224,000 201,000
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES ....................
DIVISIONAL EQUITY ................................ 408,000 118,000 207,000
---------- ---------- -----------
$613,000 $342,000 $408,000
========== ========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ -------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES ................................ $ 517,000 $ 593,000 $ 572,000 $ 41,000 $ 56,000
COST OF SALES:
Direct costs ........................ 181,000 122,000 132,000 10,000 15,000
Amortization of software development
costs .............................. 126,000 183,000 197,000 66,000 34,000
------------ -------------- ------------ ------------ ------------
307,000 305,000 329,000 76,000 49,000
------------ -------------- ------------ ------------ ------------
Gross profit (loss) ................. 210,000 288,000 243,000 (35,000) 7,000
OPERATING EXPENSES:
Engineering and software
development, net ................... 342,000 579,000 424,000 114,000 111,000
Selling and marketing ............... 223,000 293,000 323,000 47,000 40,000
General and administrative .......... 490,000 418,000 386,000 83,000 82,000
------------ -------------- ------------ ------------ ------------
1,055,000 1,290,000 1,133,000 244,000 233,000
------------ -------------- ------------ ------------ ------------
Loss from operations ................ (845,000) (1,002,000) (890,000) (279,000) (226,000)
PROVISION FOR TAXES .................. 1,000 1,000 1,000 -- --
------------ -------------- ------------ ------------ ------------
NET LOSS ............................. $ (846,000) $(1,003,000) $ (891,000) $(279,000) $ (226,000)
============ ============== ============ ============ ============
UNAUDITED PRO FORMA NET LOSS PER
SHARE ............................... $ (0.16) $ (0.04)
============ ============
Weighted average shares outstanding . 5,500,000 5,500,000
============ ============
DIVISIONAL EQUITY, beginning of
period .............................. $ 262,000 $ 495,000 $ 408,000 $ 408,000 $ 118,000
NET LOSS ............................. $ (846,000) $(1,003,000) $ (891,000) $(279,000) $ (226,000)
CONTRIBUTION FROM MOSCOM CORPORATION 1,079,000 916,000 601,000 241,000 315,000
------------ -------------- ------------ ------------ ------------
DIVISIONAL EQUITY, end of period .... $ 495,000 $ 408,000 $ 118,000 $ 370,000 $ 207,000
============ ============== ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
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) $(279,000) $(226,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ............................. 22,000 28,000 26,000 6,000 7,000
Amortization of capitalized software ..... 126,000 183,000 197,000 66,000 34,000
Changes in operating assets and
liabilities:
Decrease (increase) in:
Accounts receivable ..................... (26,000) (41,000) 106,000 1,000 (61,000)
Other assets ............................ (1,000) -- 1,000 1,000 --
Increase (decrease) in:
Accrued payroll, commissions and related
taxes .................................. -- -- 1,000 4,000 7,000
Deferred compensation ................... 13,000 (4,000) 18,000 (34,000) (30,000)
------------ -------------- ------------ ------------ ------------
Net cash used in operating activities .. (712,000) (837,000) (542,000) (235,000) (269,000)
------------ -------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furniture and
fixtures ................................. (54,000) -- (2,000) -- (5,000)
Capitalized software expenditures ......... (308,000) (104,000) (51,000) -- (31,000)
------------ -------------- ------------ ------------ ------------
Net cash used in investing activities .. (362,000) (104,000) (53,000) -- (36,000)
------------ -------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net contribution from MOSCOM Corporation .. 1,079,000 916,000 601,000 241,000 315,000
------------ -------------- ------------ ------------ ------------
Net cash provided by financing
activities ................................ 1,079,000 916,000 601,000 241,000 315,000
------------ -------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH ............ 5,000 (25,000) 6,000 6,000 10,000
CASH, beginning of period .................. 22,000 27,000 2,000 2,000 8,000
------------ -------------- ------------ ------------ ------------
CASH, end of period ........................ $ 27,000 $ 2,000 $ 8,000 $ 8,000 $ 18,000
============ ============== ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
VOTAN
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 ("Votan" or the "Company") is a division of MOSCOM Corporation
("MOSCOM"), a Delaware corporation. 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 the Company to Votan Corporation, a wholly-owned
subsidiary of MOSCOM. The financial statements have been prepared on a
stand-alone basis in accordance with generally accepted accounting
principles. 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.
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 March 31, 1996 and for the
three month periods ended March 31, 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 March
31, 1996, and the results of operations and cash flows for the three month
periods ended March 31, 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-6
<PAGE>
VOTAN
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.
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.
Divisional Equity
Divisional equity represents a summary of all intercompany activity
between Votan and MOSCOM as well as the accumulation of losses.
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.
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.
F-7
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Unaudited Pro Forma Net Loss Per Share
Pursuant to Securities and Exchange Commission requirements, losses per
share 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.
3. PROPERTY AND EQUIPMENT:
The major classifications of property and equipment as of December 31,
1994 and 1995 and March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
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 89,000
Furniture and fixture ............ 58,000 58,000 58,000
--------- --------- -----------
Property and equipment, at cost . 158,000 160,000 165,000
Less: Accumulated depreciation .. 71,000 97,000 104,000
--------- --------- -----------
Total property and equipment, net $ 87,000 $ 63,000 $ 61,000
========= ========= ===========
</TABLE>
F-8
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ENGINEERING AND SOFTWARE DEVELOPMENT EXPENDITURES:
Engineering and software development expenditures incurred during the
years ended December 31, 1993, 1994 and 1995 and the three months ended March
31, 1995 and 1996 were recorded as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
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 $114,000 $111,000
Amounts capitalized and included in the
balance sheets ........................ 308,000 104,000 51,000 -- 31,000
---------- ---------- ---------- ---------- ----------
Total expenditures for engineering and
software development ................. $650,000 $683,000 $475,000 $114,000 $142,000
========== ========== ========== ========== ==========
</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 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.
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.
F-9
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES: (Continued)
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-10
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases its office facilities and certain equipment under
operating leases which expire at various dates through 1998. Rent expense
under all operating leases (exclusive of real estate taxes and other expenses
payable under these leases) was $79,000, $69,000 and $23,000 for the years
ended December 31, 1993, 1994 and 1995, respectively. The future minimum
payments under operating leases 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.
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.
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 three months ended March 31, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Engineering and software development ... $161,000 $405,000 $249,000 $ 75,000 $ 75,000
Marketing ............................... 63,000 66,000 62,000 4,000 10,000
Selling ................................. 21,000 101,000 135,000 12,000 2,000
Administrative .......................... 125,000 118,000 132,000 16,000 17,000
---------- ---------- ---------- ---------- ---------
Total allocation of operating expenses $370,000 $690,000 $578,000 $107,000 $104,000
========== ========== ========== ========== =========
</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.
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
F-11
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS: (Continued)
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. SUBSEQUENT EVENT:
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) Subsidiary Formation
Agreement; (ii) License Agreement and (iii) Service and Supply Agreement.
Pursuant to the Subsidiary Formation Agreement (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 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. See
"Use of Proceeds."
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
F-12
<PAGE>
VOTAN
A DIVISION OF MOSCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT: (Continued)
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 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.
F-13
<PAGE>
IBC
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 ....................... 41
Principal and Selling Stockholders ........ 43
Description of Capital Stock ............... 44
Shares Eligible for Future Sale ............ 46
Underwriting ............................... 47
Legal Matters .............................. 48
Experts .................................... 48
Available Information ...................... 48
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.
2,750,000 SHARES
[VOTAN LOGO]
Votan Corporation
Common Stock
PROSPECTUS
LADENBURG, THALMANN & CO. INC.
, 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 ................................ $ 13,087
NASD filing fee ..................................... 4,295
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 .............................. 60,000
Miscellaneous ....................................... 46,805
-----------
Total ............................................. $700,000
===========
</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.
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 Certificate of Incorporation of the Registrant.
3.2 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 Subsidiary Formation Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.3 License Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.4 Service and Supply Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.5 Employment Agreement dated June 19, 1996 between the Registrant and Mr. John A. White.
10.6* Employment Agreement between the Registrant and Mr. Richard C. Vail.
10.7* Form of Common Stock Purchase Warrant of Ladenburg, Thalmann & Co. Inc.
10.8* Form of Common Stock Purchase Warrant of Grady & Hatch, Inc.
10.9 1996 Stock Option Plan.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1 to this Registration
Statement).
24.1 Powers of Attorney (see Signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
(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 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 28th day of June, 1996.
VOTAN CORPORATION
By: /s/ John A. White
-------------------------------------
John A. White
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Votan Corporation, hereby
severally constitute and appoint John A. White and Richard C. Vail, and each
of them singly, our true and lawful attorneys with full power to them, and
each of them singly, to sign for us and in our names in the capacities
indicated below, the Registration Statement on Form S-1 filed herewith and
any and all pre-effective and post-effective amendments to said Registration
Statement (including any subsequent Registration Statement for the same
offering that may be filed under Rule 462(b)), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable Votan Corporation to comply with the provisions of the
Securities Act and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming all signatures as they may be
signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 28th day of June, 1996:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------- --------------------------------------
<S> <C>
By: /s/ Albert J. Montevecchio 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: /s/ Richard C. Vail Executive Vice President,
--------------------------------- Secretary and Director
Richard C. Vail
By: /s/ Ronald C. Lundy Treasurer (Principal Financial and
--------------------------------- Accounting Officer)
</TABLE>
Ronald C. Lundy
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- --------------------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 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 Subsidiary Formation Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.3 License Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.4 Service and Supply Agreement dated June 26, 1996 between the Registrant and MOSCOM.
10.5 Employment Agreement dated June 19, 1996 between the Registrant and Mr. John A. White.
10.6* Employment Agreement between the Registrant and Mr. Richard C. Vail.
10.7* Form of Common Stock Purchase Warrant of Ladenburg, Thalmann & Co. Inc.
10.8* Form of Common Stock Purchase Warrant of Grady & Hatch, Inc.
10.9 1996 Stock Option Plan.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1 to this Registration
Statement).
24.1 Powers of Attorney (see Signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
VOTAN CORPORATION
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 10,000,000 shares of Common Stock, $0.01 par
value per share (the "Common Stock") and 100,000 shares of Preferred Stock,
$0.01 par value (the "Preferred Stock").
FIFTH. The name and mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
Alan P. Blaustein c/o Brobeck, Phleger & Harrison LLP
1301 Avenue of the Americas
New York, NY 10019
SIXTH. In furtherance of and not in limitation of powers conferred
by statute, it is further provided:
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.
SEVENTH. 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
<PAGE>
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.
EIGHTH. 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.
NINTH. 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 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.
- 2 -
<PAGE>
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 Ninth (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.
TENTH. 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 New York, New York, on June 6, 1996.
/s/ Alan P. Blaustein
----------------------------
Alan P. Blaustein
Sole Incorporator
- 3 -
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
VOTAN CORPORATION
<PAGE>
<TABLE>
BY-LAWS
TABLE OF CONTENTS
<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.......................................................................... 1
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
3.3 Qualification........................................................................ 6
- i -
<PAGE>
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................................................................. 11
6.5 Evidence of Authority................................................................ 12
6.6 Certificate of Incorporation......................................................... 12
6.7 Transactions with Interested Parties................................................. 12
6.8 Severability......................................................................... 12
6.9 Pronouns............................................................................. 13
ARTICLE 7 - Amendments.......................................................................................... 13
7.1 By the Board of Directors............................................................ 13
7.2 By the Stockholders.................................................................. 13
</TABLE>
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<PAGE>
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.
