AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1996
REGISTRATION NO. 333-7137
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
--------------
Votan Corporation
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 7372 94-3246202
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification Number)
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7020 KOLL CENTER PARKWAY, PLEASANTON, CALIFORNIA 94566
(510) 426-5600
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
--------------
JOHN A. WHITE
CHIEF EXECUTIVE OFFICER
VOTAN CORPORATION
7020 KOLL CENTER PARKWAY, PLEASANTON, CALIFORNIA 94566
(510) 426-5600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------
COPIES OF ALL COMMUNICATIONS TO:
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RICHARD R. PLUMRIDGE, ESQ.
BABAK YAGHMAIE, ESQ.
BROBECK, PHLEGER & HARRISON LLP RICHARD H. GILDEN, ESQ.
1301 AVENUE OF THE AMERICAS FULBRIGHT & JAWORSKI L.L.P. 666
NEW YORK, NEW YORK 10019 FIFTH AVENUE NEW YORK, NEW YORK
(212) 581-1600 10103 (212) 318-3000
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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. [ ]
--------------
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.
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<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 OCTOBER 2, 1996
PROSPECTUS
2,850,000 SHARES
[LOGO]
Votan Corporation
COMMON STOCK
--------------
Of the 2,850,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Votan Corporation ("Votan" or the "Company") and 850,000
shares are being sold by MOSCOM Corporation ("MOSCOM" or the "Selling
Stockholder"), the sole stockholder of the Company prior to this offering. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholder. Following the offering, MOSCOM will own approximately 62%
of the outstanding shares of Common Stock (assuming no exercise of the
Underwriters' over-allotment option). See "Principal and Selling
Stockholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company and there can be no assurance that a trading market will
develop after the sale of the shares offered hereby. It is currently
anticipated that the initial public offering price will be between $7.00 and
$8.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied for quotation of the Common Stock on the Nasdaq National Market under
the symbol "VOTN."
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
===============================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
Per Share .... $ $ $ $
Total(3) ..... $ $ $ $
===============================================================================
(1) For information regarding indemnification of the Underwriters by the
Company and certain compensation payable to the Representatives of the
Underwriters, see "Underwriting."
(2) Before deducting expenses of this offering, estimated at approximately
$890,000, all of which will be paid by the Company.
(3) The Selling Stockholder has granted to the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to 427,500
additional shares of Common Stock solely to cover over-allotments, if any,
on the same terms and conditions as the shares offered hereby. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Selling Stockholder will be
$ ,$ and $ , respectively. See "Underwriting."
--------------
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters, subject to
their right to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of the certificates representing the
shares of Common Stock will be made on or about , 1996 at the offices of
Ladenburg, Thalmann & Co. Inc., New York, New York.
--------------
LADENBURG, THALMANN & CO. INC. KAUFMAN BROS., L.P.
The date of this Prospectus is , 1996
<PAGE>
Security...
as sound as your voice
1. Text accompanying photo - Spectral VOICEPRINTS of two speakers saying
"one. two. three. four. five." - description of photo: Spectral voice
patterns.
2. Text accompanying photo - Votan's voice board incorporates its VOICE
VERIFICATION AND SPEECH RECOGNITION technologies. - description of
photo: Rectangular personal computer board with components.
3. Text accompanying photo - MOSCOM'S MVM for Windows is a VOICE CONTROLLED
voice mail system based on Votan's voice verification and speech recognition
technologies. - description of photo: Operator sitting at a PC workstation
with Windows menu on screen.
4. Text accompanying photo - TeleVoice applies Votan's speech recognition
technologies to VOICE ACTIVATED information systems used in a variety of
industries. - description of photo: Woman holding telephone handset
and travel brochure.
5. Text accompanying photo - Votan's voice verification system as
used in Chase Manhattan Bank's "XTRA SECURE"[sm] pilot program.
- description of photo: Bank lobby showing series of verification systems
in front of teller windows.
6. Text accompanying photo - description of photo: Closeup of verification
card reader device including printer, keypad, telephone handset and Chase
Manhattan Bank's "Xtra Secure[sm]" promotional display.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER THE
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
--------------
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
--------------
Votan(Registered Trademark) is a registered trademark of the Company and
VoiceLock, TeleVoice and VoiceBuilder for Windows are trademarks of the
Company. This Prospectus also includes references to trademarks and trade
names of companies other than the Company.
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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.
THE COMPANY
Votan Corporation is a leading developer of advanced speech technologies
utilized in voice verification and speech recognition applications. The
Company's primary focus is the development of commercially feasible voice
verification applications that address the growing demand for enhanced
security of financial transactions, electronic databases and physical
facilities. The Company's products are designed to verify the user's identity
without the need for cumbersome or invasive procedures. Votan offers its
customers either a standard or customized single vendor solution and
integrates its voice verification and speech recognition software technology
on a single proprietary board.
The Company's voice verification technologies and products may be used in a
variety of applications to authenticate the identity of a speaker by
establishing a match between the speaker's speech patterns and previously
stored templates. The Company's technologies consist of proprietary algorithms
and patented methods that are highly resistant to extraneous noise
interference such as the electronic static of a telephone line, the clamor of
a public area (such as a bank lobby or retail store) or unintended non-speech
sounds made by the speaker. The ability of Votan's speech technologies to
distinguish and ultimately ignore extraneous noises enables the Company's
products to perform more accurately in noisy, uncontrolled environments and
makes its products particularly suitable for a variety of real-world
applications. In addition to its voice verification technologies, Votan has
developed speech recognition technologies that have been utilized in a number
of products for the telecommunications market. These speech recognition
technologies complement the Company's voice verification products and
applications.
Votan's initial focus will be to market its voice verification technologies
and products directly to banks and other financial institutions for use in a
variety of applications, including bank teller verification, home banking,
wire transfers, credit cards, smart cards and automatic teller machines
("ATMs"). The Company's voice verification technologies and products are
designed to enhance the security of financial transactions and improve
productivity by reducing the amount of time required to process a transaction.
Votan's voice verification products have been developed and tested for a
variety of applications but are still in early stages of commercialization.
Currently, the Company is working with The Chase Manhattan Bank, N.A. to
analyze the results of a pilot program which utilized the Company's voice
verification products to authenticate the identity of customers prior to a
teller transaction. Over 9,000 Chase customers were enrolled in the program.
The Company also intends to actively market its voice verification
technologies and products for computer network, electronic commerce, Internet
and physical access applications.
The Company's voice verification and speech recognition technologies have
to date been incorporated into various products sold by MOSCOM, the sole
stockholder of the Company, to numerous leading telecommunications systems
providers, including Siemens AG, Lucent Technologies, Inc. (a subsidiary of
AT&T Corp.) and Alcatel SEL AG. These technologies are being used in a variety
of telecommunications applications, particularly in international markets that
do not utilize touch tone telephone systems and,
3
<PAGE>
therefore, must rely on speech recognition technologies to permit interactive
telephonic services such as voice mail. The Company and MOSCOM have entered
into certain agreements that will enable the Company to continue to market
its products and technologies through MOSCOM's existing channels of
distribution. See "Certain Transactions --MOSCOM Relationship."
The key elements of the Company's strategy are to: (i) exploit its
technological leadership in the voice verification market; (ii) focus on
direct sales of its proprietary technologies and products to banks and other
financial institutions; (iii) actively market its proprietary technologies and
products directly and through original equipment manufacturers ("OEMs"),
value-added resellers ("VARs") and systems integrators for use in other
markets that have a need for the Company's products; and (iv) leverage
MOSCOM's existing relationships with leading telecommunications systems
manufacturers and suppliers in order to market its voice verification and
speech recognition technologies internationally.
Votan's business and operations were acquired by MOSCOM in September 1991
from a predecessor company that had been engaged in voice verification and
speech recognition development since its inception in 1979. The Company has,
until recently, conducted its business and operations as the Votan division of
MOSCOM. In June 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of the Votan division to the Company
(the "Formation"). After the consummation of this offering, MOSCOM will own
approximately 62% of the outstanding shares of Common Stock of the Company
(56% if the Underwriters' over-allotment option is exercised in full).
Votan was incorporated in Delaware in June 1996. The Company's executive
offices are located at 7020 Koll Center Parkway, Pleasanton, California 94566,
and its telephone number is (510) 426-5600.
--------------
THE OFFERING
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Common Stock offered by:
The Company ............................................. 2,000,000 shares
The Selling Stockholder(1) .............................. 850,000 shares
Common Stock to be outstanding after this offering(2) .... 7,500,000 shares
For expansion of sales and marketing
activities; research and development;
reimbursement of MOSCOM for certain
expenses; and general corporate
Use of Proceeds ........................................... purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol .................... VOTN
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- ------------
(1) Does not include 427,500 shares of Common Stock subject to the
Underwriters' over-allotment option from the Selling Stockholder. See
"Underwriting."
(2) Excludes 825,000 shares issuable under the Company's Stock Option Plan
adopted in June 1996 and 285,000 shares reserved for issuance upon the
exercise of warrants to be granted to the Representatives of the
Underwriters and their designees, exercisable at a price equal to the
greater of (i) $10.00 per share or (ii) 125% of the initial public
offering price (the "Representatives' Warrants"). See "Management --Stock
Option Plans," "Description of Capital Stock" and "Underwriting."
4
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SUMMARY FINANCIAL DATA
The summary financial data presented below for each of the three years
ended December 31, 1995 have been derived from the Financial Statements of the
Company. The summary statement of operations data for the six months ended
June 30, 1995 and 1996 and the summary balance sheet data as of June 30, 1996
have been derived from unaudited financial statements of the Company that, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results of
operations for these periods in accordance with generally accepted accounting
principles. The results for interim periods are not necessarily indicative of
the results for the full year. The summary information set forth below should
be read in conjunction with the Financial Statements and the Notes contained
in this Prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand-alone entity during the periods covered.
See "Risk Factors --Recent Organization; Absence of Operating History as an
Independent Business; Limited Relevance of Historical Financial Information."
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
-------- ---------- --------- -------- ---------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Sales .................................... $ 517 $ 593 $ 572 $ 225 $ 183
Gross profit ............................. 210 288 243 47 46
Engineering and software development, net 342 579 424 212 227
Net loss ................................. $(846) $(1,003) $ (891) $(500) $ (562)
Net loss per share (1) ................... $(0.16) $(0.10)
Weighted average shares outstanding (2) . 5,500 5,500
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JUNE 30, 1996
----------------------
AS ADJUSTED
ACTUAL (3)
-------- ------------
(UNAUDITED)
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BALANCE SHEET DATA:
Working capital (deficit) $(89) $12,934
Total assets .............. 678 13,361
Total liabilities ......... 461 121
Total stockholder's equity 217 13,240
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(1) Pursuant to Securities and Exchange Commission requirements, net loss
per share of the Company is presented on a pro forma basis for the most
recent year presented and the most recent interim period presented. See
Note 2 of the Notes to Financial Statements.
(2) Gives retroactive effect to the capitalization of the Company and
reflects the 5,500-to-1 stock split of the Common Stock.
(3) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company at an assumed initial public offering price of
$7.50 per share (after deducting the estimated underwriting discounts and
estimated offering expenses) and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
5
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RISK FACTORS
In addition to other information contained in this Prospectus, prospective
investors should carefully consider the following specific factors relating to
the Company and its business before deciding to invest in the Common Stock
offered hereby.
RECENT ORGANIZATION; ABSENCE OF OPERATING HISTORY AS AN INDEPENDENT BUSINESS;
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The Company is a wholly owned subsidiary of MOSCOM and, until recently,
conducted its business and operations as the Votan division of MOSCOM. In June
1996, MOSCOM transferred substantially all of the voice verification and
speech recognition business, operations (including research and development),
assets and associated liabilities of its Votan division to the Company.
Accordingly, the Company has no independent operating history upon which an
evaluation of the Company and its prospects can be based. After this offering,
the Company will continue to be a subsidiary of MOSCOM but will operate as a
separate, stand-alone business. The Company's management has no experience, as
a group, operating the Company as a stand-alone business unit, separate and
apart from MOSCOM. Except as otherwise described in this Prospectus, MOSCOM
has no obligation to provide financial or management assistance to the Company
and has no plans to do so. See "Certain Transactions --MOSCOM Relationship."
The inability of the Company to operate successfully as a separate entity
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The financial information included herein does not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future or what the results of operations, financial position and cash flows
would have been had the Company been operated as a separate, stand-alone
business during the periods presented. The financial information included
herein does not reflect the many significant changes that will occur in the
funding and operations of the Company as a result of the Formation and this
offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
PAST AND ANTICIPATED OPERATING LOSSES; UNCERTAINTY OF FUTURE RESULTS
Since its acquisition by MOSCOM through the Formation, the Votan division
had accumulated net losses from operations in an amount equal to approximately
$4.1 million and had incurred negative cash flows, each of which have been
funded by MOSCOM. Sales have been generated from a limited number of products
and research and development expenses have substantially contributed to these
operating losses. The Company expects to generate additional losses at least
through 1996, as it continues to expend substantial resources in establishing
and expanding its sales and marketing activities, research and development and
building its separate corporate infrastructure. There can be no assurance that
significant revenues or profitability will ever be achieved. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NEW MANAGEMENT TEAM; DEVELOPMENT OF A SALES AND MARKETING ORGANIZATION
The Company has recently hired a Chief Executive Officer, a Vice President,
Sales and Marketing and a Chief Financial Officer. The new management team is
in the early stages of being integrated into the Company, and there can be no
assurance that the management team will be successfully integrated and will
develop into an effective group. The Company has entered into an employment
agreement with John A. White, the Company's President and Chief Executive
Officer. See "Management --Employment Agreements." The Company has not entered
into employment agreements with any other employees.
The Company currently has a small marketing and sales support organization.
Votan's previous revenues largely resulted from indirect sales through MOSCOM
or from direct sales of certain applications developed to meet the needs of
particular customers. The Company intends to increase substantially its direct
sales and marketing force, with an initial emphasis on meeting the needs of
banks and other financial institutions. There can be no assurance that the
Company will be successful in expanding its marketing and sales support
organization or that such an organization will be able to
6
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generate increased sales or compete effectively against the more extensive and
well-funded sales and marketing organizations of the Company's current or
potential competitors. If the Company is unable to successfully expand its
sales and marketing organization, the Company's business, operating results
and financial condition would be materially adversely affected.
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS; CHANGE OF PRODUCT STRATEGY
Historically, the Company's products have been sold to a limited number of
customers. In the years ended December 31, 1993, 1994 and 1995 and the
six-month period ended June 30, 1996, the Company made significant sales to
only six, four, six and three customers, representing 63%, 38%, 84% and 93% of
the Company's sales, respectively. See "Business --Sales and Marketing." In
most cases, the customers are not recurring customers that are expected to
purchase substantial quantities of the Company's products in the future.