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
<PAGE>
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.
- 2 -
<PAGE>
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.
- 3 -
<PAGE>
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.
- 4 -
<PAGE>
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.
- 5 -
<PAGE>
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.
- 6 -
<PAGE>
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.
- 7 -
<PAGE>
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.
- 8 -
<PAGE>
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.
- 9 -
<PAGE>
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 in effect, and any repeal or modification
thereof shall not affect any rights or obligations then
- 10 -
<PAGE>
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.
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)
- 11 -
<PAGE>
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.
6.8 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.
- 12 -
<PAGE>
6.9 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.
(The remainder of this page is intentioanally left blank.)
- 13 -
<PAGE>
VOTAN CORPORATION
TOTAL AUTHORIZED ISSUE 10,100,000 SHARES See Reverse for
Certain Definitions
10,000,000 SHARES PAR VALUE $.01 EACH 100,000 SHARES PAR VALUE $.01 EACH
COMMON STOCK PREFERRED STOCK
This is to Certify that_______________________________________is the owner of
_____________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
VOTAN CORPORATION
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed. WITNESS, the seal of the Corporation and the signatures of its
duly authorized officers.
DATED
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT-..... Custodian .......
(Cust) (Minor)
TEN ENT -as tenants by the entireties under Uniform Gifts to Minors
Act .........................
JT TEN -as joint tenants with rights of (State)
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list
</TABLE>
For value received_____ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------
| |
| |
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- ---------------------------------------------------------------------- Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
- -------------------------------------------------------------------- Attorney
to transfer the said Shares on the books of the within named Corporation
with full power of substitution in the premises.
Dated_________________ 19__
In presence of
----------------------------
- --------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.1
BUSINESS CENTER LEASE
1. BASIC LEASE TERMS
a. DATE OF LEASE EXECUTION: May 23, 1995
---------------------------------------
b. TENANT: MOSCOM Corporation
--------------------------------------------------------
Trade Name: Votan Moscom
----------------------------------------------------
Address (Lease Premises): 7020 Koll Center Parkway, Suite 142
--------------------------------------
Pleasanton, California 94566
Building/Unit 01/142
--------------------------------------
Address (For Notices):Robert L. Boxer, V.P., Moscom Corporation
-----------------------------------------
3750 Monroe Avenue, Pittsford,
New York 14534
c. LANDLORD: BERNAL AVENUE ASSOCIATES
-----------------------------------------
Address (For Notices): 7011 Koll Center Parkway, Suite 210
-----------------------------------------
Pleasanton, California 94566
-----------------------------------------
d. TENANT'S USE OF PREMISES: Administrative offices & storage of
electronic components.
--------------------------------------
e. PREMISES AREA: 3,002 rentable square feet
-------------------------------------------------
f. PROJECT AREA: 133,920 square feet.
--------------------------------------------------
g. PREMISES PERCENT OF PROJECT: 2.242%
-----------------------------------
h. TERM OF LEASE: Commencement: 07/15/95 Expiration: 07/14/98
----------- -----------
Number of Months: 36 (See paragraph 33).
----
i. BASE MONTHLY RENT: $2,552.00
-------------------
j. RENT ADJUSTMENT:
(1) Step Increase. The provisions of section 4.b.(1) apply
as follows:
Effective Date of New Base Monthly
Rent Increase Rent
January 1, 1997 $2,852.00
_______, 19__ $____.__
_______, 19__ $____.__
_______, 19__ $____.__
_______, 19__ $____.__
k. ANNUAL EXPENSE BASE:
Expense Rate $2.86
----------
Premises Area Square Feet x3,002
----------
Annual Expense Base $8,585.72
----------
l. PREPAID RENT: $0.00
----------
M. TOTAL SECURITY DEPOSIT: 2,852.00, Including a $0.00
--------- ----
non-refundable cleaning fee.
n. BROKER(S): None
-------------------------------------------------
o. GUARANTORS: N/A
------------------------------------------------
p. ADDITIONAL SECTIONS:
Additional sections of this lease numbered 28 through 36 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-1 are attached
hereto and made a part hereof. If none, so state in the
following space _____.
<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. Tenant's share of expenses related to the Project which is in
excess of the Annual Expense Base shown in Section 1, shall not exceed
$0.00/SF/year in 1995, $0.143/SF/year in 1996, $0.293/SF/year in 1997,
and $0.451/SF/year in 1998.
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 (provide, 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 expenditure
either through the reduction or minimizations of increases
which would have otherwise occurred).
2
<PAGE>
(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-governmental 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 tenant 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.
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5. 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 will 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.
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. In the event Landlord does not accept this Lease, Landlord shall
return said prepaid deposit.
6. 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 business, 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.
Such changes shall not unreasonably effect Tenant's use of premises.
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.
7. 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.
8. 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.
9. 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 to 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.
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10. 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.
11. MAINTENANCE. Landlord shall maintain, in good condition, the structural
parts of the premises, which shall include only the foundations, bearing
and exterior walls (including glass), subflooring and roof (including
skylights), the unexposed electrical, plumbing and sewerage systems,
including without limitation, those portions of the systems lying outside
the Premises, exterior doors (including 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,
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.
12. 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 restor 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.
13. 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 of 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 or from the negligence of Landlord, its employees or agents.
Tenant shall indemnify and hold Landlord harmless from all damages
arising out of any damage to any person or party occurring in, on or
about the Premises or Tenant's use of the Premises or Tenant's breach of
any term of this Lease.
14. 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
overage 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 form 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 will 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 authorize dot do
business in the state in which the premises ar 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 Landlords's sole discretion, constitute a
default under this lease.
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15. DESTRUCTION. If during the term, the Premises or Project are more than
10% destroyed form any cause, or rendered inaccessible or unusable from
any cause, and if in Landlord's estimation, the Premises cannot be
restored with 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
in Landlord's estimation the Premises can be restored with 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.
16. 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. OBLIGATION 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 the 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 bear to the total number of square feet in the
Premises immediately before the date of taking.
17. 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. 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 preparation 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 after subleasing expenses 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 fifty percent of sums to be
paid by an assignee to Tenant in consideration of the assignment of this
Lease after subleasing expenses 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' 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 following
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
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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.
18. 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.
19. 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 12%. "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
12%.
20. 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
no 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 is activities on t he 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.
21. 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 u 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.
22. NOTICE. Any notice, demand, request, consent, approval, or communication
desired by either party or required
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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 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.
23. 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.
24. 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 excluding 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.
25. LIMITATION OF LIABILITY. In consideration of the befits 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.
26. 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.
d. COMMISSIONS. Each party represents that it has not had dealings
with any real estate broker, finder,
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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 for 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.
f. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
Landlord of the project, and provided all of Landlord's obligations
under this Lease are assumed by a successor, 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.
27. 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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28. 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.
29. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
29.1 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 receive, 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.
29.2 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.
29.3 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.
c. Disposal of Other Waste. Tenant shall property dispose of all other
waste or other matter delivered to,
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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.
29.4 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 obligation under this lease, and in particular,
relating to the storage, use and disposal of hazardous or toxic matter.
29.5 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 provision of this Lease.
29.6 Storage Requirements: Tenant warrants that it shall not store,
shelve, rack, or in any manner keep combustible of flammable objects
higher than twelve (12) feet from the finished floor, and any object
containing plastic material higher than five (5) feet from t he finished
floor, with no storage or shelves, or other obstructions above the
plastic storage.
30. 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 one option to extend the initial three (3) year term
of this Lease for an extented term of three (3) 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 31.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 31.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 withn fifteen (15) days, then, the Monthly Rent for the
Option Period shall be 90% the then current fair market rental value of
the Premises as determined in accordance with Paragraph 31.B(iv).
(iii) The "then 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 and the monthly expenses paid by the Tenant.
(iv) Within seven (7) days after the expiration of the fifteen(15) day
period set forth in paragraph 31.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, 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
then 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) day's 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 their total
divided by three (3); then 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
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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
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.
31. 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.
32. Option to Terminate: Tenant may terminate this lease with 6 months
written notice. However, such notice may not be given prior to the end
of th sixth month.
33. Moving Expenses: Landlord agrees to pay Tenant $10,000 upon occupancy
for moving expenses.
34. Contingency: This Lease is contingent upon landlord entering into a
lease with Livingston Enterprises for Tenant's existing location at 6940
Koll Center Parkway prior to June 15, 1995.
35. Existing Lease Termination: Upon occupancy of 7020 Koll Center
Parkway, Suite 142, Tenant existing lease at 6940 Koll Center Parkway,
Suite 214 shall terminate.
LANDLORD: BERNAL AVENUE ASSOCIATES, a joint venture
BY: Patrician Associates, Inc., a California corporation,
and Koll Bernal Avenue Associates, a California general
partnership doing business as Bernal Avenue Associates
PATRICIAN ASSOCIATES, INC. a California corporation
BY: /s/ Kurt D. Schaeffer
--------------------------------------------------
ITS: KURT D. SCHAEFFER, VICE PRESIDENT
--------------------------------------------------
BY:
--------------------------------------------------
ITS:
--------------------------------------------------
Tenant: MOSCOM CORPORATION
--------------------------------------------------
BY: /s/ Richard C. Vail
--------------------------------------------------
Vice President & General Manager
ITS:
--------------------------------------------------
BY:
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ITS:
--------------------------------------------------
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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.
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
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7020 Koll Center Parkway
Suite 142
Pleasanton, California
3,000 SF
EXHIBIT D-1
-----------
[FLOOR PLAN GRAPHIC]
<PAGE>
EXHIBIT "D"
-----------
TENANT IMPROVEMENTS
-------------------
Landlord agrees to, at Landlord's expense, make the changes shown on the
attached Exhibit D-1. All finishes will be in building standard materials
including:
- - New carpet.
- - New wood appearance plastic laminate surfaces on conference room
cabinetry.
- - Relocate existing audio visual board from conference room to corner
private office.
- - Relocate audio visual board from Tenant's existing suite to the end of the
conference room in the new suite.
- - Add bi-fold doors to closet area near storage room.
- - Repair suite as needed.
- - Remove light fixtures from reception area.
- - Remove pass-through window and patch wall.
- - Remove exterior door from corner office and replace with window pane.
INITIAL
Landlord
-------
Tenant
-------
<PAGE>
EXHIBIT 10.2
SUBSIDIARY FORMATION AGREEMENT
This Subsidiary Formation Agreement (the "Agreement") is
made and entered into this 26th day of June, 1996 by and between Moscom
Corporation, a Delawarecorporation, and Votan Corporation, a Delaware
corporation.
WHEREAS, MOSCOM desires to transfer to Votan, and Votan
desires to acquire certain assets and liabilities of MOSCOM relating to the
business and operations of the Votan division of MOSCOM.