Accordingly, the Company currently does not have a substantial customer base
of its own to which it can market its new products. The inability of the
Company to develop a broad or substantial customer base in the future would
have a material adverse effect on its business, financial condition and
results of operations.
The Company's product sales have consisted mostly of the sale of computer
boards to third parties that have added application software to meet their
requirements or those of the ultimate end-user. The Company plans to shift its
strategy to place greater emphasis on the delivery of complete end-user
solutions. Delivery of complete solutions to end users is expected to be more
complex, time consuming and require additional and more sophisticated sales
and service personnel. This strategy is also expected to result in higher
sales per transaction, the timing of which would have a material effect on the
reported results of operations from period to period. Moreover, the inability
of the Company to successfully implement this new strategy would have a
material adverse effect on the business, results of operations and financial
condition of the Company.
In the event that the Company's pilot program with The Chase Manhattan
Bank, N.A. is not successful or does not result in a substantial sale of the
Company's products and technologies, the Company's business, financial
condition and results of operations would be materially adversely affected.
Moreover, any delay in the successful completion of the pilot program, or
broader implementation of the program, could materially delay growth in the
Company's revenues and acceptance of the Company's products and technologies
by other banks and financial institutions.
ABILITY TO MANAGE GROWTH; MANAGEMENT OF EXPANDING OPERATIONS
The Company's ability to expand and grow will depend on a number of
factors, including the successful commercialization of its voice verification
and speech recognition technologies, the availability of working capital to
support such growth, existing and emerging competition, the Company's ability
to generate sufficient operating revenue, the Company's ability to adapt its
infrastructure and systems to accommodate growth and the Company's ability to
recruit and train additional qualified personnel to manage such growth. The
Company anticipates rapid expansion of its operations, which will place a
significant strain on its administrative, operational, financial and
management systems and resources. The management of the Company's growth will
require continued expansion and improvement of the Company's systems and
controls, as well as a significant increase in the Company's sales and
marketing operations and research and development activities. There can be no
assurance that the Company will not encounter difficulties as it integrates
these functions into its operations or that the Company's systems, procedures
and controls will be adequate to support the Company's expanding operations.
The Company's planned growth will impose significant added responsibilities
on members of senior management, including the need to identify, recruit and
integrate new senior level managers and executives into the Company. The
Company expects to expand its management, research and development, testing,
quality control, marketing, sales, customer service and support operations, as
well as financial and accounting controls, which could place a significant
strain on the Company. Failure to integrate new personnel on a timely basis
could have an adverse effect on the Company's operations. Furthermore, the
expenses associated with expanding the Company's management team and hiring
new
7
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employees may be incurred prior to the generation of any associated revenues.
The Company's executive management team has no experience working together as
a group. No assurance can be given that the executive management team will be
able to work effectively together and efficiently manage the operations and
growth of the Company. There can be no assurance that such management
expansion can be readily or successfully implemented. If the Company's
management is unable to manage growth effectively, the quality of the
Company's products, its ability to retain key personnel and its business,
financial condition or results of operations could be materially adversely
affected.
CONTROL BY MOSCOM; POTENTIAL CONFLICTS OF INTEREST
The Company is currently a wholly owned subsidiary of MOSCOM. Immediately
following this offering, MOSCOM will own approximately 62% of the outstanding
shares of Common Stock (56% if the Underwriters' over-allotment option is
exercised in full). As a result, MOSCOM will retain the voting power required
to elect all directors and to approve other matters required to be voted upon
by the stockholders of the Company. The concentration of ownership and
MOSCOM's voting control may have the effect of delaying or preventing a change
in control of the Company, or causing a change in control of the Company that
may not be favored by the Company's other stockholders. There can be no
assurance that MOSCOM's ability to prevent or cause a change in control of the
Company will not have a material adverse effect on the price of the Common
Stock. See "Principal and Selling Stockholders" and "Description of Capital
Stock." Prior to the Formation, the Votan division had a limited number of
employees and depended upon MOSCOM for most administrative, sales and
marketing functions. After this offering, these functions will be undertaken
by the Company, and there can be no assurance that the Company will be
successful in taking control of these functions from MOSCOM. Furthermore, the
Company has entered into certain agreements with MOSCOM which govern certain
aspects of the parties' relationship after the Formation, including the
licensing of certain technologies, the provision of certain administrative,
quality assurance testing and other services and physical facilities. See
"Certain Transactions --MOSCOM Relationship." There can be no assurance that
conflicts of interest between MOSCOM and the Company will not arise with
respect to the contractual arrangements, any services which might be provided
by MOSCOM in the future, or other matters. Any adverse change in the Company's
relationship with MOSCOM would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's Bylaws
provide that the independent members of the Company's Board of Directors shall
decide all matters before the Board relating to MOSCOM and the Company. See
"Certain Transactions --MOSCOM Relationship."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's future revenues and operating results are uncertain and may
fluctuate from quarter to quarter and from year to year due to a combination
of factors, including the timing of capital expenditures, demand for the
Company's products, the volume and timing of orders and the ability to fulfill
orders, the level of product and price competition, the expansion of the
Company's sales and marketing organization, the Company's ability to develop
new and enhanced products, the type of distribution channels through which
products are sold, the mix of products and services sold and general economic
factors.
UNCERTAINTIES REGARDING FUTURE CAPITAL REQUIREMENTS; ABSENCE OF MOSCOM
FUNDING
For at least the last three years, the Company has operated, and is
currently operating, at a loss. The Company's working capital requirements and
cash flow provided by its operating activities are likely to vary greatly from
quarter to quarter, depending on the volume of production, the timing of
deliveries, the buildup of inventories and the payment terms offered to
customers. In the past, the Company's working capital needs have been met by
MOSCOM. However, MOSCOM will no longer be providing funds to finance the
Company's operations after the earlier of March 31, 1997 or the consummation
of a debt or equity financing by the Company of at least $10 million. The
Company expects that its existing capital resources, together with the net
proceeds of this offering and the interest earned thereon, will be adequate to
fund the Company's operations for at least the next two years. No assurance
can be given that the
8
<PAGE>
Company would not consume an unexpected and significant amount of its
available resources. The Company's future capital requirements and the
adequacy of available funds will depend on numerous factors, including the
successful commercialization of its voice verification and speech recognition
technologies, progress in its product development efforts, the magnitude and
scope of such efforts, the development of effective sales and marketing
activities, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments and the development of strategic alliances for the
marketing of its applications. To the extent that funds generated from the
Company's operations, together with its existing capital resources and the net
proceeds of this offering and the interest earned thereon, are insufficient to
meet current or planned operating requirements, the Company will be required
to obtain additional funds through equity or debt financing, strategic
alliances with corporate partners and others or through other sources. If
additional funds are raised through the issuance of equity securities, the net
tangible book value per share of the Common Stock may decrease, the percentage
ownership of then current shareholders of the Company may be diluted and such
equity securities may have rights, preferences or privileges senior to those
of the holders of Common Stock. The Company does not have any committed
sources of additional financing, and there can be no assurance that additional
funding, if necessary, will be available on commercially reasonable terms, if
at all. If adequate funds are not available on terms acceptable to the
Company, the Company may be required to delay, scale back or eliminate certain
aspects of its operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, products or potential markets. If
adequate funds are not available, the Company's business, financial condition
and results of operations would be materially and adversely affected. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations --Liquidity and Capital Resources."
NO ASSURANCE OF COMMERCIALIZATION OF PRODUCTS UNDER DEVELOPMENT
The Company's business strategy is initially dependent upon the continued
development and commercialization of voice verification products, particularly
for banks and other financial institutions. The Company is involved in
development efforts with regard to a number of potential products. There are a
number of technological challenges that the Company must successfully address
to complete its development efforts. Product development involves a high
degree of risk, and returns on the Company's investment are dependent upon
successful development and commercialization of such products. Some of the
Company's products based on the Company's voice verification and speech
recognition technologies will require significant additional research and
development. There can be no assurance that any of the products currently
being developed by the Company, or those to be developed in the future by the
Company, will be technologically feasible, commercially viable or will gain
market acceptance or that such development will be completed at all.
The development of the Company's technologies and the applications of such
technologies by its customers have required, and will continue to require,
significant technical innovations. In many cases, the Company must adapt its
products to meet the specific requirements of the customers' hardware or
software in which it is to be integrated. The adaptation process can be
time-consuming and costly to both the Company and its customers, and the
quality and resulting market acceptance of the end product will depend, to a
substantial extent, upon the success of such adaptation. There can be no
assurance that the Company will be successful in developing new products or
enhancing the performance of its existing products on a timely basis or within
budget, if at all. Any such failure could materially and adversely affect the
Company's business, financial condition and results of operations.
EARLY STAGE OF MARKET DEVELOPMENT; UNCERTAINTY OF MARKET ACCEPTANCE
The market for voice verification and speech recognition products is
relatively new and at an early stage of development. To date, the Company's
voice verification and speech recognition technologies have only been
incorporated in commercially available products on a limited basis, primarily
in applications relating to telecommunications. Acceptance of these
technologies on a commercial basis (other than telecommunications
applications) will be dependent upon the development of the voice verification
and
9
<PAGE>
speech recognition markets, the performance and price of the Company's and its
customers' products and customer reaction to these products. The development
of the voice verification and speech recognition market will be dependent in
part upon the growth of third-party applications incorporating voice
verification and speech recognition technologies and demand for new
applications, the ability of speech technology to meet and adapt to these
needs, and the continuing price and performance improvements in hardware and
software technologies that will reduce the cost and increase the performance
of products incorporating voice verification and speech recognition
technologies. There can be no assurance that the voice verification and speech
recognition market will develop further. The Company's success depends upon
the widespread acceptance of biometrics (the measurement of human physical
characteristics to confirm identity) as a useful and cost-effective method to
supplement conventional methods of transactional, data and physical access
security. There can be no assurance that the business community will accept
the use of biometrics. Furthermore, the Company's growth and success will
depend upon market acceptance of the Company's voice verification and speech
recognition technologies as useful and cost-effective alternatives to other
biometric security methods such as fingerprinting or retina scanning. Failure
of the Company's voice verification and/or speech recognition technologies to
achieve market acceptance would have a material adverse effect on the
Company's business, financial condition and results of operations.
PRODUCT RELIABILITY
Most customer applications incorporating the Company's technologies are
being developed or have only been introduced to the market over the past three
years. As a result of the limited period of use and the controlled environment
in which many of the Company's technologies have been tested and used to date,
there can be no assurance that they will meet their performance specifications
under all conditions or for all applications. If any of the Company's
technologies fails to meet such expectations, the Company may be required to
enhance or improve that technology, and there can be no assurance that the
Company would be able to do so on a timely basis, if at all. Introduction by
the Company of products with reliability, quality or compatibility problems
could result in reduced orders, uncollectible accounts receivable, delays in
collecting accounts receivable and additional costs. There can be no assurance
that, despite testing by the Company or by its customers, errors will not be
found in the Company's products after commencement of commercial deployment,
resulting in product redevelopment costs and loss of, or delay in, market
acceptance. In addition, there can be no assurance that the Company will not
experience in the future significant product returns or that the Company will
not be required to upgrade customer equipment in order to accommodate the
Company's products. Any product defects could subject the Company to warranty
or product liability claims. Any such event could have a material adverse
effect on the Company's business, financial condition or results of
operations.
RELIANCE ON SALES OF VOICE VERIFICATION PRODUCTS
To date, the Company's revenues from voice verification products have been
limited. Sales of the Company's voice verification products are expected to
account for a substantial portion of the Company's revenues for the
foreseeable future. The balance of the revenues is likely to be derived from
license fees earned as a result of the sale by MOSCOM of speech recognition
products into the telecommunications marketplace. Accordingly, the Company's
business and results of operations are dependent on sales of voice
verification products, and the failure to generate or any decrease in sales of
voice verification products would have a material adverse effect on the
Company. The Company's future performance will depend in significant part on
the successful development, introduction, marketing and customer acceptance of
voice verification products. See "Business --The Votan Solution."
COMPETITION; ALTERNATIVE TECHNOLOGIES
The voice verification and speech recognition industry is subject to
intense competition. The Company's competitors and potential competitors in
the United States and abroad are numerous and include, among others, Apple
Computer, Inc., AT&T Corp. ("AT&T"), Berkley Speech Technologies Inc., Dragon
Systems, Inc., the DSP Group, International Business Machines Corporation
("IBM"), ITT Aerospace Communications ("ITT"), Lernout & Hauspie Speech
Products N.V., Lucent Technologies,
10
<PAGE>
Inc., Microsoft Corporation, NEC Corp., Nuance Communications, Siemens AG,
Speech Systems, Inc., Texas Instruments Corporation ("Texas Instruments"),
T-Netix, Inc. ("T-Netix"), 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, T-Netix, Veritel, Voice Control
Systems and Voice Processing Corporation compete with the Company in the voice
verification market. In addition, the Company is likely to become subject to
competition in the verification marketplace from companies which produce or
are developing biometric identification products, such as fingerprint
matching, retina pattern matching and signature analysis, as well as companies
which market or develop traditional key, card and surveillance systems.
Existing and potential competitors may be able to develop technologies that
are as effective as, or more effective or easier to use than those offered by
the Company, which would render the Company's technologies noncompetitive or
obsolete. Moreover, many of the Company's existing and potential competitors
have substantially greater financial, marketing, sales, distribution and
technological resources than the Company. Such existing and potential
competitors may also enjoy substantial advantages over the Company in terms of
research and development expertise, manufacturing efficiency, name
recognition, sales and marketing expertise and distribution channels. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the abilities of their speech technology products to address the needs of the
Company's prospective customers. Accordingly, it is possible that new
competitors may emerge and rapidly acquire significant market share. There can
be no assurance that the Company will be able to compete successfully against
current or future competitors or that competition will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business --Competition."
RAPID TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT THE COMPANY
The voice verification and speech recognition market in which the Company
operates is characterized by rapid technological change. The development of
new technology by the Company's competitors may render the Company's
technologies obsolete. Competition in the field of voice verification and
speech recognition is based largely on technological superiority. Accordingly,
the success of the Company will depend upon its ability to continually enhance
its current technologies, to develop and introduce new products that keep pace
with technological developments and to timely address the changing needs of
the marketplace. There can be no assurance that the Company's research and
development activities will result in the successful development of new
technologies and products or the enhancement of existing technologies and
products. In addition, there can be no assurance that the introduction of
products, services or technological developments by others will not have a
material adverse effect on the Company's operations. See "Business --Industry
Background" and "--Products and Development."
DEPENDENCE ON SALES BY THIRD PARTIES; DEVELOPMENT OF MARKETING AND SALES
ORGANIZATION
The Company has limited experience in marketing its products and
technologies directly to end-users. Although the Company's initial focus is on
direct sales of its voice verification products, a significant portion of the
Company's revenues may be dependent upon the ability of systems integrators,
VARs and OEMs to develop and sell systems that utilize the Company's
technologies. Factors that adversely affect the revenues of the Company's
systems integrator, VAR and OEM customers, such as economic conditions, patent
positions, their technology and other marketing restrictions, may have a
substantial impact upon the Company's financial results. No assurance can be
given that any systems integrator, VAR or OEM customer will use the Company as
a supplier of voice verification and speech recognition technologies, that
they will give the sale of the Company's products or other products utilizing
the Company's technologies adequate priority or that customers of the Company
will not experience financial or other difficulties that could adversely
affect their revenues and, in turn, the business, results of operations and
financial condition of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business --Sales and
Marketing."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS
The Company does not own or control any manufacturing facilities, does not
manufacture component parts for its products and has no current plans to
acquire such facilities or produce such
11
<PAGE>
components. The Company contracts with third-party suppliers to manufacture
its products and will continue to depend upon such manufacturers in the
future. The Company generally does not have long-term contracts with suppliers
for the purchase and delivery of component parts or contractors for the
assembly of its products.
Certain key components of the Company's voice verification and speech
recognition products are currently manufactured for the Company by various
third-party contract manufacturers. In the event that the Company is unable to
obtain sufficient quantities of such components on commercially reasonable
terms, or in a timely manner, the Company will not be able to manufacture its
products on a timely and cost-competitive basis, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business --Manufacturing." The loss of any one supplier or an
inability of suppliers to provide the Company with the required quantity or
quality of products could have a material adverse effect on the Company's
business, financial condition and results of operations, until such time as an
alternate source of supply for such products is found. Although the Company
believes that it can obtain contracts with suppliers that will satisfy the
Company's quality requirements and production schedules at a price that is
acceptable to the Company, no assurance can be given that it will be
successful in obtaining acceptable contracts. See "Business --Manufacturing."
All quality assurance and testing of the Company's products will, for the
foreseeable future, be conducted by MOSCOM. MOSCOM will also handle the final
packaging and shipping of products. See "Certain Transactions --MOSCOM
Relationship." Accordingly, the Company will be dependent upon MOSCOM to
cost-effectively and efficiently handle its production needs until such time
as the Company can develop its own operations or identify other third-party
service providers. The failure of MOSCOM to provide its services to the
Company in an efficient and cost-effective manner would have a material
adverse effect upon the Company's business, results of operations and
financial condition.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies, products and processes,
preserve its trade secrets and operate without infringing the proprietary
rights of other parties. Because of the substantial length of time and expense
associated with bringing new products through development to the marketplace,
the voice verification and speech recognition industry places considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. While the Company holds two patents
for methods relating to its proprietary algorithms, the Company relies
primarily upon a combination of trademark, copyright, know-how and trade
secrets and contractual restrictions to protect its intellectual property
rights. The Company believes that such measures afford only limited protection
and, accordingly, there can be no assurance that the steps taken by the
Company to protect these proprietary rights will be adequate to prevent
misappropriation of the technology or the independent development of similar
technology by others. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. There can be no assurance that any patents issued or licensed to
the Company will not be challenged and held to be invalid, or that present or
future patents will provide commercially significant protection to the
Company's present or future technologies, products or processes. In addition,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information not covered by patents to
which the Company owns rights or obtain access to the Company's know-how or
that others will not be issued patents that may prevent the sale of one or
more of the Company's technologies, or require licensing and the payment of
significant fees or royalties by the Company to third parties in order to
enable the Company to conduct its business. There can be no assurance that
such licenses would be available or, if available, would be on terms
acceptable to the Company or that the Company would be successful in any
attempt to redesign its technologies, products or processes to avoid
infringement. The Company's failure to obtain these licenses or to redesign
its technologies, products or processes would have a material adverse effect
on the Company's business, financial condition and results of operations.
12
<PAGE>
No assurance can be given as to the degree of protection afforded by any
patents issued to or licensed by the Company or that such patents will not be
infringed by the products of others. The Company has received a notice from a
third party claiming broad patent protection in the voice processing area and
alleging that certain of the Company's voice mail and voice processing
products may infringe upon its patent. Based on advice of its patent counsel,
the Company does not believe that any of its products infringes upon the cited
third-party patent, and if necessary, the Company intends to vigorously defend
its position. However, the Company may not be able to successfully defend
against the claimed infringement. There can be no assurance that the Company
will not be subject to other claims that its technologies or products infringe
upon the patents or proprietary rights of third parties. Defense and
prosecution of patent claims can be expensive and time-consuming, regardless
of whether the outcome is favorable to the Company, and can result in the
diversion of substantial financial, management and other resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liability to third parties, require the Company to obtain licenses
from third parties or require the Company to cease any related research and
development activities or product sales. In addition, the laws of certain
countries may not protect the Company's intellectual property rights to the
same extent that such rights are protected in the United States.
The Company's success is also dependent upon the skill, knowledge and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company, and in
most cases, assignment to the Company of their ideas, developments,
discoveries and inventions. There can be no assurance, however, that these
agreements will provide adequate protection for the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized use
or disclosure. See "Business --Proprietary Rights."
INTERNATIONAL SALES AND OPERATIONS RISKS
The Company plans to sell applications based on its voice verification and
speech recognition technologies to customers both in the United States and
internationally. International sales and operations may be limited or
disrupted by the imposition of government controls, the need for government
certification of products connecting to telephone networks, political
instability, trade restrictions, changes in tariffs or difficulties in
staffing and managing international operations. Additionally, the Company's
business, financial condition and results of operations may be adversely
affected by fluctuations in currency exchange rates as well as increases in
duty rates and difficulties in obtaining required licenses and permits. To
date, the Company has not engaged in exchange rate hedging activities to
reduce the risks of such fluctuations. In addition to the usual risks
associated with foreign sales (such as currency fluctuations and restrictions,
inflation, export-import regulations, customs matters, foreign collection
problems, and military, political and transportation risks), the sale of voice
technologies in foreign countries involves additional governmental regulation,
necessary product adaptations to local languages and switching systems and
uncertainties arising from local business practices and cultural
considerations. There can be no assurance that the Company will be able to
successfully commercialize its voice verification and speech recognition
technologies or any future applications in any foreign market.
See "Business -- Sales and Marketing."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering or that the market
price for the Common Stock will not drop below the initial public offering
price. The initial public offering price will be determined by negotiations
among the Company, the Selling Stockholder and the Underwriters and is not
necessarily indicative of the market price at which the Common Stock of the
Company will trade after this offering. See "Underwriting." The market price
of the shares of Common Stock, like that of the common stock of many of the
Company's competitors, is likely to be highly volatile. Factors such as
announcements of technological innovations or new products by the Company or
its competitors, developments or disputes concerning patent or other
proprietary
13
<PAGE>
rights of the Company or its competitors, litigation, fluctuations in the
Company's operating results, changes in analysts' earnings estimates,
developments in the financial markets and market conditions for voice
verification and/or speech recognition stocks in general could have a
significant impact on the future price of the Common Stock. In addition, the
stock market, especially with regard to technology issues, has experienced
from time to time extreme price and volume fluctuations that may be unrelated
to the operating performance of particular companies.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's Common Stock after this
offering or the prospect of such sales could adversely affect the market price
of the Common Stock and the Company's ability to raise any necessary capital
to fund its future operations. The number of shares of Common Stock available
for sale in the public market is limited by restrictions under the Securities
Act of 1933, as amended (the "Securities Act"), and a lockup agreement (the
"Lockup") under which the Company and MOSCOM have agreed for a period of one
year after the date of this Prospectus not to, without the prior written
consent of Ladenburg, Thalmann & Co. Inc., on behalf of the Representatives,
directly or indirectly, offer, pledge, sell, contract to sell, transfer or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock. In their
sole discretion and at any time without notice, the Representatives may
release all or any portion of the shares subject to the Lockup. Of the
7,500,000 shares of Common Stock that will be outstanding after this offering,
the 2,850,000 shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act. In addition,
subject to the Lockup, shares owned by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act ("Affiliates"), may
generally be sold in compliance with the applicable provisions of Rule 144.
The Company intends to register all the shares of Common Stock reserved for
issuance under the Company's Stock Option Plan following the date of this
Prospectus. The Company has reserved 825,000 shares of Common Stock for
issuance under the Company's Stock Option Plan.
Upon completion of this offering, the Company has agreed to issue to the
Representatives warrants covering an aggregate of 285,000 shares of Common
Stock exercisable for a four-year period commencing one year from the date of
this offering, at an exercise price equal to the greater of (i) $10.00 per
share or (ii) 125% of the public offering price. The Company has agreed to
grant certain demand and piggyback registration rights to the holders of these
warrants. The existence or exercise of these warrants could adversely affect
the Company's ability to raise additional financing at a time when it may be
advantageous to do so. See "Shares Eligible for Future Sale" and
"Underwriting."
ANTITAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without further action
by the stockholders, to issue from time to time, up to 1,000,000 shares of
Preferred Stock in one or more classes or series, and to fix the rights and
preferences of such Preferred Stock. The Company is subject to provisions of
Delaware corporate law that, subject to certain exceptions, will prohibit the
Company from engaging in any "business combination" with a person who,
together with affiliates and associates, owns 15% or more of the Company's
Common Stock (an "Interested Stockholder") for a period of three years
following the date that such person became an Interested Stockholder, unless
the business combination is approved in a prescribed manner. These provisions
of Delaware law and of the Company's Certificate of Incorporation, as well as
MOSCOM's majority ownership of the Company, may have the effect of delaying,
deterring or preventing a change in the control of the Company and may
discourage bids for the Common Stock at a premium over market price, and may
adversely affect the market price and the voting and other rights of the
holders of the Common Stock. See "Description of Capital Stock."
NO SPECIFIC USE OF PROCEEDS
As of the date of this Prospectus, the Company has no specific plans to use
the net proceeds from this offering other than for expansion of sales and
marketing activities, research and development, reimbursement of MOSCOM for
certain expenses and general corporate purposes. Accordingly, the
14
<PAGE>
Company's management will retain broad discretion as to the allocation of a
substantial portion of the net proceeds from this offering. Pending
application, the Company intends to invest the net proceeds in investment
grade, interest-bearing securities. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock in this offering will incur immediate
and substantial dilution in the pro forma net tangible book value per share
from the initial public offering price. In addition, investors purchasing
shares in this offering will incur additional dilution to the extent that
stock options (whether currently outstanding or subsequently issued or
granted) are exercised. See "Dilution."
LACK OF DIVIDENDS
The Company currently intends to retain all earnings, if any, for future
growth and, therefore, does not intend to pay cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $13.0
million based upon an assumed initial public offering price of $7.50 per share
of Common Stock and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company.
The primary purposes of this offering are to create a public market for the
Common Stock, to facilitate future access to the public market and to obtain
equity capital. The Company expects to use the net proceeds for expansion of
sales and marketing activities, research and development and general corporate
purposes. The Company has also agreed to reimburse MOSCOM for certain expenses
related to the formation of the Company and related matters in an amount not
to exceed $200,000. See "Certain Transactions --MOSCOM Relationship."
Management of the Company will have broad discretion over the application of
such net proceeds. Although it is possible that the Company might acquire
complementary businesses or technologies, the Company has no current plans for
any acquisitions and no such acquisitions are being negotiated as of the date
of this Prospectus. The Company expects that its existing capital resources,
together with the net proceeds from this offering and the interest earned
thereon, will be adequate to fund its capital requirements for at least the
next two years. Pending application, the Company intends to invest the net
proceeds from this offering in investment grade, interest-bearing instruments.
See "Risk Factors --Uncertainties Regarding Future Capital Requirements;
Absence of MOSCOM Funding" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Liquidity and Capital
Resources."
DIVIDEND POLICY
The Board of Directors intends to retain any earnings of the Company to
support operations and does not anticipate declaring or paying cash or other
dividends on its Common Stock in the foreseeable future. The declaration of
dividends, cash or otherwise, is subject to the discretion of the Company's
Board of Directors and will depend on a number of factors, including the cash
position, earnings, financial position and anticipated financial requirements
of the Company and other factors deemed relevant by the Board of Directors.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) to reflect the 5,500-to-1 stock split of the Common Stock and to
reflect a change in the authorized capital stock of the Company and (ii) as
adjusted to give effect to the sale of the Common Stock offered hereby at an
assumed initial public offering price of $7.50 per share, and the application
of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
---------- ------------
<S> <C> <C>
Stockholders' Equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized,
none issued and outstanding ................................. -- --
Common stock, $0.01 par value, 20,000,000 shares authorized,
5,500,000 shares issued and outstanding, and 7,500,000
shares issued and outstanding, as adjusted (1) .............. $ 55,000 $ 75,000
Additional paid-in capital ................................... 162,000 13,164,500
---------- ------------
Total ........................................................ $217,000 $13,239,500
========== ============
</TABLE>
- ------------
(1) Excludes 825,000 shares issuable under the Company's Stock Option Plan
adopted in June 1996 and 285,000 shares reserved for issuance upon the
exercise of the Representatives' Warrants. See "Management --Stock Option
Plan," "Description of Capital Stock" and "Underwriting."
17
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1996 was
approximately $(35,000) or approximately $(0.01) per share. After giving
effect to the sale by the Company of the 2,000,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $7.50 per share)
and the application of the estimated net proceeds therefrom, as set forth in
"Use of Proceeds," the as adjusted net tangible book value of the Company as
of June 30, 1996 would have been approximately $13.0 million, or approximately
$1.73 per share. This represents an immediate increase in net tangible book
value of $1.74 per share to existing stockholders and an immediate dilution of
$5.77 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) ..................... $7.50
Net tangible book value before this offering (2) ....................... (0.01)
Increase attributable to the sale of shares to new investors (3) ...... 1.74
--------
Pro forma net tangible book value after this offering (3) .............. 1.73
-------
Dilution in net tangible book value of Common Stock to new investors (3) $5.77
=======
</TABLE>
- ------------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share is determined by dividing the net
tangible book value of the Company (tangible assets less liabilities) by
the number of shares of Common Stock outstanding.