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. As used in the Agreement, the following
terms shall have the following meaning:
a. "Assets" shall mean (i) all Intellectual Property; (ii)
all licenses, franchises, permits, approvals or other similar authorizations;
(iii) all books, records, files and papers, whether in hard copy or computer
format, including, without limitation, research and development information,
all materials and analyses prepared by consultants and other third parties,
engineering information, sales and promotional literature, manuals and data,
sales and purchase correspondence, lists of present and former suppliers,
lists of present and former customers, personnel and employment records, and
any tax-related information; (iv) all goodwill; (v) all claims and choses in
action; (vi) all accounts, prepaid expenses, notes and other receivables;
(vii) all security deposits; (viii) all raw materials, parts, work-in-
<PAGE>
process, finished goods, supplies and other inventories; (ix) all rights under
all contracts, agreements, leases, licenses, commitments, sales and purchase
orders and other instruments ("Contracts"), including but not limited to the
Contracts set forth on Exhibit A attached hereto; (x) all rights, claims,
credits, causes of action or rights of set-off against third parties and (xi)
all equipment, machinery, improvements, furniture and fixed assets set forth
on Exhibit A-1.
b. "Assumed Liabilities" shall have the meaning ascribed to
such term in Section 3 below.
c. "Business of Votan" shall mean the business and
operations of the Votan Division, as currently conducted and proposed to be
conducted and all activities associated therewith.
d. "Closing" shall mean the closing of the transactions
contemplated hereunder on the Closing Date.
e. "Closing Date" shall mean June 26, 1996.
f. "Intellectual Property" shall mean all (A) patents,
patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, re-examination, utility, model,
certificate of invention and design patents, patent applications,
registrations and applications for registration, (B) trademarks, service
marks, trade dress, logos, trade names, service names and corporate names and
registrations and applications for registration thereof, (C) copyrights and
registrations and applications for registration thereof, (D) mask works and
registrations and applications for registration thereof, (E) computer
software, data and documentation, (f) trade secrets and confidential
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business information, whether patentable or nonpatentable and whether or not
reduced to practice, know-how, manufacturing and product processes and
techniques, research and development information, copyrightable works,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information, (G) other
proprietary rights relating to any of the foregoing (including without
limitation associated goodwill and remedies against infringements thereof and
rights of protection of an interest therein under the laws of all
jurisdictions) and (H) copies and tangible embodiments thereof.
g. "Licensed Technology" shall mean any portion of the
Intellectual Property used or useful in connection with the following products
of the Votan Division: (i) TeleVoice (Voice Controlled IVR System); (ii) Model
2400 Telephone Interface Voice Recognition Board; (iii) Model 2450
Microphone/Speaker Interface Voice Recognition Board; (iv) Model 5400
Telephone Interface Verification Board; and (v) Model 5450 Microphone/Speaker
Interface Verification Board.
h. "Moscom" shall mean Moscom Corporation, a Delaware
corporation.
i. "Opening Balance Sheet" shall mean a balance sheet
prepared as of the Closing Date, in accordance with generally accepted
accounting principles from the books and records of Moscom, setting forth the
assets and liabilities of the Subsidiary as at the Closing Date.
j. "Subsidiary" shall mean Votan Corporation, a Delaware
corporation and a wholly owned subsidiary of Moscom.
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k. "Votan Assets" shall mean all of the Assets used or
useful in and to the Business of Votan, including without limitation (i) the
products set forth on Exhibit B hereto and (ii) all of the Intellectual
Property related thereto.
l. "Votan Division" means the Votan Division of Moscom,
which is based in Pleasanton, California and which is engaged in the
development of speech recognition and voice verification technologies.
2. Transfer of Assets to Subsidiary. In consideration for
the issuance to Moscom of 1,000 fully paid, non-assessable shares of common
stock of the Subsidiary, par value $.01 per share, Moscom shall assign,
transfer, convey and deliver to the Subsidiary, in the form of a capital
contribution, the Votan Assets, subject to the liabilities of Moscom related
thereto as such liabilities appear on the Opening Balance Sheet which are to
be assumed by the Subsidiary as set forth in Section 3 below.
3. Assumption of Liabilities by Subsidiary. In further
consideration for the conveyance of the Votan Assets, the Subsidiary shall
assume and agree to pay, perform and discharge all debts, obligations,
contracts and liabilities of (i) Moscom related to the Votan Assets as set
forth on the Opening Balance Sheet and (ii) all of Moscom's (a) liabilities
under the Contracts; (b) costs and expenses incurred for and on behalf of the
Subsidiary related to the formation of the Subsidiary and the hiring of
executive officers of the Subsidiary, including recruiting fees and
compensation-related expenses; and (c) costs and expenses incurred for and on
behalf of the Subsidiary in connection with the organization and funding of
the Subsidiary. The costs and expenses referred to in (b) and (c) above shall
in the aggregate not exceed $200,000. All such liabilities shall hereinafter
collectively be
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<PAGE>
referred to as the "Assumed Liabilities." Notwithstanding any provision in
this Agreement or any other writing to the contrary, the Subsidiary is
assuming only the Assumed Liabilities and is not assuming any other liability
or obligation of Moscom.
4. Instruments of Conveyance and Transfer. At the Closing,
the parties hereto shall enter into an Assignment and Assumption Agreement in
the form of Exhibit C attached hereto, and Moscom shall deliver to the
Subsidiary (i) an Assignment of Patents in the form of Exhibit D attached
hereto, (ii) an Assignment of Trademarks in the form of Exhibit E attached
hereto and (iii) such other bills of sale, endorsements, consents, assignments
and other good and sufficient instruments of conveyance and assignment as
shall be reasonably necessary to vest in the Subsidiary good and marketable
title to the Votan Assets. Moscom shall take all such steps as may be
necessary to put the Subsidiary in actual possession and operating control of
the Business of Votan and the Votan Assets. At the Closing, the Subsidiary
shall deliver to Moscom certificates representing 1,000 shares of common stock
of the Subsidiary and such other documents and undertakings as may be
necessary to reflect the obligation of the Subsidiary to reimburse Moscom for
certain expenses as specified in Section 4.
5. Capital Resource Commitment. Moscom hereby agrees to meet
all of the Subsidiary's capital requirements until the earlier of (i) March
31, 1997 or (ii) the completion of other debt or equity financing by the
Subsidiary in an amount of at least $10,000,000.
6. Representations of Moscom. Moscom hereby represents and
warrants to Votan that:
5
<PAGE>
6.1 Corporate Existence and Power. Moscom is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
6.2 Corporate Authorizations. The execution, delivery and
performance by Moscom of this Agreement and the consummation by Moscom of the
transactions contemplated hereby are within Moscom's corporate powers and have
been duly authorized by all necessary corporate action on the part of Moscom.
This Agreement constitutes the valid and binding agreement of Moscom.
7. Further Assurances. From time to time, at the
Subsidiary's request and without further consideration, Moscom will execute
and deliver such other instruments of conveyance and transfer and take such
other action as the Subsidiary may reasonably require to more effectively
convey, transfer to, and vest in the Subsidiary, and to put the Subsidiary in
possession of, any property to be conveyed, transferred and delivered
hereunder, and, in the case of contracts and rights, if any, which cannot be
effectively transferred without the consent of third parties which is
unattainable, Moscom will use its best efforts to ensure that the Subsidiary
receive the benefits thereof.
8. Employees. On the Closing Date, the Subsidiary will offer
employment to such employees of Moscom as the officers of Moscom and the
Subsidiary deem appropriate. The compensation levels, benefit programs and
terms and conditions of employment offered to such employees shall be
determined by market conditions and the Subsidiary's plans for the operation
of the Business of Votan. The Subsidiary shall adopt and provide for its
employees such insurance plans, benefit plans, vacation and severance
6
<PAGE>
policies and other benefits as are appropriate, in the Subsidiary's judgment,
and shall neither adopt nor assume any of the plans, policies or agreements of
Moscom other than such group insurance plans that the Subsidiary elects to
assume.
9. Licenses. On the Closing Date, Moscom and the Subsidiary
shall enter into a License Agreement in substantially the form of Exhibit F
attached hereto.
10. Service and Supply Agreements. On the Closing Date,
Moscom and the Subsidiary shall enter into a Service and Supply Agreement in
substantially the form of Exhibit G attached hereto.
11. Consent of Third Parties. This Agreement shall not
constitute an agreement to assign to the Subsidiary any interest in any
instrument, contract, lease, permit or other agreement or arrangement or any
claim, right or benefit arising thereunder or resulting therefrom, if an
assignment or agreement to assign without the consent of a third party would
constitute a breach or a violation thereof or affect adversely the rights of
Moscom or the Subsidiary thereunder. If a consent of a third party that is
required in order to assign any such interest is not obtained prior to the
Closing Date, or if an attempted assignment would be ineffective or would
adversely affect the ability of Moscom to convey its interest to the
Subsidiary, Moscom will cooperate with the Subsidiary in any lawful and
reasonable arrangement to provide that the Subsidiary shall receive the
interest of Moscom in the benefits under any such instrument, contract, lease,
permit or other agreement or arrangement, including performance by Moscom as
agent except where prohibited by law; and any transfer or assignment to the
Subsidiary or by Moscom of any interest under any
7
<PAGE>
such instrument, contract, lease, permit of other agreement or arrangement
that requires the consent of a third party shall be made subject to such
consent or approval being obtained.
12. Closing. On the Closing Date, the transactions
contemplated by this Agreement and this document shall be consummated at the
offices of Moscom. Moscom shall assign, transfer, convey and deliver to the
Subsidiary the various assets contemplated to be conveyed to the Subsidiary
hereunder, and the Subsidiary shall assume the various liabilities
contemplated to be assumed by it hereunder, subject to the terms and
conditions set forth in this Agreement. Each of Moscom and the Subsidiary
shall execute and deliver such further instruments as may be reasonably
requested by the other in order to carry out the purpose and intent of this
Agreement and this document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
WHEREFORE, the parties hereto have executed this Agreement as
of the date first above written.
VOTAN CORPORATION
By: /s/ John A. White
Title: President
MOSCOM CORPORATION
By: /s/ Albert J. Montevecchio
Title: President
9
<PAGE>
EXHIBIT 10.3
<PAGE>
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is made as of June 28, 1996
by and between VOTAN CORPORATION, a Delaware corporation ("Votan") and MOSCOM
CORPORATION, a Delaware corporation ("Moscom").
WHEREAS, Moscom was the owner of certain technology related to voice
verification and speech recognition, which technology was contributed by
Moscom to the capital of Votan pursuant to that certain Plan for Subsidiary
Formation by and between Moscom and Votan of even date herewith (the "Plan"),
and
WHEREAS, as a condition to the contribution of such technology to the
capital of Votan, Moscom desires a license to continue selling certain
products and algorithms contributed by Moscom to Votan, and Votan is willing
to grant such a license to Moscom, upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises, the
contribution of capital to Votan under the Plan, the mutual covenants set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Votan and Moscom hereby agree as
follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined shall have the following meanings:
"Affiliate" of a person shall mean a Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by
or is under common control with such person. "Control" (and, with correlative
meanings, the terms "controlled by" and "under common control with") shall
mean the possession of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of
voting stock, by contract or otherwise. In the case of a corporation,
"control" shall mean, among other things, the direct or indirect ownership of
more than 50% of its outstanding voting stock. For purposes of this Agreement,
Moscom shall not be deemed an Affiliate of Votan, and Votan shall not be
deemed an Affiliate of Moscom.
"Boards" shall mean the following products of Votan: (i)
Model 2400 Telephone Interface Voice Recognition Board; (ii) Model 2450
Microphone/Speaker Interface Voice Recognition Board; (iii) Model 5400
Telephone Interface Verification Board; and (iv) Model 5450 Microphone/Speaker
Interface Verification Board.
"Board Technology," shall mean all Technology used for or
useful in connection with the Boards.
"Distributor" shall mean any Person that acquires products
or components for the primary purpose of re-selling such product or component
either to another Distributor or
<PAGE>
to an End-User; provided, however, that for purposes of this Agreement the
term Distributor shall not include any VARs.