(3) After deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The following table sets forth (i) the number of shares of Common Stock
purchased from the Company, (ii) the total consideration and the average price
per share contributed by the existing stockholder, based on the Company's book
value at June 30, 1996, and (iii) the total consideration and the average
price per share paid by new investors. The following computations do not
reflect the sale of shares of Common Stock by the Selling Stockholder.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder (1) 5,500,000 73.3% $ 217,000(2) 1.4% $0.04
New investors ............ 2,000,000 26.7 15,000,000 98.6 $7.50
----------- --------- ------------- ---------
Total ................ 7,500,000 100.0% $15,217,000 100.0%
=========== ========= ============= =========
</TABLE>
- ------------
(1) Sales by the Selling Stockholder in this offering will reduce the number
of shares held by the existing stockholder to 4,650,000 or 62.0% of the
total number of shares of Common Stock outstanding after this offering,
and will increase the number of shares to be purchased by the new public
investors to 2,850,000 or 38.0% of the total number of shares of Common
Stock outstanding after the offering. See "Principal and Selling
Stockholders."
(2) Does not include accumulated net losses from operations of the Votan
division through the Formation in an amount equal to approximately $4.1
million and negative cash flows, each of which have been funded by MOSCOM.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the three years
ended December 31, 1995 have been derived from the Financial Statements of the
Company, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report included elsewhere in this
Prospectus. The selected financial data as of and for the year ended December
31, 1992 and as of and for the period ended December 31, 1991 have been
derived from unaudited financial statements of the Company not included in
this Prospectus. The selected statement of operations data for the six months
ended June 30, 1995 and 1996 and the selected balance sheet data as of June
30, 1996 have been derived from unaudited financial statements of the Company
that, in the opinion of management, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results of operations for these periods in accordance with generally accepted
accounting principles. The results for interim periods are not indicative of
the results for the full year. The selected financial data set forth below
should be read in conjunction with the Financial Statements and related Notes
thereto and with Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this Prospectus.
The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand-alone entity during the periods covered.
See "Risk Factors --Recent Organization; Absence of Operating History as an
Independent Business; Limited Relevance of Historical Financial Information."
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
------------------ ------------------------------- -------------------
1991 (1) 1992 1993 1994 1995 1995 1996
-------- -------- -------- ---------- --------- -------- ---------
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales .................................. $506 $ 483 $ 517 $ 593 $ 572 $ 225 $ 183
Cost of sales .......................... 192 204 307 305 329 178 137
-------- -------- -------- ---------- --------- -------- ---------
Gross profit ........................... 314 279 210 288 243 47 46
Operating expenses:
Engineering and software development,
net .................................. 93 265 342 579 424 212 227
Selling and marketing ................. 108 239 223 293 323 148 91
General and administrative ............ 130 510 490 418 386 187 290
-------- -------- -------- ---------- --------- -------- ---------
Total operating expenses ............... 331 1,014 1,055 1,290 1,133 547 608
-------- -------- -------- ---------- --------- -------- ---------
Loss from operations ................... (17) (735) (845) (1,002) (890) (500) (562)
Provision for taxes .................... -- -- 1 1 1 -- --
-------- -------- -------- ---------- --------- -------- ---------
Net loss ............................... $(17) $ (735) $ (846) $(1,003) $ (891) $(500) $ (562)
======== ======== ======== ========== ========= ======== =========
Net loss per share (2) ................. $(0.16) $(0.10)
========= =========
Weighted average shares outstanding (3) 5,500 5,500
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
--------------------------- --------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
-------- -------- ------- ---------- ---------- ---------
(UNAUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $127 $(133) $(114) $(94) $(214) $(89)
Total assets ............. 555 458 704 613 342 678
Total liabilities ........ 160 196 209 205 224 461
Total equity ............. 395 262 495 408 118 217
</TABLE>
- ------------
(1) Prior to September 1, 1991, the business of the Company was owned by a
predecessor private company. Accordingly, Statement of Operations Data for
the eight-month period ended August 31, 1991 is not available and not
presented. Statement of Operations Data includes the operations of the
Company from September 1, 1991, the date of acquisition by MOSCOM, to
December 31, 1991.
(2) Pursuant to Securities and Exchange Commission requirements, net loss per
share of the Company is presented on a pro forma basis for the most recent
year presented and the most recent interim period presented.
(3) Gives retroactive effect to the capitalization of the Company and reflects
the 5,500-to-1 stock split of the Common Stock.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's business and operations were acquired by MOSCOM in 1991 from
a predecessor company that had been engaged in voice verification and speech
recognition research and development since its inception in 1979. The Company
has, until recently, conducted its business and operations as the Votan
division of MOSCOM and is currently a wholly owned subsidiary of MOSCOM. In
June 1996, MOSCOM transferred substantially all of the voice verification and
speech recognition business, operations (including research and development),
assets and associated liabilities of its Votan division to the Company.
Accordingly, the Company has no independent operating history upon which an
evaluation of the Company and its prospects can be based. After this offering,
the Company will continue to be a subsidiary of MOSCOM, but will operate as a
separate, stand-alone business. See "Certain Transactions --MOSCOM
Relationship."
Since its acquisition by MOSCOM through the Formation, the Votan division
had accumulated net losses from operations in an amount equal to approximately
$4.1 million and had incurred negative cash flows, each of which have been
funded by MOSCOM. Sales have been generated from a limited number of products
and research and development expenses have substantially contributed to these
operating losses. The Company expects to generate additional losses at least
through 1996, as it continues to expend substantial resources in establishing
and expanding its sales and marketing activities, research and development and
building its separate corporate infrastructure. There can be no assurance that
significant revenues or profitability will ever be achieved.
The Company's future revenues and operating results are uncertain and may
fluctuate from quarter to quarter and from year to year due to a combination
of factors, including the timing of capital expenditures, demand for the
Company's products, the volume and timing of orders and the ability to fulfill
orders, the level of product and price competition, promotional discounts, the
expansion of the Company's sales and marketing organization, its ability to
develop new and enhanced products, the type of distribution channels through
which products are sold, the mix of products and services sold, and general
economic factors.
The Company's working capital requirements and cash flow provided by its
operating activities are likely to vary greatly from quarter to quarter,
depending on the volume of production, the timing of deliveries and the
payment terms offered to customers. In the past, the Company's working capital
needs have been met by MOSCOM. However, MOSCOM will no longer be providing
funds to finance the Company's operations, and except as otherwise described
in this Prospectus, MOSCOM has no obligation to provide financial or
management assistance to the Company and has no plans to do so. The Company
and MOSCOM have entered into certain agreements providing for the Formation
and governing various interim and ongoing relationships between and among the
two companies. See "Certain Transactions --MOSCOM Relationship."
The financial information included herein does not necessarily reflect the
results of operations, financial position and cash flows of the Company in the
future or what the results of operations, financial position and cash flows
would have been had the Company been a separate, stand-alone entity during the
periods presented. The financial information included herein does not reflect
the many significant changes that will occur in the funding and future
operations of the Company as a result of the Formation and this offering. The
financial information contained herein does not reflect the sales of the
Company's products as part of products and systems sold by MOSCOM. In the
future, the sale of the Company's products by MOSCOM will result in royalties
payable by MOSCOM to Votan pursuant to the terms of the agreements governing
the ongoing relationship between the two companies. See "Certain Transactions
- --MOSCOM Relationship." The financial information contained herein does not
reflect any revenues resulting from such royalties.
Historically, the Company's products have been sold to a limited number of
customers. In the years ended December 31, 1993, 1994 and 1995 and the
six-month period ended June 30, 1996, the Company
20
<PAGE>
made significant sales to only six, four, six and three customers, accounting
for 63%, 38%, 84% and 93% of the Company's sales, respectively. In most cases,
the customers are not recurring customers which are expected to purchase
substantial quantities of the Company's products in the future. Accordingly,
the Company does not have a substantial customer base of its own to which it
can market its new products. The inability of the Company to develop a broad
or substantial customer base in the future would have a material adverse
effect on its business, financial condition and results of operations.
The Company's product sales have consisted mostly of the sale of computer
boards to third parties that have added application software to meet their
requirements or those of the ultimate end-user. The Company plans to shift its
strategy to place greater emphasis on the delivery of complete end-user
solutions. This is expected to result in larger per transaction sales, the
timing of which would have a material effect on the reported results of
operations from period to period. Moreover, the inability of the Company to
successfully implement this new strategy would have a material adverse effect
on the business, results of operations and financial condition of the Company.
In the past, the Company's sales have resulted primarily from sales of the
Company's boards, as stand-alone products, to systems integrators, VARs and
OEMs. After the consummation of this offering, the Company intends to
substantially expand its sales and marketing organization in order to increase
the direct sales of its products as a fully integrated systems solution. This
shift in the Company's marketing strategy is likely to result in greater
fluctuations in quarterly sales due to a number of factors, including greater
expenditures in its sales and marketing efforts, higher pricing on systems (as
opposed to stand-alone boards), additional expenses associated with a more
expansive direct sales and marketing organization, as well as higher general
and administrative expenses attendant to the foregoing and resulting from it
being a publicly traded Company.
In addition, the Company intends to continue to expend substantial
resources on its engineering and software development efforts in order to
continue the improvement and enhancement of its core technologies, as well as
the development of its next generation auditory-based technologies. These
expenditures are likely to materially differ from previous levels of spending
reflected in the historical financial information included herein. Moreover,
such expenditures are likely to contribute significantly to greater
fluctuations in the Company's quarterly results of operations.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under
the caption "Risk Factors," which could cause actual results to differ
materially from those indicated by such forward-looking statements.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Sales decreased from $225,000 for the six months ended June 30, 1995 to
$183,000 for the six months ended June 30, 1996. The decrease was primarily
due to the absence of international sales for the six months ended June 30,
1996, resulting from the Company's emphasis on the sale of its products
domestically, as opposed to $154,000 of international sales for the six months
ended June 30, 1995. This shortfall was partially offset by an increase in
domestic sales from $71,000 for the six months ended June 30, 1995 to $183,000
for the six months ended June 30, 1996. Sales for the six months ended June
30, 1996 also included $48,000 attributable to the pilot program with The
Chase Manhattan Bank, N.A.
Gross profit decreased from $47,000 for the six months ended June 30, 1995
to $46,000 for the six months ended June 30, 1996. The decrease in gross
profit was primarily due to lower sales partially offset by lower amortization
of software development costs relating to the Company's VoiceLock product
which was fully amortized as of June 30, 1995.
Engineering and software development expenses, net, increased from $212,000
for the six months ended June 30, 1995 to $227,000 for the six months ended
June 30, 1996, net of amount capitalized of
21
<PAGE>
$53,000 for the six months ended June 30, 1996. The capitalized amount for the
six months ended June 30, 1996 related to enhancements to the Company's new
generation four port board.
Selling and marketing expenses decreased from $148,000 for the six months
ended June 30, 1995 to $91,000 for the six months ended June 30, 1996
primarily due to the absence of sales commissions resulting from the shift
from international sales to domestic sales.
General and administrative expenses increased from $187,000 for the six
months ended June 30, 1995 to $290,000 for the six months ended June 30, 1996.
This increase was primarily due to the recruitment and hiring of the Company's
Chief Executive Officer.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Sales decreased from $593,000 for the year ended December 31, 1994 to
$572,000 for the year ended December 31, 1995. This decrease was primarily due
to a substantial decrease in sales of the Company's speech recognition boards,
partially offset by a one-time sale in the aggregate amount of $320,000 of the
Company's Call Router systems to Siemens AG for a major department store
customer in Germany. The decrease in the sale of the Company's speech
recognition boards resulted primarily from a decrease in sales of boards sold
directly by Votan in 1994, but in 1995 were incorporated into a MOSCOM
application sold by MOSCOM to Siemens AG.
Gross profit decreased from $288,000 for the year ended December 31, 1994
to $243,000 for the year ended December 31, 1995. The decrease in gross profit
resulted primarily from lower sales (as discussed above) and higher
amortization expenses incurred during the year ended December 31, 1995 related
to the introduction of the Company's new generation board which was released
in the third quarter of 1994.
Engineering and software development expenses, net, decreased from $579,000
for the year ended December 31, 1994 to $424,000 for the year ended December
31, 1995, net of amounts capitalized of $104,000 and $51,000, for the years
ended December 31, 1994 and 1995, respectively. This decrease was primarily
due to the fact that in 1995, following the release of its new generation
boards, the Company shifted its emphasis from engineering and software
development to product support and maintenance, while the development of
applications utilizing the Company's technologies was undertaken by MOSCOM.
Upon the consummation of this offering, Votan will undertake its own
application development efforts.
Selling and marketing expenses increased from $293,000 for the year ended
December 31, 1994 to $323,000 for the year ended December 31, 1995. The
increase was primarily due to greater selling expenses resulting from
commissions due to MOSCOM's German subsidiary for sales and support services
in connection with the sale of certain products, including the Company's Call
Router systems to Siemens AG.
General and administrative expenses decreased from $418,000 for the year
ended December 31, 1994 to $386,000 for the year ended December 31, 1995. This
decrease was primarily due to a reduction in the Company's facility costs
resulting from the relocation of the Company's headquarters to a smaller and
more cost-effective facility.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Sales increased from $517,000 for the year ended December 31, 1993 to
$593,000 for the year ended December 31, 1994. This increase was primarily due
to the sales of the Company's new generation board, released during the third
quarter of 1994.
Gross profit increased from $210,000 for the year ended December 31, 1993
to $288,000 for the year ended December 31, 1994. The increase in gross profit
resulted from a combination of higher sales and lower manufacturing costs due
to the utilization of various third-party contract manufacturers for the
production of certain key components and assembly functions of the Company's
newer version boards. These improvements were partially offset by higher
amortization expenses related to the release of the Company's new generation
board.
22
<PAGE>
Engineering and software development expenses, net, increased from $342,000
for the year ended December 31, 1993 to $579,000 for the year ended December
31, 1994, net of amounts capitalized of $308,000 and $104,000 for the years
ended December 31, 1993 and 1994, respectively. This increase occurred during
the first half of 1994 and was primarily due to the final development of the
Company's new generation board and to a lesser extent the final development of
the Company's VoiceBuilder for Windows products.
Selling and marketing expenses increased from $223,000 for the year ended
December 31, 1993 to $293,000 for the year ended December 31, 1994. The
increase was primarily due to higher commissions due to higher sales levels of
the Company's products and a shift in the mix of sales into international
markets.
General and administrative expenses decreased from $490,000 for the year
ended December 31, 1993 to $418,000 for the year ended December 31, 1994. This
decrease was primarily due to a decline in facility costs and travel expenses.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company's capital resources have been met by capital infusions
by MOSCOM. Net contributions from MOSCOM amounted to $1.1 million, $916,000,
$601,000 and $661,000 for the years ended December 31, 1993, 1994 and 1995 and
the six months ended June 30, 1996, respectively.
MOSCOM has committed to continue to meet Votan's capital requirements until
the earlier of March 31, 1997 or the completion of debt or equity financing by
the Company of at least $10 million. MOSCOM has no further obligation to
provide the Company with additional capital resources beyond such time. See
"Certain Transactions --MOSCOM Relationship."
The Company's anticipated cash requirements for capital or other material
non-operating expenditures for the six-month period ended December 31, 1996 is
approximately $190,000. Votan believes that the net proceeds from this
offering plus the Company's existing capital resources, together with the
interest income thereon, will be sufficient to fund its operations for at
least the next two years. The Company may attempt to establish a bank credit
facility and equipment lease line to finance a portion of its working capital
requirements and capital expenditures, however, the Company does not have any
commitments or understandings pertaining to the foregoing at this time. The
Company's future liquidity and capital requirements will depend upon the
progress of the Company's engineering and software development programs and
the expansion of its sales and marketing efforts. In addition, the Company's
capital requirements will depend on, among other factors, the timely
establishment of effective sales channels in the United States and
internationally and the extent to which the Company's products gain market
acceptance. Therefore, the Company cannot provide any assurances that it will
not require additional financing during this time frame. If additional
financing is necessary, the Company will seek to raise these funds through
bank facilities or debt or equity offerings. There can be no assurance that
such funds would be available on terms acceptable to the Company.
ACCOUNTING PRONOUNCEMENTS
Effective on January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This standard requires the Company to review long-lived assets
and certain identifiable intangibles held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The adoption of this standard did not have a
material impact on the Company's results of operations, financial condition or
cash flows.
In 1996, SFAS No. 123, "Accounting for Stock-Based Compensation," will be
adopted by the Company. This standard establishes a fair value method for
accounting for or disclosing stock-based compensation plans. This standard
will be adopted in 1996 by disclosing the pro forma net income and earnings
per share amounts assuming the fair value method was effective on January 1,
1995. The adoption of this standard will not affect the Company's results of
operations, financial position or cash flows.
23
<PAGE>
BUSINESS
OVERVIEW
Votan Corporation is a leading developer of advanced speech technologies
utilized in voice verification and speech recognition applications. The
Company's primary focus is the development of commercially feasible voice
verification applications that address the growing demand for enhanced
security of financial transactions, electronic databases and physical
facilities. The Company's products are designed to verify the user's identity
without the need for cumbersome or invasive procedures. Votan offers its
customers either a standard or customized single vendor solution and
integrates its voice verification and speech recognition software technology
on a single proprietary board.
The Company's voice verification technologies and products may be used in a
variety of applications to authenticate the identity of a speaker by
establishing a match between the speaker's speech patterns and previously
stored templates. The Company's technologies consist of proprietary algorithms
and patented methods that are highly resistant to extraneous noise
interference such as the electronic static of a telephone line, the clamor of
a public area (such as a bank lobby or retail store) or unintended non-speech
sounds made by the speaker. The ability of Votan's speech technologies to
distinguish and ultimately ignore extraneous noises enables the Company's
products to perform more accurately in noisy, uncontrolled environments and
makes its products particularly suitable for a variety of real-world
applications. In addition to its voice verification technologies, Votan has
developed speech recognition technologies that have been utilized in a number
of products for the telecommunications market. These speech recognition
technologies complement the Company's voice verification products and
applications.
Votan's initial focus will be to market its voice verification technologies
and products directly to banks and other financial institutions for use in a
variety of applications, including bank teller verification, home banking,
wire transfers, credit cards, smart cards and ATMs. The Company's voice
verification technologies and products are designed to enhance the security of
financial transactions and improve productivity by reducing the amount of time
required to process a transaction. Votan's voice verification products have
been developed and tested for a variety of applications but are still in early
stages of commercialization. Currently, the Company is working with The Chase
Manhattan Bank, N.A. to analyze the results of a pilot program which utilized
the Company's voice verification products to authenticate the identity of
customers prior to a teller transaction. Over 9,000 Chase customers were
enrolled in the program. The Company also intends to actively market its voice
verification technologies and products for computer network, electronic
commerce, Internet and physical access applications.
The Company's voice verification and speech recognition technologies have
to date been incorporated into various products sold by MOSCOM Corporation,
the sole stockholder of the Company, to numerous leading telecommunications
systems providers, including Siemens AG, Lucent Technologies, Inc. (a
subsidiary of AT&T) and Alcatel SEL AG. These technologies are being used in a
variety of telecommunications applications, particularly in international
markets that do not utilize touch tone telephone systems and, therefore, must
rely on speech recognition technologies to permit interactive telephonic
services such as voice mail. The Company and MOSCOM have entered into certain
agreements that will enable the Company to continue to market its products and
technologies through MOSCOM's existing channels of distribution. See "Certain
Transactions --MOSCOM Relationship."
INDUSTRY BACKGROUND
Speech is typically the most natural and convenient means of human
communication. Due to the significant decrease in the cost of computer
processing hardware, many businesses are utilizing advanced speech
technologies to create a more efficient and user-friendly interface with their
customers.
Voice verification and speech recognition technologies convert speech into
digital electronic signals or voiceprint patterns. These patterns are compared
by a computer processor to previously stored speech patterns to determine if a
match exists and to recognize the utterance or, in the case of voice
verification technologies, to ultimately verify the speaker's identity.
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While every voice verification and speech recognition system uses sample
voiceprints derived from spectral input, there are major differences in how
this information is processed. Some systems match "phonemes," which are
fundamental sound elements that characterize speech. Spoken words may be
represented by a sequence of phonemes, much as a written word is represented
by a sequence of letters of the alphabet. The advantage of using phonemes is
that large vocabularies may be constructed with a small number of phonemes.
However, the disadvantage of using phonemes is that the recognition system for
each language must also address the co-articulation effects or blending of the
language's phonemes as they occur. An alternative to the use of phonemes is to
pre-store "templates," which are voiceprint patterns for an entire word or
phrase, on the recognition and verification system. The advantage of using
word templates is that recognition accuracy is greatly improved and there is
no language dependency. The entire word is learned as a single template, which
automatically includes all internal co-articulation effects that modify the
sound of phonemes.
Speech recognition applications are generally divided into two major
categories: speaker-dependent applications and speaker-independent
applications. Speaker-dependent applications are designed to function with
known speakers who have "trained" the device to recognize a particular set of
commands by having recorded a voiceprint, or spectrogram, for the system.
Speaker-dependent technologies or devices can accommodate a larger
pre-recorded vocabulary with a greater degree of exactitude with respect to
both the nature of the command and the identity of the speaker.
Speaker-independent technologies recognize speech from any source since the
technology is designed to recognize an utterance that "matches" the voiceprint
template derived from a large and diverse sample of voiceprints (as opposed to
speaker-dependent applications that utilize a particular individual's
voiceprint). While speaker-independent technologies may be utilized in a wider
variety of applications, they are typically limited to a small and fixed
recognizable vocabulary and, more importantly, are not well suited for voice
verification applications designed to authenticate a speaker's identity.
Although both voice verification and speech recognition technologies use
voiceprints to, respectively, recognize and identify spoken commands, the
technical demands of each technology are fundamentally different. Generally,
speaker-independent recognition systems are designed to accept and
differentiate among a pre-defined set of spoken commands without regard to the
identity of the speaker. On the other hand, speaker-dependent recognition and
voice verification systems are designed to compare an oral utterance to a
specific pre-recorded and stored utterance in order to authenticate the
speaker's identity. Speaker-independent technologies are poorly suited for
voice verification applications because they are based on algorithms which
blend the spectral differences within a large pool of speakers in order to
understand words spoken by a universal population. Consequently,
speaker-dependent technologies are better suited for voice verification
applications because the algorithms utilized in voice verification
technologies are designed to focus on the unique characteristics of the
speaker's voiceprint and to establish a match in order to verify the speaker's
identity.
MARKET NEED FOR SPEECH RECOGNITION APPLICATIONS
As a result of the decreased cost of computer processing hardware, the
development of more advanced computer/telecommunications integration ("CTI")
technologies and increased public familiarity with computer automated devices,
speech recognition has become an accepted feature of many telecommunications
applications. The telecommunications industry continues to seek advanced
speech recognition technologies that enhance product functionality in a
seamless and cost-effective manner. Recent applications of speech recognition
technologies have included transaction processing through interactive voice
response ("IVR") systems, command and control of personal computers and
hands-free dialing of car phones. The Company believes that speech recognition
technologies will continue to be incorporated in an increasing variety of
applications as speech recognition becomes easier to use, more natural and
more affordable, particularly in international markets that do not utilize
touch tone telephone systems and, therefore, must rely on speech recognition
technologies to permit interactive telephonic services.
MARKET NEED FOR VOICE VERIFICATION APPLICATIONS
Advances in telecommunications and computer technology have enabled
end-users to access and transfer information with unprecedented ease. The
ability of an enterprise to reap the full benefits of these
25
<PAGE>
technological advances is becoming increasingly important in today's
competitive marketplace. Unfortunately, the full utilization of these
technologies has been severely constrained by concerns regarding unauthorized
access and use, and the prevailing market perception that such systems are
particularly susceptible to fraud.
The Company believes that many of the existing verification alternatives
fail to meet the market's need for commercially feasible solutions that
enhance security. Traditional number-based identification security systems
("PINs") can easily be used with a touch tone telephone, however, the ease
with which PIN numbers can be improperly obtained or randomly developed by
unauthorized users greatly diminishes the utility of such systems. Magnetic
systems use keys or cards which must be physically carried for use and can be
lost, stolen or loaned to unauthorized users. Moreover, these systems are
relatively expensive and are not well suited for remote-access applications.
Remote access callback systems are popular for many office applications but
create a particular set of cumbersome obstacles to the mobile remote-access
user who needs connectivity but is not always at the callback telephone
number.
Biometric technologies, such as fingerprint matching, retina pattern
matching and signature analysis, have also been proposed as more secure
alternatives. However, each of these technologies has been subject to a
variety of criticisms, which has limited the widespread acceptance and
application of such technologies. Fingerprint matching is often associated
with an invasion of privacy or compromise of civil liberty. Retina pattern
matching is perceived as too physically invasive. Signature analysis has not
proven to be sufficiently reliable for sensitive applications. Moreover, none
of these technologies can presently be utilized in a commercially feasible
manner from remote locations for applications such as home banking, access to
confidential databases, wire transfers and electronic commerce.
The limitations of these existing security measures and their failure to
adequately address the market's needs have resulted in an increasing demand
for an alternative solution. The Company believes that its voice verification
technologies can provide the market with a practical and commercially feasible
solution.
THE VOTAN SOLUTION
Votan offers a single vendor solution developed to the user's specification
or customized from a standard Votan application. The Company can also
integrate its boards, voice verification and speech recognition technologies
and application software into a third-party system or supply the complete
system on a turnkey basis. The Company addresses the market need for
commercially feasible solutions with technologies and products which have the
following characteristics:
EFFECTIVE IN NOISY, REAL-WORLD ENVIRONMENTS. Voice verification and speech
recognition systems utilizing voiceprints are inherently dependent upon the
quality and reliability of the spectral information and are particularly
vulnerable to the hiss, pops and clicks frequently found on telephone
transmission lines, as well as background noise, unintended non-speech sounds
made by the speaker and variations in handset microphones. Votan's voice
verification and speech recognition technologies utilize the Company's
proprietary, noise resistant algorithms, which maintain separate records of
sound throughout the recognition and verification process in order to
distinguish, evaluate and ultimately ignore extraneous noises. This is
accomplished by constructing a direct representation of the voiceprint whereby
the spectral range is divided into a number of bands, and the speech energy in
each of those bands is sampled at discrete time intervals. The system
identifies suspected "noisy" data, which is in turn handled separately during
the pattern matching process. The ability of Votan's technologies to operate
in noisy environments without compromising performance makes its products
particularly suitable for use in real-world environments such as wireline or
wireless telephone systems, the noisy lobby of a bank or the point of sale at
a retail store.
EASY TO USE. The Company's voice verification and speech recognition
technologies may be used with both speaker-dependent and speaker-independent
applications. The Company's Continuous Speaker Dependent Recognition ("CSDR")
technology, utilizing proprietary algorithms, provides greater flexibility in
recognizing and verifying speech at various spoken rates. The speaker need not
pause briefly between each utterance, nor must the speaker use any specific
speed during his or her speech, in order
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for the Company's technologies to accurately recognize and verify the speech
by comparing it to previously stored templates. As a result, the Company's
CSDR technology requires significantly fewer training trials per word than
competing speaker-independent technologies and, therefore, facilitates the
quicker, easier and less costly implementation of various applications.
Moreover, the Company's proprietary Virtual Speaker Independent Recognition
technology enables pre-training of a system application with a set of oral
commands, thus precluding the need for each user to train the system. The
recognizable vocabulary is generated more efficiently than other
speaker-independent applications by utilizing the Company's approach of basing
the recognition voiceprint on a sample comprised of only 15 to 20 voiceprints.
DIFFICULT TO BREACH. The Company's voice verification technologies are
designed to minimize the risk that the system is breached by an unauthorized
person using a pre-recorded pass phrase. Tape recorder microphones invariably
pick up different sounds than those exhibited by an authentic voiceprint due
to a number of factors, including echoes, background noise and separation from
handset microphone. Therefore, tape recordings of the speaker's pass phrase do
not pose a threat to the viability of the Company's voice verification
products.
MORE ACCURATE AND LANGUAGE INDEPENDENT. The Company's technologies utilize
a template-based approach to voice verification and speech recognition that
not only results in greater accuracy, but also is language independent. Many
competing technologies utilize phonemes, which are fundamental sound elements
that characterize speech. The disadvantage of phoneme-based technologies is
that the system must address the co-articulation effects of the language's
phonemes. Because template-based technologies utilize a voiceprint for an
entire word or phrase, the system's ability to accurately recognize and verify
an utterance is greatly improved. Moreover, due to the fact that the template
automatically includes all internal co-articulation effects that modify the
sound of phonemes, the Company's template-based technologies are language
independent and may be trained for any language.
FULLY INTEGRATED SOLUTION. The Company believes that its voice boards are
unique in the industry in their ability to simultaneously support
speaker-independent recognition, speaker-dependent recognition and voice
verification applications. Accordingly, products utilizing the Company's voice
boards provide the end-user with a fully integrated solution by enabling the
product to simultaneously utilize two or three of these technologies and
switch from one to another as the application requires. The Company supplies
this capability in a single board occupying a single slot in an IBM-compatible
personal computer, as opposed to most competing vendors that sell two or more
boards occupying multiple slots for the same application. Moreover, software
enhancements or modifications to the Company's voice verification and speech
recognition technologies can be downloaded to installed boards via modem.