"End-User" shall mean a Person that acquires a product or
component for the primary purpose of using such product or component itself.
"Improvements" shall have the meaning ascribed to such term
in Section 2.5 hereof.
"Licensed Algorithms" shall mean all voice recognition,
voice verification, voice processing and tone detection algorithms, in any
form or medium, used to implement Votan's Model 2400, 2450, 5400 and 5450
Boards on the Effective Date.
"Person" shall mean any individual, partnership,
corporation, firm, association, unincorporated organization, joint venture,
trust, limited liability company or other entity.
"Proprietary Rights" shall mean all patent rights,
copyrights, trade secret rights, trademarks and similar rights.
"Specified Products" shall mean, collectively, Votan's
TeleVoice (voice controlled IVR system) and the Boards.
"Technology" shall mean public and nonpublic technical or
other information, inventions, trade secrets, know-how, processes,
formulations, concepts, ideas, data and testing results, experimental methods,
and any other written, printed or electronically stored materials.
"Third Party" shall mean any Person other than Votan, Moscom
or an Affiliate of Votan or Moscom.
"VAR" shall mean any Person that acquires a product or
component and then adds additional value thereto before re-selling such
product or component; additional value may be in the form of services,
modifications or enhancements, additional products or components that are
added to the original product or component and/or the inclusion of the
original products or components into a combined product or system.
2. Grant of Licenses.
2.1. Grant of Royalty-Free License. Subject to the terms and
conditions of this Agreement, Votan hereby grants to Moscom a non-exclusive,
non-transferable, worldwide, perpetual right and license under its Proprietary
Rights, to develop, modify, make, have made, use and sell the Specified
Products incorporating the Board Technology. The foregoing license shall be
fully paid and royalty free except in respect of Boards that incorporate a
Licensed Algorithm, in which case the royalties specified in either Subsection
3.1.c. or 3.1.d. hereof shall apply in respect of sales of such Boards.
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<PAGE>
2.2. Grant of Royalty-Bearing License. Subject to the terms
and conditions of this Agreement, Votan hereby grants to Moscom a
non-exclusive, royalty-bearing, non-transferable, worldwide, perpetual right
and license under its Proprietary Rights, to develop, modify, make, have made,
use and sell products incorporating the Licensed Algorithms, including, but
not limited to, Boards incorporating the Licensed Algorithms.
2.3. Cooperation. Moscom and Votan shall cooperate and shall
take such steps as may be reasonably necessary so as to assure that Xilinx (or
any successor thereto or distributor thereof) will sell to both Moscom and
Votan, upon substantially the same terms and conditions, the hardware version
of the VR chip (Xilinx Part No. IOUXC4310), or any new releases or versions of
such chip.
2.4. Sublicense Rights.
2.4.1. Subject to the terms and conditions of this
Agreement, Moscom shall have the right to grant sublicenses of the rights
granted under Sections 2.1 and 2.2 hereof to End-Users and Distributors of
Specified Products incorporating the Board Technology and/or products
incorporating the Licensed Algorithms without prior permission of Votan.
2.4.2. Subject to the terms and conditions of this
Agreement, Moscom shall also have the right to grant sublicenses of the rights
granted under Sections 2.1 and 2.2 hereof to its Affiliates, provided that in
each case, the Affiliate agrees to be bound by all the terms and conditions of
this Agreement, including, but not limited to, the provisions as to payment of
royalties to Votan.
2.4.3. Subject to the terms and conditions of this
Agreement, Moscom shall have the right to grant sublicenses of the rights
granted under Sections 2.1 and 2.2 hereof to VARs subject to Votan's prior
written consent to each such sublicense, which consent shall not be
unreasonably withheld. The royalty or percentage of sublicense income to be
paid by Moscom to Votan, or other financial arrangements for permissible
sublicenses to VARs, shall be negotiated between the parties at the time when
Votan is considering Moscom's request for its written consent to the proposed
sublicense.
2.4.4. Moscom shall remain responsible for all of its
obligations hereunder in respect of any sublicenses it grants. Moscom shall
ensure that any and all VARs that are granted sublicenses in accordance with
the provisions of Section 2.4.3 hereof, are subject to all the restrictions
and obligations imposed upon Moscom hereunder. Moscom shall be liable for any
and all violations of or non-compliances with any of Moscom's obligations
hereunder by any and all sublicensees.
2.5. Improvements.
2.5.1. Moscom and Votan shall each promptly disclose to the
other any and all enhancements, substitutions, and improvements which it makes
or acquires in relation to any Specified Product, Board Technology, Licensed
Algorithm, Technology related to the foregoing, or derivatives thereof
("Improvements"); provided, however, that the
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foregoing shall not require either party to disclose to the other any
Improvement which it makes specifically for a Third Party and which such party
is restricted from disclosing to the other party pursuant to the terms of its
agreement with the Third Party.
2.5.2. Subject to the terms and conditions of this
Agreement, Moscom hereby grants to Votan in respect of Improvements made by
Moscom, and Votan hereby grants to Moscom in respect of Improvements made by
Votan, a non-exclusive, non-transferable, fully paid, worldwide, perpetual
right and license under their respective Proprietary Rights, to develop,
modify, make, have made, use, license and sell products incorporating said
Improvements.
2.5.3. Subject to the terms and conditions of this
Agreement, each party shall have the right to grant sublicenses of the rights
granted to it under Section 2.5.2 hereof to End-Users and Distributors of
products incorporating the Improvements without prior permission of the other
party.
2.5.4. Subject to the terms and conditions of this
Agreement, each party shall also have the right to grant sublicenses of the
rights granted to it under Section 2.5.2 hereof to its Affiliates, provided
that in each case, the Affiliate agrees to be bound by all the terms and
conditions of this Agreement.
2.5.5. Subject to the terms and conditions of this
Agreement, each party shall have the right to grant sublicenses of the rights
granted to it under Section 2.5.2 hereof to VARs subject to the other party's
prior written consent to each such sublicense, which consent shall not be
unreasonably withheld. The royalty or percentage of sublicense income to be
paid by the sublicensing party to the party that developed or acquired the
Improvement, or other financial arrangements for permissible sublicenses to
VARs, shall be negotiated between the parties at the time when the party that
developed or acquired the Improvement is considering the request for its
written consent to the proposed sublicense.
2.5.6. Moscom shall remain responsible for all of its
obligations hereunder in respect of any sublicenses it grants. Moscom shall
ensure that any and all VARs that are granted sublicenses in accordance with
the provisions of Section 2.4.3 hereof, are subject to all the restrictions
and obligations imposed upon Moscom hereunder. Moscom shall be liable for any
and all violations of or non-compliances with any of Moscom's obligations
hereunder by any and all sublicensees.
3. Royalties.
3.1. In consideration of the licenses granted to Moscom by
Votan hereunder, Moscom agrees to pay the following royalties to Votan in
respect of sublicenses of the Licensed Algorithms by Moscom and its
Affiliates:
a. $50 for each copy of the Licensed Algorithms sublicensed
to an End-User or Distributor;
b. $50 per sale of a product incorporating a Licensed
Algorithm;
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c. $50 for each functional port on each Board or other
computer board sold, if such board incorporates a Licensed Algorithm and is
sold with application software;
d. $50 for each Board or other computer board sold, if such
board incorporates a Licensed Algorithm but is not sold with application
software.
3.2. In no event shall a single sale give rise to the
payment of a royalty pursuant to more than one subsection of Section 3.1 of
this Agreement. For example, if a product is a board with a single port, the
aggregate royalty shall be $50; and if a product is a board with multiple
ports, the aggregate royalty shall be $50 per functional port, with no
incremental royalty for the Licensed Algorithms. In addition, only one royalty
payment shall be due hereunder, regardless of the number of patents held by
Votan which cover aspects of the product sold.
3.3. In the event that while this Agreement is in effect
Votan enters into an agreement with a Third Party for less consideration
and/or a lower royalty rate, then Moscom may within sixty (60) days of
receiving written notice of such agreement, elect to substitute the provisions
providing consideration to Votan under such Third Party agreement for Section
3.1 of this Agreement; provided, however, that (i) any consideration
previously provided to Votan hereunder shall be non-refundable and
non-creditable, and (ii) if the Third Party agreement is for a particular
country or territory, the substituted payment and royalty arrangements shall
only apply to Moscom's, and its affiliates' and sublicensees' sales in such
territory or country. Votan agrees to provide Moscom, within sixty (60) days
after the close of any agreement with a Third Party, with written notice of
the material terms of such agreement.
3.4. All Royalties due under this Agreement shall be paid by
Moscom to Votan on a quarterly basis, within forty five (45) days following
the end of each calendar quarter and shall be based on Moscom's and its
Affiliates' receipts for such prior calendar quarter. All monies shall be
payable in United States funds. Payments shall be accompanied by a written
report showing the calculation of the royalty due for the prior calendar
quarter, such report to be certified by a responsible officer of Moscom.
3.5. Late payments will bear interest at the rate of 11/2%
per month to cover Votan's costs of collections as well as interest, or, if
lower, the maximum rate allowed by law.
3.6. Moscom and its Affiliates shall keep full, accurate and
complete books of account and records of their respective marketing and
sublicensing and other activities respecting products sold hereunder to enable
the determination and verification of the payments of royalties and other
obligations of Moscom hereunder. Such records shall, upon five (5) business
days' prior written notice to Moscom, be subject to inspection at all
reasonable times during usual business hours by Votan or its accountants;
provided that Moscom will bear any such expense if the review or audit shows
an underpayment of more
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<PAGE>
than 5% for the applicable period and furthermore Moscom shall remit to Votan
the amount of any underpayment and interest thereon calculated at the rates
set forth in Section 3.5, calculated from the dates that the relevant payments
should have been made. Any bona fide dispute that may arise between Moscom and
Votan under this Section 3.6 shall be resolved in accordance with Section 9.7
hereof.
4. Term and Termination.
4.1. Term. This Agreement shall be effective as of the
Effective Date and shall continue in full force and effect indefinitely,
unless terminated earlier as provided in Section 4.2 hereof.
4.2. Early Termination.
4.2.1. Early Termination by Votan. Votan shall have the
right to terminate this Agreement upon written notice of termination to Moscom
in the event that:
a. At any time, Moscom, its Affiliates or
permitted sublicensees fail to perform or observe or
otherwise breach any of Moscom's material obligations under
this Agreement or any sublicense granted hereunder, and such
failure or breach continues unremedied for a period of sixty
(60) days after receipt by Moscom of written notice thereof
from Votan or, in the event that such failure or breach is
not capable of cure within sixty days, for such longer
period of time as Moscom is vigorously pursuing such cure in
good faith;
b. Moscom shall either (i) seek the
liquidation, reorganization, dissolution or winding-up of
itself or the composition or readjustment of its debts, (ii)
apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its assets,
(iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the
bankruptcy code, (v) file a petition seeking to take
advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or
readjustment of debts, or (vi) adopt any resolution of its
board of directors or stockholders for the purpose of
effecting any of the foregoing.
4.2.2. Early Termination by Moscom. Moscom shall have the
right to terminate this Agreement, with or without cause, at any time on
thirty (30) days prior written notice to Votan.