STRATEGY
Key elements of the Company's strategy are as follows:
EXPLOIT TECHNOLOGICAL LEADERSHIP IN VOICE VERIFICATION MARKET. The Company
believes it currently has the most advanced voice verification technologies
for use in noisy, real-world environments. The Company's primary strategy is
to utilize its technological leadership to develop and market products and
applications that can be used in the growing market for voice verification and
speech recognition technologies. The Company's proprietary algorithms make the
Company's products highly resistant to extraneous noise interferences and
particularly suitable for a variety of real-world applications. The Company
plans to take advantage of its technologies to meet the growing demand for
products and applications that provide increased security for transactions or
communications.
FOCUS DIRECT SALES ON FINANCIAL INSTITUTIONS. The Company believes that its
products and technologies are particularly suitable for use by financial
institutions. The Company is building a sales and marketing organization in
order to expand the direct sales of its products to banks and other financial
institutions for a variety of applications, including bank teller
verification, home banking, wire transfers, credit cards, smart cards and
ATMs. The Company believes that the use of its voice verification technologies
will benefit banks and other financial institutions by providing increased
security for systems and transactions on a more cost-effective basis.
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MARKET PRODUCTS AND TECHNOLOGIES FOR COMPUTER NETWORKS, ELECTRONIC
COMMERCE, THE INTERNET AND PHYSICAL ACCESS APPLICATIONS. The Company also
intends to actively market its technologies both directly and through OEMs,
VARs and systems integrators for use in securing computer networks, electronic
commerce, Internet applications and physical facilities. The Company believes
that such applications represent a significant potential market for the
Company's voice verification and speech recognition technologies.
LEVERAGE MOSCOM'S EXISTING DISTRIBUTION CHANNELS. The Company intends to
leverage MOSCOM's established distribution relationships in order to license
its technologies for use in telecommunications applications. MOSCOM has
existing distribution relationships with many of the leading global
manufacturers and suppliers of telecommunications systems, including Lucent
Technologies, Inc., Siemens AG, Alcatel SEL AG, Philips Kommunikations
Industrie AG and Nortel Ltd. MOSCOM's MVM for Windows voice mail system is
currently being sold by Lucent Technologies, Inc. and Siemens AG, and the
TeleVoice platform for IVR applications is now being sold by Siemens AG and
Alcatel SEL AG. Both of these products utilize the Company's speech
recognition technologies.
ACCELERATE DEVELOPMENT OF NEXT GENERATION AUDITORY MODEL. Currently, voice
verification and speech recognition technologies are based on spectral data
analysis. The Company is in the process of developing next generation
auditory-based technologies. The Company believes that its next generation
auditory-based technologies, which are based on mathematical modeling of the
human auditory system, will significantly enhance the accuracy and performance
of speaker-dependent and speaker-independent speech recognition and voice
verification applications by improving resistance to extraneous noises,
tolerance of spectral distortion and sound discrimination. The Company intends
to accelerate the development and commercialization of its auditory model
technology. The successful completion of the Company's auditory-based research
and development efforts will require significant additional effort by the
Company. See "Business --Technology and Research and Development."
VERTICAL MARKETS AND APPLICATIONS
The Company has identified the following markets for its technologies:
FINANCIAL INSTITUTIONS. Businesses in the financial marketplace are seeking
to minimize their exposure to losses resulting from the fraudulent use of
credit cards, ATM cards and checks, as well as fraudulent withdrawals from
bank accounts. The Company believes that the current system of using private
PIN numbers alone does not provide an adequate level of security for such
transactions. In addition, the use of PIN numbers with signature verification
is both time-consuming and inefficient. The Company believes that its voice
verification technologies are particularly suitable to meet the needs of
financial institutions for the following applications:
Bank Teller Verification. The Company believes that its voice
verification technologies and products can provide immediate benefits to banks
and financial institutions by (i) reducing the costs associated with
teller-related verification, (ii) reducing losses due to fraud and expenses
due to fraud prevention measures and (iii) enhancing customer satisfaction by
providing an extra measure of security. The Company's voice verification
products have been utilized by The Chase Manhattan Bank, N.A. in a pilot
program called "XtraSecure." Over 9,000 Chase customers were enrolled in the
program. The results of the program are currently being analyzed by the
Company and The Chase Manhattan Bank, N.A. Prior to using the system, the
customer is "enrolled" either at the branch or over the telephone. The
enrollment process typically takes a little over one minute. The customer
enters a bank debit or ATM card number using the magnetic card reader at the
branch or from a remote location or home using the touch tone key pad on a
telephone. The customer is then prompted to say a pass phrase. The resulting
voiceprint is stored for use in later verification of the same customer. When
the customer visits the branch, his or her identification number is entered
into the system by sliding the debit or ATM card through the card reader. The
customer then picks up the telephone handset and says his or her pass phrase.
Upon successful identification, the verification station notifies the teller
to process the transactions. If unsuccessful, the customer is directed to
proceed to the customer service counter.
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Home Banking. Home banking transactions are significantly less costly
to a bank than a branch transaction with a human teller. The Company believes
that a voice verification system for home banking using telephone touch tones
or the Company's magnetic strip voice verification systems will enable a bank
not only to enhance its product offerings in a secure environment, but also to
significantly reduce its teller-related costs.
Wire Transfers. Banks and other financial institutions rely extensively
on electronic wire transfers for many transactions. Electronic transfers are
both faster and less expensive than physical delivery of checks and
certificates. In addition, wire transfers are typically requested
telephonically and entail large amounts of money. The Company believes that
its voice verification technologies can greatly enhance the security of wire
transfer transactions in an easy and cost-efficient manner.
Credit Card Issuers. Use of credit cards by unauthorized individuals
results in claims and uncollectible revenues that adversely affect both retail
and credit organizations. The Company believes that point-of-sale terminals
(e.g., at department stores) using the Company's voice verification
technologies can validate the user's identity while obtaining authorization
from the credit card issuer.
Smart Card Issuers. A potential market for voice verification is the
smart card. The smart card is used instead of cash in purchasing goods and
services. The voiceprint of the customer's pass phrase can be stored on the
smart card to enable secured reloading of funds onto the smart card. Smart
card technologies are widely used in certain European countries. The Company,
in conjunction with a European smart card developer, has developed a prototype
smart card verification system which stores a voiceprint on a smart card and
retrieves the stored voiceprint via a commercial smart card reader.
Automatic Teller Machines. ATM cards are relatively easy to counterfeit
and the current PIN-based security systems which secure ATM transactions are
particularly vulnerable to theft or misappropriation. The Company believes
that using the Company's voice verification technologies will greatly enhance
the security of ATM transactions.
INTERNET AND WORLD WIDE WEB. The utility of the Internet as a means of
conducting commercial and confidential transactions has to date been impaired
by widespread concerns regarding the security of such transactions. Votan's
technologies and products may be used to provide enhanced security for World
Wide Web servers on the Internet. High security for access to Web sites is a
valuable tool to many customers. It will allow confidential data to be more
readily accessible via the Internet. It can also be used to ensure the
security of financial transactions consummated over the Internet. The Company
is currently working with a VAR which has developed and demonstrated a
prototype voice verification product that blocks Web site access to
unauthorized users.
TELEPHONE COMMUNICATIONS. Telephone toll fraud is a national problem.
Fraudulent use of telephone credit card numbers, Direct Inward System Access
(DISA) lines, private networks and voice mail call-out features is estimated
to exceed $1 billion annually. The rapidly growing cellular telephone market
has also been plagued by theft and unauthorized use estimated to exceed $400
million in 1995. The Company believes that Votan's voice verification
technologies and applications may be utilized to secure the desirable features
and functions of everyday telephone service. For example, a voice verification
device could be used to authenticate the identity of the user as the owner of
a telephone credit card or cellular telephone prior to connecting any calls.
Moreover, Votan's proprietary algorithms render its speech recognition and
voice verification technologies particularly suitable for use over the narrow
bandwidth of noisy telephone networks and the inherently distorted cellular
telephone environment. The Company's speech recognition technologies are
currently being used in MOSCOM's MVM for Windows voice mail system and the
Company's TeleVoice platform for IVR applications. MOSCOM's MVM for Windows
voice mail system is currently being sold by Lucent Technologies, Inc. and
Siemens AG. TeleVoice is currently being sold by Siemens AG and Alcatel SEL
AG.
REMOTE AND NETWORK ACCESS TO GOVERNMENT AND COMMERCIAL DATABASES. There is
a growing need for security of access to information contained in
confidential government and commercial databases. The Company's voice
verification technologies may be used to authenticate the user's identity and
to permit remote and network access to confidential databases without
compromising the system's integrity. The
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Company has developed a VoiceLock product which limits unauthorized access to
a telephone system or computer network utilizing voice verification
technologies. VoiceLock was developed for the Company's single port voice
verification board. Additional software development will be required to enable
VoiceLock to run on the Company's new generation four port boards.
PHYSICAL ACCESS. Voice verification technologies can also be used to
authorize access to secured areas. One of the Company's VARs has installed
various systems in a number of commercial and industrial locations and
government facilities which are designed to secure access to physical spaces.
PRODUCTS
Votan's proprietary boards serve as a platform for the Company's voice
verification and speech recognition products and applications. These boards
may also be sold as stand-alone products to VARs, OEMs and systems
integrators. The Company designs and markets the following boards:
SPEECH RECOGNITION BOARDS. Votan's Speech Recognition Boards contain voice
recognition, record and playback capabilities and input/output signal
interfaces and are installed in a single slot of an IBM-compatible personal
computer. They utilize a commercially available digital signal processing
integrated circuit plus a proprietary pattern matching integrated circuit that
contains patented Votan voice technology methods. These boards serve as
platforms that may easily accommodate upgrades and improvements. The Company's
Speech Recognition Boards may be operated in the Microsoft Windows environment
using the Company's proprietary programming language, VoiceBuilder for
Windows. The Company's Speech Recognition Boards may be used for both
telephonic and microphone applications.
VOICE VERIFICATION BOARDS. The Company's voice verification technology is
available on a separate family of Voice Verification Boards. These boards
contain all of the technologies of the Company's Speech Recognition Boards and
are enhanced by Votan's voice verification technologies. The Company's Voice
Verification Boards may also be used for both telephonic and microphone
applications. Moreover, the voice verification and speech recognition
technologies available on the Company's Voice Verification Boards may be used
together in many typical applications. For example, speaker-independent
recognition may be used to gain entry into an application (e.g., voice mail)
over telephone lines, then voice verification may be used to authenticate the
user's identity, and finally speaker-dependent recognition may be used to
provide for accurate control of the application in the language and vocabulary
specific to the user.
Prior to 1994, the platform for the Company's products was a single port
board. In the third quarter of 1994, the Company introduced its new generation
four port board which enabled simultaneous access by four users and resulted
in a reduction in the price per port.
Since 1993, over 1,000 of the Company's voice verification and speech
recognition boards have been sold by the Company and MOSCOM, including sales
of 193, 309 and 111 units of the new generation four port board in each of the
years ended December 31, 1994 and 1995 and the six-month period ended June 30,
1996, respectively.
The Company has developed the following applications utilizing its voice
verification and speech recognition boards:
VOICE VERIFICATION SYSTEMS. The Company's Voice Verification Systems verify
the identity of a user. These systems utilize magnetic strip cards, smart
cards or bar-code cards. The cards are used to convey the cardholder's
identity and to retrieve the individual's previously stored voiceprints for
comparison. The Company's Voice Verification Systems can be used either
locally or from remote locations.
VOICE VERIFICATION ENROLLMENT SYSTEMS. The Company's Voice Verification
Enrollment Systems enroll users locally or from remote locations by making
templates of the user's voice. The system performs real-time tests of the
samples' amplitude and consistency and prompts the speaker to repeat the
utterance until a consistent, high quality enrollment template is created.
GATEKEEPER. The Gatekeeper is a single step module that answers the
telephone, verifies a caller's identity and then transfers the caller to a
requested destination. It consists of a verification voice card plus
application software.
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TELEVOICE. TeleVoice is a telephone-based information system that utilizes
speech recognition technologies to present callers with a choice of various
recorded announcements. Callers ask for an announced topic of interest and
control the menu of announcements with simple spoken commands such as "next,"
"repeat" and "start over." The Company's TeleVoice system, which is sold by
MOSCOM through Siemens AG, is currently being used in Germany and Austria by
travel agencies, auto dealers, real estate firms and government transport
agencies. The system is designed to enhance customer satisfaction by
permitting callers to control and interact with the system and to receive
updated information at any time. The system operates by presenting the caller
with a menu of information. The caller can then choose categories of interest
by orally responding to the menu.
CALL ROUTER. Call Router is a voice activated auto attendant for use with a
business telephone or PBX system. In 1995, a sale of multiple Call Router
systems was made by the Company through Siemens AG to a large German
department store chain.
VOICEBUILDER FOR WINDOWS DEVELOPER'S KIT. The VoiceBuilder for Windows
Developer's Kit is used to develop customized applications by end-users. The
Kit may also be used by end-users that wish to assume maintenance of custom
applications developed for them by Votan. The Kit includes a one-week training
course, a voice recognition board, programming manuals and Windows user
interface development software, sound editing kit with sound board and sound
editing software.
MOSCOM has developed another application, MVM for Windows, utilizing the
Company's proprietary technologies:
MVM FOR WINDOWS. MVM for Windows is a voice activated voice mail system
with IVR and automatic call distribution features. By utilizing the Company's
voice verification technologies, MVM for Windows ensures the security and
privacy of voice mail systems. MVM for Windows is currently being sold by
Lucent Technologies, Inc. and Siemens AG and is available in British English,
American English, German, Spanish, Portuguese, Italian and Czech. All rights
to MVM for Windows are owned by MOSCOM, subject to certain royalty fees
payable to Votan for the underlying board technologies. See "Certain
Transactions --MOSCOM Relationship."
SALES AND MARKETING
To date, the Company's principal sales and marketing activities have
included participation in industry trade shows and seminars, advertising in
selected trade publications, public relations activities with trade and
business press, publication of technical articles and case studies and
distribution of sales literature. The Company currently markets its
technologies and products primarily through VARs, OEMs, systems integrators
and component manufacturers. MOSCOM, the Company's sole stockholder, has been
and is expected to remain an OEM and VAR of the Company's products in the
telecommunications market, particularly outside the United States. See
"Certain Transactions --MOSCOM Relationship." MOSCOM has distribution
relationships with several of the world's leading telecommunications systems
manufacturers and suppliers, including Siemens AG, Lucent Technologies, Inc.,
Nortel Ltd., Philips Kommunikations Industrie AG and Alcatel SEL AG.