4.3. Effects of Termination.
4.3.1 Termination by Either Party Subject to Section 4.3.2
hereof, if either party terminates this Agreement pursuant to Section 4.2.
hereof:
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a. the licenses and the rights to grant sublicenses granted
under Section 2 of this Agreement shall terminate except to the extent
necessary to allow (i) Moscom to sell its existing inventory of Specified
Products and products incorporating the Licensed Algorithms or Votan
Improvements, and (ii) Votan to sell its existing inventory of products
incorporating Moscom Improvements; provided that Moscom pays all royalties
that would otherwise have been due in respect of the sale of its inventory had
this Agreement continued in full force and effect;
b. all rights to the Board Technology, Licensed Algorithms
and Improvements licensed by Votan to Moscom hereunder shall revert solely to
Votan and all rights to Moscom's Improvements licensed by Moscom to Votan
hereunder shall revert to solely to Moscom;
c. any sublicense to End-Users or Distributors previously
granted shall survive such termination;
d. any sublicense of Moscom's rights hereunder that has been
granted to an Affiliate or a VAR with Votan's consent, may be terminated or
maintained directly between Votan and the Affiliate or the VAR, as Votan shall
elect in its sole discretion;
e. any sublicense of Votan's rights to Moscom Improvements
that has been granted to an Affiliate of Votan or to a VAR with Moscom's
consent, may be terminated or maintained directly between Moscom and the
Affiliate or VAR, as Moscom shall elect in its sole discretion;
f. each party's obligations, liability and indemnities
hereunder in respect of products previously sold by such party, its Affiliates
or permitted sublicensees shall survive termination.
4.3.2 Termination by Moscom for Votan's Breach
If Moscom terminates this Agreement because of a material
breach by Votan of Votan's obligations hereunder, Moscom's licenses under (i)
Sections 2.1, 2.2 and 2.4, and (ii) Section 2.5.2 in respect of then existing
Improvements made or acquired by Votan, shall survive such termination and
shall remain in full force and effect. In addition, such licenses shall be
deemed fully paid and Moscom shall not be obligated to pay further royalties
in respect thereto.
4.3.3 Continuing Obligation to Make Payments.
Notwithstanding anything contained herein to the contrary, upon termination of
this Agreement, the obligation to pay any amounts payable by each party to the
other party which accrued prior to such termination shall survive.
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<PAGE>
5. Undertaking of Votan. Votan hereby undertakes to use its
reasonable commercial efforts to complete, at the earliest practicable date,
the in-progress development projects for the enhancement or modification of
the Licensed Algorithms, as specified on Schedule A attached hereto.
6. Confidentiality
6.1. Moscom and Votan each agrees that all Technology,
Improvements and other technical, business, and financial information it
obtains from the other party is the confidential property of the disclosing
party ("Proprietary Information" of the disclosing party). Except as expressly
allowed herein, each party will hold the Proprietary Information of the other
party in confidence and shall not use or disclose such Proprietary Information
and shall similarly bind its employees in writing. However, the foregoing
confidentiality obligation shall not apply to information which the receiving
party can document:
a. is or has become readily publicly available without
restriction through no fault of the receiving party or its employees or
agents;
b. is received without restriction from a third party
lawfully in possession of such information and lawfully empowered to disclose
such information;
c. was rightfully in the possession of the receiving party
without restriction prior to its disclosure by the other party; or
d. was independently developed by employees or consultants
of the receiving party without access to the Proprietary Information of the
other party.
6.2. Moscom and Votan each agrees that there is no adequate
remedy at law for a breach of Section 6.1 above and that such a breach would
irreparably harm the other and that the other party is entitled to equitable
relief (including, without limitations, injunctions) with respect to any such
breach or potential breach, in addition to any other remedies.
7. Representations, Warranties and Indemnities.
7.1. Votan represents and warrants to Moscom that it is the
legal and equitable owner of the Board Technology and the Licensed Algorithms,
and has the full power and authority to enter into this Agreement and grant
all licenses granted to Moscom hereunder in respect of the Board Technology
and the Licensed Algorithms.
7.2. Moscom represents and warrants to Votan that it has
full power and authority to enter into this Agreement and will carry on its
obligations hereunder promptly and in good faith.
7.3. Moscom and Votan each warrants to the other that it
shall have adequate rights and authority to license to the other any and all
Improvements described in Section 2.5 that it makes or acquires.
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<PAGE>
7.4. EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS 7.1. AND 7.3
HEREOF, VOTAN MAKES NO WARRANTY WITH RESPECT TO ANY
TECHNOLOGY, BOARD TECHNOLOGY, LICENSED ALGORITHM, IMPROVEMENT,
SPECIFIED PRODUCT, OR OTHER PRODUCT, SERVICE, RIGHT OR OTHER
SUBJECT MATTER OF THIS AGREEMENT, AND HEREBY DISCLAIMS WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH
RESPECT TO ANY AND ALL OF THE FOREGOING.
7.5. Moscom and Votan shall each (the "Indemnifying Party")
indemnify the other (the "Indemnified Party") from awarded damages,
settlements, costs, (including but not limited to reasonable fees and
disbursements of counsel incurred by an Indemnified Party in any action or
proceeding between the Indemnified Party and the Indemnifying Party or between
an Indemnified Party and any third party or otherwise) and other out-of-pocket
expenses incurred in connection with a claim against the Indemnified Party
based on or relating to (i) any action or omission of the Indemnifying Party
or its agents or employees related to the obligations of the Indemnifying
Party under this Agreement, (ii) any breach by the Indemnifying Party of its
representations and warranties hereunder, or (iii) in the case of Moscom as
the Indemnifying Party, any Specified Product or other product incorporating a
Licensed Algorithm sold by either Moscom, its Affiliates or their permitted
sublicensees; provided, however, that the foregoing shall not apply (i) if the
claim is found to be based upon the negligence, recklessness or willful action
or inaction of the Indemnified Party, or (ii) if the Indemnified Party fails
to give the Indemnifying Party prompt notice of any claim it receives and such
failure materially prejudices the Indemnifying party, or (iii) solely to the
extent of the indemnification for reasonable legal fees and disbursements of
counsel of the Indemnified Party, unless the Indemnifying Party is given the
opportunity to control defense of such action, or (iv) unless the Indemnifying
Party is given the opportunity to approve any settlement, which approval shall
not be unreasonably withheld; and provided further that, except in the event
of a material conflict of interest, the Indemnifying Party shall not be liable
for separate attorney's fees of the Indemnified Party after assuming control
of the defense or settlement.
8. INCIDENTAL AND CONSEQUENTIAL DAMAGES. NEITHER PARTY
WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH
RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT.
9. General
9.1. In the event that any provision of this Agreement shall
be rendered invalid or otherwise unenforceable by any competent or judicial
government authority, such invalidity or unenforceability shall not effect the
validity or enforceability of any other provision of this Agreement and the
invalid provision shall be deemed amended to the fullest extent allowable by
applicable law to effect the purposes of said provision.
9.2. Votan and Moscom shall each be excused for any failure
or delay in performing any of their respective obligations under this
Agreement, if such delay or failure
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<PAGE>
is caused by any act of God, any accident, explosion, fire, storm, riot,
embargo, war, any failure or delay of transportation, shortage of or inability
to obtain supplies, equipment, fuel or labor or any other circumstance or
event beyond the reasonable control of the party relying upon such
circumstance or event.
9.3. Moscom and Votan each hereby agrees to comply with all
export laws and restrictions and regulations of the Department of Commerce or
other United States or foreign agency or authority, and not to knowingly
export, or allow the export or re-export of any Specified Product, Board
Technology, Licensed Algorithms, Technology relating to the foregoing,
Improvement, or any derivatives thereof in violation of any such restrictions,
laws or regulations, or, without all required licenses and authorizations, to
Afghanistan, the People's Republic of China or any Group Q, S, W, Y or Z
country specified in the then current Supplement No. 1 to Section 770 of the
U.S. Export Administration Regulations (or any successor supplement or
regulations).
9.4. This Agreement and the Plan set forth the entire
agreement and understanding between the parties as to the subject matter
hereof and merges all prior understandings, discussions and negotiations
between them. Neither of the parties shall be bound by any conditions,
modifications, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided for herein
unless set forth in writing and signed by a proper and duly authorized
representative of the parties to be bound thereby.
9.5. All notices in connection with this Agreement shall be
in writing and shall be sent to the address given below or to such other
address or telecopy number as the parties may hereafter specify and shall be
deemed given (a) when delivered by hand to the party, or (b) when telecopied
(and confirmed orally or in writing), or (c) three days after mailing by
prepaid first-class mail:
If to Moscom: Moscom Corporation
3750 Monroe Avenue
Pittsford, New York 14534
Attn: Corporate Counsel
Telephone: (716) 381-6000
Telecopy: (716) 383-6858
If to Votan: Votan Corporation
7020 Koll Center Parkway No. 142
Pleasanton, California 94566
Attn: President
Telephone: (510) 426-5600
Telecopy: (510) _________
9.6. This Agreement shall be considered as having been
entered into in the State of New York and shall be construed and interpreted
in accordance with the laws of the State of New York.
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<PAGE>
9.7. Dispute Resolution.
9.7.1. In the event that any dispute arises between Moscom
and Votan in connection with this Agreement, the representatives of each party
responsible for the subject matter of such dispute shall use good faith
efforts to resolve such dispute promptly. In the event that such dispute
cannot be resolved by the parties' representatives, the matter shall be
submitted to the parties' respective Chief Executive Officers ("CEOs") for
resolution. In the event that the CEOs cannot reach resolution of the issue
(an "Unresolved Dispute"), then the matter shall be settled by binding
arbitration in accordance with the provisions of Section 9.7.2. hereof.
9.7.2. Any Unresolved Dispute, after the completion of the
steps set forth above, shall be settled at the election of either party, by
final and binding independent arbitration. All arbitrations pursuant to this
Agreement shall be conducted before the American Arbitration Association
("AAA") in New York, New York, U.S.A., and shall be carried out in accordance
with the Commercial Arbitration Rules of the AAA then in effect (the "Rules")
and the provisions of this Agreement. Unless the parties agree otherwise, all
arbitrations pursuant to this Agreement shall also be carried out in
accordance with the AAA's Supplementary Procedures For Large, Complex Disputes
then in effect (the "Supplementary Procedures"). In the event of a conflict
between the Rules or Supplementary Procedures of the AAA and the provisions of
this Section 9.7.2, the provisions of this Section 9.7.2 shall govern. Moscom
and Votan shall each select one arbitrator and a third arbitrator will be
selected unanimously by the two arbitrators selected by Moscom and Votan. If
the two arbitrators selected by Moscom and Votan are unable to select the
third arbitrator within ten (10) days of the appointment of the two
arbitrators, the parties consent to the selection of the third arbitrator by
the AAA administrator.
9.8. No waiver by either party, whether expressed or
implied, of any provision of this Agreement, or of any breach or default,
shall constitute a continuing waiver of such provision or of any other
provision of this Agreement.
9.9. This Agreement and the rights and obligations of the
parties under this Agreement may only be assigned or transferred with the
prior written consent of the other party, except with respect to assignments
to an acquiror of all or substantially all the assets, business or stock of a
party.
9.10. Each of Moscom and Votan hereby agrees to duly execute
and deliver, or cause to be duly executed and delivered, such further
instruments and to do and cause to be done such further acts and things,
including, without limitation, the filing of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectively the provisions
and purposes of, or to better assure and confirm unto such other party its
rights and remedies under this Agreement.
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<PAGE>
9.11. The terms and provisions of this Agreement shall inure
to the benefit of, and be binding upon, Moscom, Votan and their respective
successors and permitted assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the Effective Date.
MOSCOM CORPORATION
By: /s/ Albert J. Montevecchio
Name: Albert J. Montevecchio
Title: President
VOTAN CORPORATION
By: /s/ John A. White
Name: John A. White
Title: President
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SCHEDULE A
DEVELOPMENT PROJECTS FOR THE LICENSED ALGORITHMS
<PAGE>
EXHIBIT 10.4
SERVICE AND SUPPLY AGREEMENT
This Agreement is made as of the 26th day of June, 1996 by and
between MOSCOM CORPORATION, a Delaware corporation having its principal office
at 3750 Monroe Avenue, Pittsford, New York 14534 ("MOSCOM") and VOTAN
CORPORATION, a Delaware corporation having its principal office at 7020 Koll
Center Parkway, No. 142, Pleasanton, California 94566 ("Votan").
WHEREAS, Votan has been recently formed to commercialize various
technologies relating to speech recognition and voice verification, and
WHEREAS, MOSCOM has the capability, staff and expertise to
effectively and profitably assist in the commercialization of those
technologies until such time as Votan has the internal staff and expertise to
pursue such commercialization, and
WHEREAS, Votan, in furtherance of the purposes for which Votan was
formed, desires to retain the services of MOSCOM in accordance with the terms
and conditions hereinafter set forth, and
WHEREAS, MOSCOM is prepared to perform such services in accordance
with the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereto agree as follows.
1. Retention and Description of Administrative Services. MOSCOM
hereby agrees, from time to time and upon Votan's request, to manage Votan's
administrative and accounting needs, to assist in the maintenance of the
financial books and records of Votan, to coordinate and oversee all
disbursements made by Votan, including payroll, and to furnish such additional
administrative, personnel, testing, quality control, public relations,
purchasing and other services as Votan may, from time to time, request. In
addition, MOSCOM shall provide space at its facility for certain Votan
employees who will perform services for Votan at the MOSCOM facility. Votan
shall retain exclusive responsibility for and shall provide at its own cost
and expense any accounting or similar work as is customarily performed by
third party professionals, including, by way of illustration, the preparation
of tax returns and reviews or audits of financial statements. MOSCOM agrees to
perform all services as may be reasonably requested by Votan hereunder and as
may be mutually agreed by the parties to the best of its abilities and within
reasonable time periods, and shall allocate sufficient time and resources to
such end. Notwithstanding the foregoing, MOSCOM provides no warranties or
guaranty of results with respect to any of the services which may be performed
by it under this Agreement.
<PAGE>
2. Compensation for Services. In consideration for the services
rendered by MOSCOM pursuant to Section 1 above, Votan shall pay to MOSCOM a
fee equal to four (4) times the gross hourly salary paid by MOSCOM to the
person performing such services times the number of hours expended by such
person to perform the services.
3. Facility Fee. Votan shall pay MOSCOM 1.25 times MOSCOM's cost of
occupancy (rent plus additional rent components) for that portion of MOSCOM's
facilities allocated to occupancy by Votan employees.
4. Billing. MOSCOM will bill Votan monthly for any services rendered
hereunder which shall set forth in reasonable detail the amounts billed, and
shall be entitled to payment in full from Votan within thirty (30) days of the
time any invoice is sent to Votan.
5. Supply of Products. MOSCOM hereby agrees to sell to Votan, the
Model 2400, 2450, 5400 and 5450 boards, and related boards, which boards are
manufactured by third parties and tested by MOSCOM, upon receipt of orders
placed from time to time by Votan. MOSCOM shall sell such boards to Votan at a
price per board equal to 1.25 times MOSCOM's cost for each such board. MOSCOM
will have the unqualified right to accept or reject each order as received, or
to reduce the quantities of boards which may be ordered by Votan. MOSCOM
undertakes, whenever orders for boards exceed the supply available, to make a
fair and reasonable allocation of the available supply. The decision of MOSCOM
as to such allocations shall be final and binding upon Votan. In no event will
MOSCOM be deemed to have assumed any obligation hereunder except to fill
orders as quickly as practicable and Votan expressly agrees that MOSCOM shall
not be liable for any direct or consequential loss or damage caused by
MOSCOM's failure or inability to make delivery of any boards to Votan, Votan's
sole remedy being to cancel the order. Such sales shall be made by MOSCOM in
accordance with the standard terms and conditions applying to such sales and
as set forth in MOSCOM's standard form of Acknowledgment of Purchase Order
attached hereto as Exhibit A.
6. Pass-Through of Warranties. MOSCOM shall use reasonable commercial
efforts to arrange for a pass-through of all warranties from the manufacturers
of the boards direct to Votan or in favor of Votan, so that Votan may enforce
such warranties against the manufacturer as though Votan was purchasing
directly from such manufacturer.
7. Delivery. All boards delivered to Votan shall be F.O.B. Votan's
plant or other place of shipment. MOSCOM shall use its reasonable commercial
efforts to deliver boards within ten (10) days of the applicable delivery
dates and arrange any desired insurance (in amounts that Votan shall
determine) and transportation, via air freight unless otherwise specified in
writing, to any destinations specified in writing from time to time by Votan.
All customs, duties, costs, taxes, insurance premiums, and other expenses
relating to such transportation and delivery, shall be paid by MOSCOM and
reimbursed by Votan.
2
<PAGE>
8. Rejection of Board in Case of Nonconformity. Votan may reject any
portion of any shipment of boards which does not conform to Votan's
specifications in its purchase order. In order to reject a shipment, Votan
must (i) give notice to MOSCOM of Votan's intent to reject the shipment within
ten (10) days of receipt together with a written indication of the reasons for
such possible rejection, and (ii) as promptly as reasonably possible
thereafter, provide MOSCOM with notice of final rejection and the full basis
therefor. After notice of intention to reject is given, Votan shall cooperate
with MOSCOM in determining whether rejection is necessary or justified. If no
such notice of intent to reject is timely received, Votan shall be deemed to
have accepted such delivery of the boards. If Votan does properly reject a
delivery of boards, MOSCOM shall use reasonable commercial efforts to carry
out the following on behalf of Votan:
(a) repair or cause to be repaired such boards to meet
specifications; or
(b) obtain a refund of the purchase price (together with insurance
and freight charges) of the properly rejected boards from the manufacturer;
and provide replacement boards which shall be purchased by Votan as provided
in this Agreement.
If Votan shall improperly reject a delivery of boards, Votan
shall reimburse MOSCOM for services related to retesting of such boards
pursuant to the terms of this Agreement.
9. Benefit Plans. In the event that MOSCOM, upon Votan's request,
pays premiums on certain group employee benefit plans for Votan employees,
Votan will reimburse MOSCOM in an amount equal to one hundred five percent
(105%) of the premiums paid by MOSCOM.
10. Term. The term of this Agreement shall commence upon its
execution and shall continue in full force and effect until such time as it is
terminated by Votan upon thirty (30) days' prior written notice to MOSCOM or by
MOSCOM upon one hundred eighty (180) days prior written notice to Votan.
11. Effect of Termination. In the event of any termination of this
Agreement, MOSCOM shall be entitled to any fees earned by it hereunder prior
to the date of termination and MOSCOM shall, to the extent necessary,
cooperate in the transfer of any services to Votan or its designated agent.
12. Confidential Information.
(a) As used in this Agreement, the "Confidential Information" of one
party, (the "party") shall mean any information disclosed to or obtained by
the other party (the "other") as a result of the relationship between the
parties existing by virtue of this or any other agreement of the parties,
which information is not generally known in the trade or
3
<PAGE>
industry in which the party operates, and relating to the party's past,
present and future products, processes and services, and information relating
to the party's research, development, manufacturing, processing, engineering,
computer programming and marketing, as well as financial, sales and product
planning information. The term Confidential Information does not include any
information which the other can show was in the public domain at the time the
other became aware of it, became a part of the public domain through no fault
of the other after the other became aware of it, or is disclosed to the other
by a third party free of any obligation or confidence.
(b) The parties mutually agree to hold all Confidential
Information of the other party in trust and confidence, and to use it only for
the benefit of the other party. Unless approved by the other party in writing,
each party agrees not to disclose any Confidential Information of the other
party by publication or otherwise, to any third party.
13. Liability; Indemnification. MOSCOM shall be liable to Votan only
if it fails to satisfy its obligation to use its best efforts to perform the
services to be rendered by it and each party shall be liable to the other for
its own gross negligence, willful misconduct, bad faith, fraud and material
breach of its obligations. Votan shall indemnify, defend and hold harmless
MOSCOM from and against any claims or actions arising out of its performance
of services hereunder, except to the extent such claims or actions are due to
the gross negligence, wilful misconduct, bad faith or material breach of
MOSCOM's obligations.
14. Independent Contractor. The parties agree that MOSCOM is an
independent contractor and shall not be deemed to be, for any purposes
whatsoever, an employee of Votan.
15. Assignment. Neither this Agreement nor any interest herein or
claim hereunder, may be assigned or transferred to any third party without the
prior written authorization of the other party to this Agreement.
16. Governing Law. This Agreement is made pursuant to, and should be
construed in accordance with, the laws of the State of New York.
17. Survival. The rights and obligations of the parties as set forth
in paragraphs 2 and 6 of this Agreement shall survive and continue after any
expiration or termination of this Agreement, and shall bind the parties
hereto, their legal representatives, successors and assigns.
18. Modification. This Agreement shall be modified only by an
instrument in writing and signed by duly authorized representatives of each of
the parties.
19. Entire Agreement. This document constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all previous
4
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communications, representations, understandings and agreements, either oral or
written, between the parties or any official or representative thereof.
20. Force Majeure. Neither party to this Agreement is responsible to
the other party for non-performance or delay in performance of the terms and
conditions hereof caused or occasioned by acts of God, fires, strikes, civil
or military authority, insurrection, riot, requirements of any statute, order
or directive of any governmental authority, or, without limiting the
generality of the foregoing, by any other similar cause or event which is
unavoidable or beyond the reasonable control of the parties.
21. Non-Waiver. The failure of either party to insist, in any one
instance or more, upon the performance of any of the covenants or conditions
of this Agreement, or failure to exercise any right or privilege herein
conferred, shall not be construed as a waiver of any such covenant,
conditions, rights or privileges, but the same shall continue and remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
VOTAN CORPORATION
By: /s/ John A. White
Its: President
MOSCOM CORPORATION
By: /s/ Albert J. Montevecchio
Its: President
5
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into
as of June 19, 1996 by and between MOSCOM Corporation, a Delaware corporation
(the "Company"), and Mr. John A. White (the "Executive").
W I T N E S S E T H
WHEREAS, the Company desires to employ Executive on the
terms and conditions herein contained; and
WHEREAS, Executive is willing to enter into this Agreement
for employment with the duties outlined herein on a full-time basis.
NOW, THEREFORE, in consideration of the employment of
Executive by the Company, the Company and Executive agree as follows:
1. Term of the Agreement. The Company shall employ Executive
and Executive shall accept employment with the Company for the two (2) year
period commencing on June __, 1996 (the "Commencement Date") and ending June
__, 1998 (the "Employment Period"), subject, however, to prior termination as
hereinafter
provided in Section 5.