The Company has entered into a License Agreement with MOSCOM under which
the Company has licensed to MOSCOM certain of the Company's existing
technologies. The License Agreement provides that the Company will receive a
royalty from MOSCOM on the sale of boards containing the Company's proprietary
algorithms. Although sublicenses to distributors are permitted, VAR
sublicenses will require specific approval of the Company as well as the
negotiation of a separate royalty arrangement. Cross-licensing of enhancements
of the technologies by either Votan or MOSCOM is required on a royalty-free
basis under the License Agreement. The Company has also entered into a VAR
Agreement pursuant to which the Company has granted MOSCOM a non-exclusive
license to market the Company's bank teller verification products outside the
United States. See "Certain Transactions --MOSCOM Relationship."
As of August 31, 1996, the Company employed five persons in sales and
marketing. The Company is increasing its sales, marketing, customer service
and installation staff and intends to initially market its products and
technologies directly through its own sales force to banks and other financial
institutions for
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a variety of applications. The Company's primary focus will be on markets for
voice verification products. This focus will allow the Company to establish a
base of customers in the financial institution marketplace that it can
leverage for expansion into other distribution channels and vertical markets.
The Company also intends to actively market its technologies both directly and
through OEMs, VARs and systems integrators for use in securing computer
networks, electronic commerce, Internet applications and physical facilities.
For each of the years ended December 31, 1993, 1994 and 1995, sales to
four, two and three customers, respectively, accounted for 57% of sales (JBM
Electronics (28%), Voiceprint Security Systems, Inc. (12%), and Votek
Systems, Inc. (11%)), 30% of sales (Voiceprint Security Systems, Inc. (21%)),
and 74% of sales (Quelle Department Stores A.G. (56%) and JBM Electronics
(12%)). For the six months ended June 30, 1996, sales to three customers
accounted for 93% of sales (DHI Computing Services, Inc. (39%), The Chase
Manhattan Bank, N.A. (27%) and MAXM Systems Corporation (27%)).
TECHNOLOGY AND RESEARCH AND DEVELOPMENT
The Company believes that enhancements of and improvements to its existing
technologies are critical to its future success. The Company has made
substantial investments in research and development in each of the last three
years. The Company spent $650,000, $683,000, $475,000 and $280,000 on research
and development, consisting of engineering and software development expenses
and capitalized software expenditures during each of the years ended December
31, 1993, 1994 and 1995 and the six-month period ended June 30, 1996,
respectively. Currently, the Company employs eight people in research and
development.
The Company and its predecessor have been engaged in the research and
development of speech recognition and voice verification technologies over the
past 17 years. The Company's extensive research and development efforts have
enabled the Company to develop certain proprietary algorithms which enhance
the functionality of speech recognition and voice verification technologies
due to their ability to distinguish and ignore extraneous noises. The
Company's technologies utilize these proprietary algorithms to construct a
direct representation of the voiceprint using a fast Fourier transform,
whereby the spectral range of spoken utterances is divided into a number of
bands and the speech energy in each band is sampled at discrete time intervals
in order to distinguish, evaluate and ultimately ignore extraneous noises.
The Company's technology development activities are directed at continued
improvements to its existing core technologies, enhancements to these
technologies, and improved implementations of the technologies. Votan is
currently engaged in a major research and development program to advance the
state of the art of voice verification and speech recognition by incorporating
a mathematical model of the human auditory system into its proprietary
algorithms. The Company believes that there are substantial differences in
performance between state-of-the-art technologies that recognize speech and
human organs that perform the same function. For example, dramatic changes in
spectral shape (e.g., as caused by tone controls or equalizers in stereo
receivers) do not significantly change human recognition of speech, whereas
the performance of all current speech recognition technologies, which use
spectral pattern matching, is strongly degraded. The human auditory system is
a biological mechanism with specialized functions that are performed with
complex mechanical, electrochemical and neurophysiological components. Signal
processing, feature extraction and pattern matching processes performed by
these biological structures are considerably different from the engineering
and mathematical processes used in state-of-the-art voice verification and
speech recognition technologies.
Development of the Company's auditory model has been continuing for
approximately ten years. The auditory model consists of three elements: signal
processing; feature extraction; and pattern matching. To date, the Company has
obtained a patent on portions of the signal processing and feature extraction
elements of the model and has implemented these elements on a laboratory
workstation. The Company anticipates that the completion of these two phases
of the auditory model will take at least an additional 18 months. After
completion of the development of the first two elements, the Company expects
to engage an industry partner in connection with the development of the final
element of its auditory model, i.e., the pattern matching element. No
assurance can be given that the Company will find
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an appropriate industry partner or that the Company will successfully complete
the auditory model or develop commercially feasible products based upon the
auditory model.
The Company believes that the timely development and enhancement of its
technologies are necessary to remain competitive in the industry. Delays or
inabilities to develop new technology features, enhancements or products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies, products and processes,
preserve its trade secrets and operate without infringing upon the proprietary
rights of other parties. Because of the substantial length of time and expense
associated with bringing new products through development to the marketplace,
the voice verification and speech recognition industry places considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. While the Company holds two patents
for methods relating to its proprietary algorithms, the Company relies
primarily upon a combination of trademark, copyright, know-how and trade
secrets and contractual restrictions to protect its intellectual property
rights. The Company believes that such measures afford only limited protection
and, accordingly, there can be no assurance that the steps taken by the
Company to protect these proprietary rights will be adequate to prevent
misappropriation of the technology or the independent development of similar
technology by others. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. There can be no assurance that any patents issued or licensed to
the Company will not be challenged and held to be invalid, or that present or
future patents will provide commercially significant protection to the
Company's present or future technologies, products or processes. In addition,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information not covered by patents to
which the Company owns rights or obtain access to the Company's know-how or
that others will not be issued patents that may prevent the sale of one or
more of the Company's technologies, or require licensing and the payment of
significant fees or royalties by the Company to third parties in order to
enable the Company to conduct its business. There can be no assurance that
such licenses would be available or, if available, would be on terms
acceptable to the Company or that the Company would be successful in any
attempt to redesign its technologies, products or processes to avoid
infringement. The Company's failure to obtain these licenses or to redesign
its technologies, products or processes would have a material adverse effect
on the Company's business, financial condition and results of operations.
No assurance can be given as to the degree of protection afforded by any
patents issued to or licensed by the Company or that such patents will not be
infringed upon by the products of others. The Company has received a notice
from a third party claiming broad patent protection in the voice processing
area and alleging that certain of the Company's voice mail and voice
processing products may infringe upon its patent. Based on advice of its
patent counsel, the Company does not believe that any of its products
infringes upon the cited third-party patent, and if necessary, the Company
intends to vigorously defend its position. However, the Company may not be
able to successfully defend against the claimed infringement. There can be no
assurance that the Company will not be subject to other claims that its
technologies or products infringe the patents or proprietary rights of third
parties. Defense and prosecution of patent claims can be expensive and
time-consuming, regardless of whether the outcome is favorable to the Company,
and can result in the diversion of substantial financial, management and other
resources from the Company's other activities. An adverse outcome could
subject the Company to significant liability to third parties, require the
Company to obtain licenses from third parties or require the Company to cease
any related research and development activities or product sales. In addition,
the laws of certain countries may not protect the Company's intellectual
property rights to the same extent that such rights are protected in the
United States.
The Company's success is also dependent upon the skill, knowledge and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants,
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advisors and collaborators to enter into confidentiality agreements that
prohibit the disclosure of confidential information to anyone outside the
Company, and in most cases, assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. See "Business --Proprietary Rights."
COMPETITION
The voice verification and speech recognition industry is subject to
intense competition. The Company's competitors and potential competitors in
the United States and abroad are numerous and include, among others, Apple
Computer, Inc., AT&T, Berkley Speech Technologies Inc., Dragon Systems, Inc.,
the DSP Group, IBM, ITT, Lernout & Hauspie Speech Products N.V., Lucent
Technologies, Inc., Microsoft Corporation, NEC Corp., Nuance Communications,
Siemens AG, Speech Systems, Inc., Texas Instruments, T-Netix, 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, T-Netix, Veritel, Voice Control Systems and Voice
Processing Corporation compete with the Company in the voice verification
market. In addition, the Company is likely to become subject to competition in
the verification marketplace from companies which produce or are developing
biometric identification products, such as fingerprint matching, retina
pattern matching and signature analysis, as well as companies which market or
develop traditional key, card and surveillance systems. Existing and potential
competitors may be able to develop technologies that are as effective as, or
more effective or easier to use than those offered by the Company, which would
render the Company's technologies noncompetitive or obsolete. Moreover, many
of the Company's existing and potential competitors have substantially greater
financial, marketing, sales, distribution and technological resources than the
Company. Such existing and potential competitors may also enjoy substantial
advantages over the Company in terms of research and development expertise,
manufacturing efficiency, name recognition, sales and marketing expertise and
distribution channels. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or
with third parties to increase the abilities of their speech technology
products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors may emerge and rapidly
acquire significant market share. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company believes that competition in the voice verification and speech
recognition markets is primarily based upon accuracy, functionality, ease of
use, versatility, cost and time required for application development and
platform integration (including the number of languages offered), price,
processing and memory requirements, and customer support. While certain of the
Company's competitors have developed advanced speech technology products that
are comparable in performance to one or more of the Company's products, the
Company believes that its competitive advantage is based upon (i) the accuracy
of its voice verification technology, (ii) the utilization of the Company's
noise resistant algorithms, (iii) the ease of use and implementation of the
Company's technologies, (iv) the language independent nature of the Company's
technologies, and (v) the Company's single vendor, fully integrated approach
to the implementation of its products. Notwithstanding these advantages, there
can be no assurance that the Company will be able to compete effectively.
MANUFACTURING
The Company currently does not engage in any manufacturing operations and
does not plan to do so in the foreseeable future. The Company's proprietary
products are manufactured by contract computer board manufacturers. The
Company believes that there are many suitable vendors, in the United States
and elsewhere, that the Company can use to meet its manufacturing needs at
competitive prices. These products are manufactured to the Company's
specifications and quality standards. Certain product testing, packaging and
shipping functions are currently being conducted by MOSCOM on behalf of the
Company. MOSCOM is expected to continue to perform such functions for the
foreseeable future. See "Certain Transactions -- MOSCOM Relationship."
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EMPLOYEES
As of August 31, 1996, the Company employed 16 persons, including eight in
engineering and software development, five in sales and marketing and three in
accounting, finance and administration. The Company is not subject to any
collective bargaining agreements and believes that its relationship with its
employees is good.
FACILITIES
The Company's executive office and research and development facility is
located in Pleasanton, California. The Company currently occupies a
4,450-square-foot facility pursuant to leases which will terminate on December
1, 1996. On July 8, 1996 the Company entered into a lease for a 12,587
square-foot facility at the same location which will commence December 1,
1996. This lease will terminate on November 30, 2001. The Company anticipates
that the newly leased premises will satisfy its principal facilities
requirements for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not
aware of any threatened litigation that could have a material adverse effect
upon the Company's business, financial condition and results of operations.
35
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Albert J. Montevecchio (1)(2) .... 60 Chairman of the Board of Directors
John A. White (2) ................. 58 President, Chief Executive Officer and Director
Richard C. Vail (1) ............... 65 Executive Vice President and Director
William E. O'Connor ............... 57 Chief Financial Officer, Treasurer and Secretary
Ronald L. Rutherford .............. 48 Vice President of Sales and Marketing
Donald G. Heitt (3) ............... 61 Director --designee
</TABLE>
- ------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Mr. Heitt has agreed to join the Board of Directors upon the
consummation of the offering.
Albert J. Montevecchio was elected as Chairman of the Board of Directors in
June 1996. Mr. Montevecchio has been the President, Chief Executive Officer
and a director of MOSCOM since its incorporation in January 1983 and has
served as MOSCOM's Chairman of the Board of Directors since his election in
February 1985.
John A. White joined the Company as President, Chief Executive Officer and
a director in June 1996. From November 1984 to June 1996, Mr. White served in
various capacities with Siemens, ROLM Communications, a telecommunications
company, including Vice President/General Manager, Northeast Area and most
recently as Vice President, Special Product Sales. Prior to joining Siemens,
ROLM, Mr. White was Vice President of Worldwide Sales and Marketing of
Columbia Data Products, a personal computer manufacturing company, and held
various positions at Xerox Corporation, an office products company.
Richard C. Vail has served as Executive Vice President and a director of
the Company since June 1996. From October 1984 to June 1996, Mr. Vail held
various senior management positions with MOSCOM and has served as Vice
President and General Manager of the Votan division of MOSCOM since 1991. From
1974 to October 1984, Mr. Vail held various senior management positions with
Taylor Instrument Company, a process control company.
William E. O'Connor has served as Chief Financial Officer, Treasurer and
Secretary of the Company since July 1996. From July 1995 until joining the
Company, Mr. O'Connor was Chairman and Chief Financial Officer of Interware
Development Corporation, a multimedia software development company. From
August 1994 until July 1995, Mr. O'Connor was Chief Financial Officer of
Catalina Marketing Corporation, an electronic marketing and software
development company. From October 1987 until August 1994, Mr. O'Connor was a
partner in Keystone Partners, a management consulting firm. From March 1976 to
October 1987, Mr. O'Connor held top divisional general management and
financial positions with SmithKline Beecham, PLC, a consumer products and
pharmaceuticals firm. Mr. O'Connor is a certified public accountant.
Ronald L. Rutherford has served as Vice President of Sales and Marketing of
the Company since July 1996. From April 1995 until July 1996, Mr. Rutherford
was Regional Manager and Vice President of Sales for Netrix, Inc., a
manufacturer of products for wide area networks. From October 1992 to March
1995, Mr. Rutherford was Director of Sales and Marketing for Western
Telecommunication Consulting, Inc., a provider of telecommunications
consulting services. Prior to that time, Mr. Rutherford had held various
senior management positions with Siemens Tel Plus, a provider of
telecommunications systems, from September 1987 to September 1992, Intecom,
Inc., a manufacturer of large communications systems, from January 1982 to
January 1987, and National Data Corporation, a financial and credit card
management transactions company, from January 1979 to January 1982.
36
<PAGE>
Donald G. Heitt has agreed to join the Board of Directors upon consummation
of the offering. Mr. Heitt has been the Chairman of the Board of Voysys
Corporation, a telecommunications company, since January 1996. From April 1990
to January 1996, Mr. Heitt served as President and Chief Operating Officer of
Voysys Corporation. From September 1987 to November 1989, Mr. Heitt was Senior
Vice President of Telebit Corporation, a telecommunications company. From
January 1986 to September 1987, Mr. Heitt was a managing partner and
co-founder of Resource Partners, Inc., a sales and marketing distributor and
consulting company. From May 1982 until December 1985, Mr. Heitt served first
as Vice President of Sales and Marketing, and later as President of the
computer division of General Automation Inc., a mini-computer manufacturing
and distribution company. Prior to 1982, Mr. Heitt was Vice President of
Honeywell Information Systems, Inc., a industrial automation and control
company.