2. Executive's Duties and Obligations.
a. Duties. Executive shall serve as President
and Chief Executive Officer of the Company's Votan Division and later, upon
the assumption of this Agreement by Votan Corporation, a Delaware corporation
and a subsidiary of the Company ("Votan"), as the President and Chief
Executive Officer of Votan. Executive shall at all times report to, and shall
be subject to the policies established by, the Company's Board of Directors
and shall discharge his responsibilities in a competent and faithful manner,
consistent with sound business practices.
b. Non-Disclosure Agreement. Prior to his
commencement of employment with the Company, Executive shall execute the
Company's form of Employee Non-Disclosure and Developments Agreement (the
"Non-Disclosure Agreement") to be provided by the Company to Executive.
3. Devotion of Time to Company's Business
a. Full-Time Efforts. During his employment
with the Company, Executive shall devote all of his business time, attention
and efforts to the business of the Company.
<PAGE>
b. No Other Employment. During his employment
with the Company, Executive shall not, whether directly or indirectly, render
any services of a commercial or professional nature to any other person or
organization, whether for compensation or otherwise, without the prior written
consent of the Company's Board of Directors.
c. Non-Competition During Employment. During
his employment with the Company, Executive shall not, directly or indirectly,
either as an employee, employer, consultant, agent, principal, partner, joint
venturer, stockholder, corporate officer, director, or in any other individual
or representative capacity, engage or participate in any business that is
competitive with the Business (as defined below) or Proposed Business (as
defined below) of the Company.
d. Non-Solicitation of Employees. Executive
agrees that during his employment with the Company and for one (1) year
thereafter, he will not encourage or solicit any employee of the Company to
leave the Company for any reason; provided, however, that this obligation
shall not affect any responsibility he may have as an employee of the Company
with respect to the bona fide hiring and firing of Company personnel.
e. Non-Competition After Employment. Executive
agrees that for one (1) year following the termination of his employment with
the Company, he will not (i) engage in any employment, business or activity
that is competitive with the Business or Proposed Business of the Company, and
will not assist any other person or organization in competing with the Company
or in preparing to engage in competition with such Business or Proposed
Business of the Company, or (ii) solicit, divert or take away, or attempt to
divert or to take away, the business or patronage of any of the clients,
customers or accounts which were contacted, solicited or served by Executive
while employed by the Company. Notwithstanding the foregoing, in the event
Executive is terminated by the Company without Good Cause (as defined below)
during the Employment Period, the noncompete provision set forth in this
Section 3.e. shall be null and void.
f. Geographic Area. Executive hereby
specifically acknowledges that the narrow definitions of the Business and the
Proposed Business enable him to find gainful employment within his chosen
profession without violating the noncompete provision set forth in this
Section 3. He therefore specifically agrees to refrain from any action that
could be deemed in violation of this Section 3 anywhere in North America.
<PAGE>
g. Definitions. For the purpose of this Section
3 the following terms shall have the definitions set forth below:
(i) "Proposed Business" of the Company shall
mean (A) the design, development and commercialization of speech recognition
and voice verification technologies and products or (B) a product or service
under design or development by the Company.
(ii) "Business" shall mean any portion of the
Proposed Business that has been commercialized.
h. Exceptions. Notwithstanding the provisions
of this Section 3, nothing herein shall prohibit Executive from (i) holding
less than one percent (1%) of the outstanding capital stock of a publicly held
corporation engaged in a business that competes with the Business or Proposed
Business of the Company; or (ii) serving on one or more Boards of Directors of
non-profit corporations (so long as, in the aggregate, such commitments do not
interfere with the performance of Executive's duties for the Company).
i. Interpretation. If any restriction set forth
in Section 3.e., 3.f., 3.g. or 3.h. is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic
area, it shall be interpreted to extend only over the maximum period of time,
range of activities or geographic area as to which it may be enforceable.
j. Equitable Remedies. The restrictions
contained in Sections 3.e., 3.f., 3.g. and 3.h. are necessary for
the protection of the business and goodwill of the Company and
are considered by Executive to be reasonable for such purpose.
Executive agrees that any breach of Section 3.e., 3.f., 3.g. or
3.h. of this Agreement is likely to cause the Company substantial
and irrevocable damage and therefore, in the event of any such
breach, Executive agrees that the Company, in addition to any
other remedies which may be available, shall be entitled to
specific performance and other injunctive relief.
4. Compensation and Benefits.
a. Base Compensation. During the term of this
Agreement, the Company shall pay to Executive base annual compensation of One
Hundred Eighty Thousand Dollars ($180,000.00), less all required withholdings
(the "Base Salary") payable in accordance with the Company's payroll policies.
It is contemplated that the Company will review Executive's base compensation
from time to time during the period of his employment and, at the discretion
of the Company's Board of
<PAGE>
Directors, may increase his base salary from time to time based upon his
performance, then generally prevailing industry salary scales and other
relevant factors.
b. Signing Bonus. Upon the execution of this
Agreement by Executive, Executive shall be entitled to receive a signing bonus
in an amount equal to Twenty Five Thousand Dollars ($25,000.00) (the "Signing
Bonus"). In the event that Executive terminates this Agreement during the
initial term hereof, Executive shall be obligated to pay the Signing Bonus
back to the Company, such amount being due on the date of Executive's
termination of employment.
c. Performance Bonuses. Executive shall be
entitled to receive an annual cash bonus of up to 50% of his Base Salary based
upon the achievement of certain performance objectives, at the discretion of
the Company's Board of Directors.
d. Initial Public Offering Bonus. Executive
shall be entitled to receive a bonus in an amount equal to Twenty Five
Thousand Dollars ($25,000.00) upon the successful completion of an initial
public offering of the common stock, par value $.01 per share, of the Company,
with gross proceeds to the Company in excess of Ten Million Dollars
($10,000,000.00), pursuant to a Registration Statement on Form S-1 filed with
the Securities and Exchange Commission in accordance with the Securities Act
of 1933, as amended.
e. Benefits. During his employment with the
Company, Executive will be entitled to receive all such family health and
medical benefits (including dental) and disability insurance as are provided
to other executive officers of the Company. The Company reserves the right to
modify, amend or terminate any benefits listed above at any time for any
reason (provided such modification, amendment or termination is applicable to
all executives receiving such benefits) but shall, in any case, provide
reasonable health and disability benefits to Executive while Executive is a
full-time employee of the Company. Further, Executive will have the rights to
participate in any vacation and savings plans to be implemented by the Company
which are provided to other executive officers of the Company.
f. Stock Option Grant. As soon as possible
after Executive executes this Agreement and Votan assumes this Agreement, and
upon the adoption of a stock option plan by Votan, Executive shall be granted
a stock option to purchase One Hundred Twenty Thousand (120,000) shares of
Votan's Common Stock, par value $.01 per share (the "Options"). The Options
shall have an exercise price per share equal to the initial public offering
(the "IPO") price of Votan's Common Stock on the grant date, if
<PAGE>
the Options are incentive stock options, or 85% of the IPO price, if the
Options are non-qualified stock options, and shall have a maximum term of 10
years, subject to earlier termination upon cessation of Executive's employment
with the Company. Sixty Thousand (60,000) shares underlying the Options shall
become exercisable upon completion of thirty months of service after the
Commencement Date and the remaining Sixty Thousand (60,000) shares underlying
the Options shall become exercisable upon completion of sixty months of
service after the Commencement Date. The vesting of the Options shall cease
upon termination of Executive's employment hereunder. The Executive's rights
and obligations with respect to the Options shall be governed by the terms and
conditions of Votan's standard Stock Option Agreement.
g. Expense Reimbursement. Executive shall be
entitled to reimbursement from the Company for all customary, ordinary and
necessary business expenses incurred by you in the performance of your duties
hereunder, provided you furnish the Company with vouchers, receipts and other
details of such expenses within thirty (30) days after they are incurred. In
addition, the Company shall reimburse Executive for an an automobile allowance
in an amount not to exceed Seven Hundred Dollars ($700.00) per month.
5. Termination of Employment.
a. Termination for Good Cause. The Company may
terminate Executive's employment at any time for Good Cause. For the purposes
of this Agreement, "Good Cause" includes, but is not limited to, gross
misconduct, gross neglect of duties, acts involving moral turpitude, material
breach by Executive of the Non-Disclosure Agreement or any act or omission
involving fraud, embezzlement, or misappropriation of any property or
proprietary information of the Company by Executive.
b. Termination without Good Cause. If
Executive's employment is terminated by the Company without Good Cause, the
following provisions shall apply:
i) Executive shall be entitled to any
unpaid compensation accrued through the last day of Executive's
employment;
ii) Executive shall be entitled to receive
severance payments equal to his base compensation, payable on normal Company
payroll dates, for a period ending on the later of (A) the second anniversary
of the Commencement Date, and (B) three months after such termination of
employment (the "Severance Payments"), which Severance Payments shall cease to
be owing by the Company to Executive upon Executive's commencement of
employment with another company.
<PAGE>
c. Termination by Executive. If Executive
terminates this Agreement under this Section 5.c., Executive shall only be
entitled to any unpaid compensation accrued through the last day of
Executive's employment, but in no event shall Executive be entitled to any
severance benefit.
d. Death or Disability. This Agreement shall
terminate if Executive dies or is mentally or physically Disabled. For the
purposes of this Agreement, "Disabled" shall mean a mental or physical
condition that renders Executive incapable of performing his duties and
obligations under this Agreement for three (3) or more consecutive months or
for a total of six (6) months during any twelve (12) consecutive months. If
this Agreement is terminated under this Section 5.d., Executive or his estate
shall be entitled to any unpaid compensation accrued through the last day of
Executive's employment but shall not be entitled to any severance benefits.
6. Miscellaneous.
a. Representations and Agreements of Executive.
Executive represents and warrants that he is free to enter into this Agreement
and to perform the duties required hereunder, and that there are no employment
contracts or understandings, restrictive covenants or other restrictions,
whether written or oral, preventing the performance of his duties hereunder.
Executive further represents and warrants that he does not possess any
proprietary information with respect to any former employer which is subject
to an agreement or understanding, whether written or oral, between Executive
and such former employer which restricts Executive's use or disclosure of such
proprietary information.
b. Governing Law. This Agreement shall be
interpreted, construed, governed and enforced according to the
laws of the State of California.
c. Arbitration. Any controversy between the
parties hereto involving the construction or application of any terms,
covenants or conditions of this Agreement or any other agreement executed in
connection herewith, or any claim arising out of or relating to this
Agreement, except with respect to prejudgment remedies, will be submitted to
and be settled by final and binding arbitration in San Francisco, California
or such other place as the parties may agree, in accordance with the rules of
the American Arbitration Association then in effect, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
d. Amendments. No amendment or modification of
the terms or conditions of this Agreement shall be valid unless
<PAGE>
in writing and signed by the parties hereto.
e. Severability. If one or more provisions of
this Agreement are held to be unenforceable under applicable law, such
provision shall be construed, if possible, so as to be enforceable under
applicable law, else, such provision shall be excluded from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
f. Successors and Assigns. The rights and
obligations of the Company under this Agreement shall inure to the benefit of
and shall be binding upon the successors and assigns of the Company. Executive
shall not be entitled to assign any of his rights or obligations under this
Agreement. It is anticipated and agreed that this Agreement shall be assumed
by Votan upon the transfer of substantially all of the assets of the Company's
Votan Division to Votan.
g. Non-Waiver. The waiver of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
other term or condition.
h. Notices. All notices required or permitted
under this Agreement shall be in writing and shall be deemed effective upon
personal delivery or two days after deposit in the United States Post Office,
by registered or certified mail, postage prepaid, addressed to the other party
at the address shown below such party's signature, or at such other address or
addresses as either party shall designate to the other in accordance with this
Section 5.f.
i. Entire Agreement. This Agreement, including
the exhibits attached hereto, constitutes the entire agreement between the
parties with respect to the employment of Executive.
j. Headings. The Section headings appearing in
this Agreement are for purposes of easy reference and shall not be considered
a part of this Agreement or in any way modify, amend, or affect its
provisions.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Employment Agreement as of the date set forth above.
MOSCOM CORPORATION FOR ITS VOTAN DIVISION:
/s/ Albert J. Montevecchio
--------------------------------
By: Albert J. Montevecchio
Title: President
Address: 7020 Koll Center Parkway #142
Pleasanton, California 94566
EXECUTIVE:
/s/ John A. White
--------------------------------
Mr. John A. White
Address: 1135 Monte Rosa Drive
Menlo Park, California 94025
VOTAN CORPORATION
1996 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option Plan is intended to promote the interests of
Votan Corporation, a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and
(ii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Four shall apply to all
equity programs under the Plan and shall accordingly govern the interests of
all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders. No non-employee Board member shall be eligible to serve on the
Primary Committee if such individual has, during the twelve (12)-month period
immediately preceding the date of his or her appointment to the Committee or
(if shorter) the period commencing with the Section 12(g) Registration Date
and ending with the date of his or her appointment to the Primary Committee,
received an option grant or direct stock issuance under the Plan or any
<PAGE>
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary), other than pursuant to the
Automatic Option Grant Program.
B. Administration of the Discretionary Option Grant Program with
respect to all other persons eligible to participate in that program may, at
the Board's discretion, be vested in the Primary Committee or a Secondary
Committee, or the Board may retain the power to administer those programs with
respect to all such persons. The members of the Secondary Committee may be
Board members who are Employees eligible to receive discretionary option
grants or direct stock issuances under the Plan or any other stock option,
stock appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant Program and to make such
determinations under, and issue such interpretations of, the provisions of
such program and any outstanding options thereunder as it may deem necessary
or advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Discretionary Option Grant Program under
its jurisdiction or any option thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as
Board members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self- executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to
option grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant Program are as follows:
2.
<PAGE>
(i) Employees,
(ii) non-employee members of the Board (other than those
serving as members of the Primary Committee) or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to
the provisions of the Plan) to determine, with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be
made, the number of shares to be covered by each such grant, the status of the
granted option as either an Incentive Option or a Non-Statutory Option, the
time or times at which each option is to become exercisable and the vesting
schedule (if any) applicable to the option shares and the maximum term for
which the option is to remain outstanding.
C. The individuals eligible to participate in the Automatic Option
Grant Program shall be (i) those individuals who are serving as non-employee
Board members on the Automatic Option Grant Program Effective Date or who
first become non-employee Board members after such date, whether through
appointment by the Board or election by the Corporation's stockholders, and
(ii) those individuals who continue to serve as non-employee Board members
after one or more Annual Stockholders Meetings held after the Automatic Option
Grant Program Effective Date.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed [ ]
shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 2000 calendar
year, by an amount equal to one percent (1%) of the shares of Common Stock
outstanding on December 31 of the immediately preceding calendar year. No
Incentive Options may be granted on the basis of the additional shares of
Common Stock resulting from such annual increases.
C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than [ ] shares of
Common Stock in the aggregate over the term of the Plan.
3.
<PAGE>
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions
of Article Two. All shares issued under the Plan, whether or not those shares
are subsequently repurchased by the Corporation pursuant to its repurchase
rights under the Plan, shall reduce on a share-for-share basis the number of
shares of Common Stock available for subsequent issuance under the Plan. In
addition, should the exercise price of an option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable
under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option under
the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised, and not by the net number of shares of Common Stock
issued to the holder of such option.
E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options and separately exercisable stock appreciation
rights over the term of the Plan, (iii) the number and/or class of securities
for which automatic option grants are to be made subsequently per Eligible
Director under the Automatic Option Grant Program and (iv) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
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ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of
such exercise and (b) the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
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B. Exercise and Term of Options. Each option shall be exercisable
at such time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from
the period otherwise in effect for that option to such greater period of
time as the
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Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may be assigned in whole or in part during the Optionee's lifetime in
accordance with the terms of a Qualified Domestic Relations Order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned portion shall be the
same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
A. Eligibility. Incentive Options may only be granted to Employees.
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B. Exercise Price. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, except to the extent otherwise
provided in the documents evidencing the option, an outstanding option shall
NOT so accelerate if and to the extent: (i) such option is, in connection with
the Corporate Transaction, either to be assumed by the successor corporation
(or parent thereof) or to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation (or parent thereof),
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
The determination of option comparability under clause (i) above shall be made
by the Plan Administrator, and its determination shall be final, binding and
conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such
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Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase right
is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same and (iii) the maximum number of
securities and/or class of securities for which any one person may be granted
options and separately exercisable stock appreciation rights under the Plan.
E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate (and any of the Corporation's outstanding repurchase
rights which do not otherwise terminate at the time of the Corporate
Transaction shall automatically terminate and the shares of Common Stock
subject to those terminated rights shall immediately vest in full) in the
event the Optionee's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective
date of any Corporate Transaction in which those options are assumed and do
not otherwise accelerate. Any options so accelerated shall remain exercisable
for fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to (i) provide for the automatic acceleration of one or
more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the occurrence of a Change in
Control or (ii) condition any such option acceleration (and the termination of
any outstanding repurchase rights) upon the subsequent Involuntary Termination
of the Optionee's Service within a specified period following the effective
date of such Change in
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Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program and to grant in substitution new options covering the
same or different number of shares of Common Stock but with an exercise price
per share based on the Fair Market Value per share of Common Stock on the new
option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution
from the Corporation in an amount equal to the excess of (a) the Fair
Market Value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option
(or surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be
made in shares of Common Stock valued at Fair Market Value on the option
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surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
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ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each Eligible Director who is a non-employee Board member
on the Automatic Option Grant Program Effective Date and each Eligible
Director who is first elected or appointed as a non-employee Board member
after such date shall automatically be granted, on the Automatic Option Grant
Program Effective Date or on the date of such initial election or appointment
(as the case may be), a Non-Statutory Option to purchase 10,000 shares of
Common Stock.
2. On the date of each Annual Stockholders Meeting held after
the Automatic Option Grant Program Effective Date, each individual who is to
continue to serve as an Eligible Director after such meeting, shall
automatically be granted, whether or not such individual is standing for
re-election as a Board member at that Annual Meeting, a Non-Statutory Option
to purchase an additional 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000-share option
grants any one Eligible Director may receive over his or her period of Board
service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per
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share, upon the Optionee's cessation of Board service prior to vesting in
those shares. Each initial grant shall vest, and the Corporation's repurchase
right shall lapse, in a series of four (4) successive and equal annual
installments over the Optionee's period of continued service as a Board
member, with the first such installment to vest upon the Optionee's completion
of one (1) year of Board service measured from the option grant date. Each
annual grant shall vest, and the Corporation's repurchase right shall lapse,
upon the Optionee's completion of one (1) year of Board service measured from
the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at
the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
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II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares as fully-vested shares
of Common Stock. Each such option shall remain exercisable for such
fully-vested option shares until the expiration or sooner termination of the
option term.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
D. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together
with the option grants outstanding thereunder, may not be amended at intervals
more frequently than once every six (6) months, other than to the extent
necessary to comply with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
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ARTICLE FOUR
MISCELLANEOUS
I. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or stock appreciation rights under the Plan shall
be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options under the Plan (other than the options
granted under the Automatic Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options. Such right may be
provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised, one or
more shares of Common Stock previously acquired by such holder (other
than in connection with the option exercise triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not
to exceed one hundred percent (100%)) designated by the holder.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant Program shall become effective on
the Plan Effective Date and options may be granted under the Discretionary
Option Grant Program at any time after the Plan Effective Date. The Automatic
Option Grant Program shall become effective on the Automatic Option Grant
Program Effective Date and the initial option grants under the Automatic
Option Grant Program shall be made to the Eligible Directors at that time.
However, no options granted under the Plan may be exercised until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is
not obtained within twelve (12) months after the Plan Effective Date, then all
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options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall terminate upon the earliest of (i) _____, 2006,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan or
(iii) the termination of all outstanding options in connection with a
Corporate Transaction. Upon such Plan termination, all outstanding options
shall continue to have force and effect in accordance with the provisions of
the documents evidencing such options.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, (i) no such
amendment or modification shall adversely affect any rights and obligations
with respect to options or stock appreciation rights at the time outstanding
under the Plan unless the Optionee consents to such amendment or modification,
and (ii) any amendment made to the Automatic Option Grant Program (or any
options outstanding thereunder) shall be in compliance with the limitations of
that program. In addition, the Board shall not, without the approval of the
Corporation's stockholders, (i) materially increase the maximum number of
shares issuable under the Plan, the number of shares for which options may be
granted under the Automatic Option Grant Program or the maximum number of
shares for which any one person may be granted options or separately
exercisable stock appreciation rights in the aggregate over the term of the
Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program that are in excess of the number of
shares then available for issuance under the Plan, provided any excess shares
actually issued under those programs are held in escrow until there is
obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess grants are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees
the exercise price paid for any excess shares issued under the Plan and held
in escrow, together with interest (at the applicable Short Term Federal Rate)
for the period the shares were held in escrow, and such shares shall thereupon
be automatically cancelled and cease to be outstanding.
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IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of
Common Stock upon the exercise of any option or stock appreciation right shall
be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options and stock appreciation rights granted under it and the shares of
Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which
rights are hereby expressly reserved by each, to terminate such person's
Service at any time for any reason, with or without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. AUTOMATIC OPTION GRANT PROGRAM EFFECTIVE DATE shall mean the date on
which the Underwriting Agreement is executed and the initial public offering
price of the Common Stock is established.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
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(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
H. CORPORATION shall mean Votan Corporation, a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of Votan Corporation which shall by appropriate action adopt the Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
J. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
K. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
L. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
M. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
N. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
A-2.
<PAGE>
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of any option grants made on the date the
Underwriting Agreement is executed and the initial public offering price
of the Common Stock is established, the Fair Market Value shall be
deemed to be equal to the established initial offering price per share.
For purposes of option grants made prior to such date, the Fair Market
Value shall be determined by the Plan Administrator after taking into
account such factors as the Plan Administrator shall deem appropriate.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation
(or any Parent or Subsidiary) may consider as grounds for the dismissal or
A-3.
<PAGE>
discharge of any Optionee or other person in the Service of the Corporation
(or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more. However,
solely for the purposes of the Automatic Option Grant Program, Permanent
Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
W. PLAN shall mean the Corporation's 1996 Stock Option Plan, as set
forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant Program with respect to one or
more classes of eligible persons, to the extent such entity is carrying out
its administrative functions under those programs with respect to the persons
under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the date on which the Plan is adopted
by the Board.
Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
AA. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code
Section 414(p). The Plan
A-4.
<PAGE>
Administrator shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
AB. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.
AC. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AD. SECTION 12(G) REGISTRATION DATE shall mean the first date on which
the Common Stock is registered under Section 12(g) of the 1934 Act.
AE. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
AF. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
AG. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AH. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i) price
per share.
AI. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
AJ. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
A-5.
<PAGE>
AK. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-6.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of reports (and
to all references to our Firm) included in or made a part of this registration
statement.
ARTHUR ANDERSEN LLP
Rochester, NY
June 28, 1996
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<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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