KEY EMPLOYEES
The following table sets forth certain information with respect to certain
key employees of the Company:
<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 automatic
recognition and generation telephony signals. His work involves the
implementation of software models of the biological auditory system, including
investigation of neural networks as they relate to speech recognition. Prior
to joining Votan (the predecessor entity), Mr. Love served in various
capacities with the Fairchild Research and Development laboratory, a
semiconductor manufacturing company. Mr. Love received a B.S. in Electrical
Engineering, specializing in analog and integrated circuit design, and an M.S.
in Electrical Engineering, specializing in speech processing, each from the
University of California at Berkeley.
Stephen P. Gill has served as Chief Scientist of the Company on a part-time
basis since June 1996. Dr. Gill is also employed by Magnetic Pulse, Inc., an
oil field service provider. From 1979 to June 1996, Dr. Gill served, part
time, as Chief Scientist first with Votan (the predecessor entity) and later
with MOSCOM, following MOSCOM's acquisition of the business and assets of
Votan (the predecessor entity) in 1991. Dr. Gill has developed a new class of
spectral transforms for voice signal processing and has developed voice
spectral data encoding techniques for both voice verification and speech
recognition research in psychoacoustic grading of voice data and in human
factors affecting perceived performance of voice products. Further, Dr. Gill
has performed research and managed programs in all aspects of voice
technology, including speech recognition, voice store and forward, voice
verification and identification, continuous speech and real-time digital voice
encoding. Dr. Gill received a B.S. in Physics from the Massachusetts Institute
of Technology and he received his M.S. and Ph.D. in Applied Physics from
Harvard University.
Graeme R. Kinsey has served as Senior Product Manager of the Company since
June 1996. From September 1991 to June 1996, Mr. Kinsey served as Senior
Product Manager-Voice Technologies for MOSCOM. From 1988 to September 1991,
Mr. Kinsey served as Senior Product Manager of Votan (the predecessor entity).
From 1985 to 1988, Mr. Kinsey was Project Manager for Applied Robotic
Technologies, Inc., a robotically-controlled hard disk testing work cell
manufacturer. From 1969 to 1985, Mr. Kinsey held various positions with
Zehntel, Inc., an automatic in-circuit printed board test company, including
Manager-System Integration Group. Mr. Kinsey received a B.S. degree in
electrical engineering from the University of California at Berkeley.
37
<PAGE>
BOARD OF DIRECTORS
The Audit Committee of the Board of Directors was established in June 1996
and reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the selection of the
Company's auditors, the scope of the annual audits, fees to be paid to the
auditor, the performance of the Company's independent auditors and the
accounting practices of the Company.
The Compensation Committee of the Board of Directors was established in
June 1996 and determines the salaries and incentive compensation of the
officers of the Company and provides recommendations for the salaries and
incentive compensation of the other employees and the consultants of the
Company. The Compensation Committee also administers various incentive
compensation, stock and benefit plans.
Mr. White has been appointed to serve on the Board of Directors of the
Company pursuant to his employment agreement with the Company. Following this
offering, Mr. White shall continue to serve on the Board of Directors pursuant
to the terms of his agreement.
Mr. Heitt has agreed to serve as an independent member of the Board of
Directors upon consummation of the offering. As soon as possible after the
date of this Prospectus, the Company intends to appoint an additional
independent member to the Board of Directors. The Company anticipates that
such independent directors will serve on the Audit Committee and the
Compensation Committee.
DIRECTOR COMPENSATION
Directors do not currently receive a fee for attending Board of Directors
or committee meetings, but are reimbursed for expenses incurred in connection
with performing their respective duties as directors of the Company. However,
the Board of Directors may in the future establish a policy of compensating
directors for attending Board of Directors' or committee meetings.
Additionally, non-employee directors are entitled to be granted options under
the Company's 1996 Stock Option Plan. See "--1996 Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Mr.
Montevecchio and Mr. White. The Compensation Committee determines the
salaries and incentive compensation of the officers of the Company and
provides recommendations for the salaries and incentive compensation of the
other employees and the consultants of the Company. The Compensation
Committee also administers various incentive compensation, stock and benefit
plans. Mr. White is the President and Chief Executive Officer of the Company.
Mr. Montevecchio is the Chairman of the Board of Directors, President and
Chief Executive Officer of MOSCOM. MOSCOM is a party to various transactions
with the Company. See "Certain Transactions --MOSCOM Relationship."
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid to each of the
Company's (i) Chief Executive Officer and (ii) Executive Vice President, whose
total compensation during 1995 based on employment with MOSCOM, exceeded
$100,000 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
---------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
- --------------------------- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
John A. White (2)
President and Chief Executive
Officer ............................. 1995 -- -- --
Richard C. Vail
Executive Vice President, formerly
Vice President, General Manager of
the Votan Division of MOSCOM ........ 1995 112,000 5,000 17,111
</TABLE>
38
<PAGE>
- ------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted in those instances where the aggregate amount of such
perquisites and other personal benefits constituted the lesser of $50,000
or 10% of the total annual salary and bonus for the Named Executive
Officer for the year. Includes (i) personal use of a MOSCOM company car,
(ii) life insurance premiums paid by MOSCOM, (iii) MOSCOM contributions to
MOSCOM 401(k) Plan and (iv) medical expenses reimbursed by MOSCOM.
(2) Mr. White began serving as the Company's President and Chief Executive
Officer in June 1996, and therefore, received no compensation from the
Company or MOSCOM prior to the date thereof. In the future, Mr. White will
receive compensation to be paid by the Company in accordance with his
employment agreement. See "--Employment Agreements."
STOCK OPTION INFORMATION
No MOSCOM stock options were granted to the Named Executive Officers in
1995. The following table sets forth certain information with respect to the
Named Executive Officers regarding stock option values in respect of shares of
MOSCOM Common Stock under the MOSCOM Stock Option Plan as of December 31,
1995.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT
YEAR END FISCAL YEAR END
SHARES VALUE (# OF SHARES) ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. White . -- -- -- -- -- --
Richard C. Vail 21,500 183,125 15,000 -- 87,800 --
</TABLE>
- ------------
(1) Amounts calculated by subtracting the exercise price of the options from
the market value of the underlying MOSCOM Common Stock using the closing
price of the MOSCOM Common Stock on the Nasdaq National Market of $8.12
per share of MOSCOM Common Stock on December 29, 1995.
1996 STOCK OPTION PLAN
Pursuant to the terms of the Formation, stock options previously granted to
the Votan employees pursuant to the MOSCOM stock option plan will continue to
be held by such employees pursuant to the terms of the MOSCOM stock option
plan. The Company's 1996 Stock Option Plan was adopted by the Board of
Directors and approved by the Company's stockholders in June 1996 (the "1996
Plan"). Up to 825,000 shares of Common Stock have been initially authorized
for issuance under the 1996 Plan. This share reserve will increase on the
first trading day of each calendar year beginning with the year 2000 by 1% of
the number of shares of Common Stock outstanding on December 31 of the
immediately preceding calendar year. In no event may any one participant in
the 1996 Plan receive option grants for more than 500,000 shares in the
aggregate.
The 1996 Plan is divided into two separate components: (i) the
Discretionary Option Grant Program under which employees and consultants may,
at the discretion of the Plan Administrator (as defined in the 1996 plan), be
granted options to purchase shares of Common Stock at an exercise price not
less than 85% of their fair market value on the grant date and (ii) the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to eligible non-employee Board of Directors'
members to purchase shares of Common Stock at an exercise price equal to 100%
of their fair market value on the grant date.
The Discretionary Option Grant Program will be administered by the
Compensation Committee. The Compensation Committee, as Plan Administrator,
will have complete discretion to determine which
39
<PAGE>
eligible individuals are to receive option grants, the time or times when such
option grants are to be made, the number of shares subject to each such grant,
the status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws, the vesting schedule to
be in effect for the option grant and the maximum term for which any granted
option is to remain outstanding. Pursuant to the terms of his employment
agreement, Mr. White will be granted an option under the 1996 Plan to purchase
120,000 shares of Common Stock. The Company expects to grant Mr. Vail an
option under the 1996 Plan to purchase 50,000 shares of Common Stock. The
Company also expects to grant to each of Mr. O'Connor and Mr. Rutherford an
option under the 1996 Plan to purchase 20,000 shares of Common Stock.
Upon an acquisition of the Company by merger or asset sale, each
outstanding option will be subject to accelerated vesting under certain
circumstances. The Compensation Committee, as Plan Administrator, of the 1996
Plan will have the authority to provide for the accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Chief
Executive Officer and any other executive officer in connection with certain
changes in control of the Company or the subsequent termination of the
officer's employment following the change in control event.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (x) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (y) the
aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of the
Common Stock on the new grant date.
Under the Automatic Option Grant Program, each individual serving as a
non-employee Board of Directors' member on the date the Underwriting Agreement
for this offering is executed will receive an option grant on such date for
10,000 shares of Common Stock. Each individual who first becomes a
non-employee Board of Directors' member thereafter will receive a 10,000-share
option grant on the date such individual joins the Board of Directors. In
addition, at each Annual Stockholders' Meeting, beginning with the 1997 Annual
Meeting, each individual who is to continue to serve as a non-employee Board
of Directors' member after the meeting will receive an aditional 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 the 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 exerciseable; 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 Director' service measured from the grant date. However,
each outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board of Directors' member.
The Board of Directors may amend or modify the 1996 Plan at any time. The
1996 Plan will terminate in June 2006, unless sooner terminated by the Board
of Directors.
EMPLOYMENT AGREEMENTS
On June 19, 1996, the Company entered into an employment agreement with
John A. White, the Company's President and Chief Executive Officer, for a
two-year term. Pursuant to his agreement,
40
<PAGE>
Mr. White will be entitled to receive a minimum base salary of $180,000 per
year, plus an annual discretionary performance-based bonus in an amount up to
50% of his base salary. Pursuant to his employment agreement, Mr. White also
received a bonus in the amount of $25,000 upon the commencement of his
employment with the Company and is also entitled to receive a guaranteed bonus
in the amount of $25,000 upon the successful completion of an initial public
offering of the Company's Common Stock with gross proceeds to the Company in
excess of $10,000,000. In addition, Mr. White is entitled to receive a stock
option to purchase 120,000 shares of the Company's Common Stock at an exercise
price per share equal to the initial public offering price in the case of
incentive stock options or 85% of the initial public offering price in the
case of non-qualified stock options. Of these options, 60,000 shares become
exercisable upon completion of 30 months of service after the commencement of
Mr. White's employment and the remaining 60,000 shares become exercisable upon
completion of 60 months after the commencement of his employment. The options
are to have a maximum term of 10 years, subject to earlier termination upon
cessation of Mr. White's employment with the Company. The agreement requires
Mr. White to devote his full time, attention and energies to the Company's
business. The agreement contains restrictive covenants pursuant to which Mr.
White has agreed not to compete with the Company for a period of one year
following termination of his employment. The agreement also prohibits
disclosure of the Company's trade secrets. There can be no assurance that any
of these provisions, if violated, would be enforceable by the Company. The
agreement further provides that, if Mr. White is terminated without "good
cause" (as such term is defined in Mr. White's employment agreement), then Mr.
White will be entitled to receive any unpaid compensation accrued through the
last day of his employment and certain "severance payments" (as such term is
defined in Mr. White's employment agreement).
KEY-MAN LIFE INSURANCE
The Company intends to maintain and will be the sole beneficiary of a $1
million key-person life insurance policy on the life of Mr. White.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that, except to the
extent prohibited by the Delaware General Corporation Law (the "DGCL"), its
directors shall not be personally liable to the Company or its stockholders
for monetary damages for any breach of fiduciary duty as directors of the
Company. Under Delaware law, the directors have fiduciary duties to the
Company that are not eliminated by this provision of the Certificate of
Incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available. In
addition, each director will continue to be subject to liability under
Delaware law for breach of the director's duty of loyalty to the Company for
acts or omissions that are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations
of law, for actions leading to improper personal benefit to the director and
for payment of dividends or approval of stock repurchases or redemptions that
are prohibited by Delaware law. This provision also does not affect the
director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws. In addition, the
Company maintains liability insurance for its officers and directors.
Section 145 of the DGCL permits the Company to, and the Certificate of
Incorporation provides that the Company may, indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was, or has agreed to
become, a director or officer of the Company, or is or was serving, or has
agreed to serve, at the request of the Company, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit
plan), or by reason of any action alleged to have been taken or omitted in
such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
or on his behalf in connection with such action, suit or proceeding and any
appeal therefrom. Such right of indemnification shall inure to such
individuals whether or not the claim asserted is based on matters that
antedate the adoption of the
41
<PAGE>
Certificate of Incorporation. Such right of indemnification shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs and personal representatives of such a person. The
indemnification provided by the Certificate of Incorporation shall not be
deemed exclusive of any other rights that may be provided now or in the future
under any provision currently in effect or hereafter adopted by the
Certificate of Incorporation, by any agreement, by vote of stockholders, by
resolution of directors, by provision of law or otherwise. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors of the Company pursuant to the foregoing provision, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Section 102(b)(7) of the DGCL permits a corporation to eliminate or limit
the personal liability of a director to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, provided that
such provision shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL relating to unlawful dividends, stock purchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) of the DGCL is designed, among other things, to
encourage qualified individuals to serve as directors of Delaware
corporations. The Company believes this provision will assist it in securing
the services of qualified directors who are not employees of the Company. This
provision has no effect on the availability of equitable remedies, such as
injunction or rescission. If equitable remedies are found not to be available
to stockholders in any particular case, stockholders may not have any
effective remedy against actions taken by directors that constitute negligence
or gross negligence.
CERTAIN TRANSACTIONS
MOSCOM RELATIONSHIP
Effective June 26, 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of the Votan division to the Company.
In connection with the Formation, the Company has entered into the following
agreements with MOSCOM which govern the continuing relationship between MOSCOM
and the Company; (i) a Subsidiary Formation Agreement; (ii) a License
Agreement and (iii) a Service and Supply Agreement.
Pursuant to the Subsidiary Formation Agreement (the "Formation Agreement"),
MOSCOM has transfered all of the assets of its Votan division to the Company
in consideration for the issuance to MOSCOM of 1,000 (does not give effect to
the 5,500-to-1 stock split) fully paid, non-assessable shares of Common Stock
of the Company. The Company has agreed to assume and pay, perform and
discharge all debts, obligations, contracts and liabilities of MOSCOM related
to these assets. In addition, pursuant to the Formation Agreement, MOSCOM has
agreed to meet all of the capital requirements of the Company until the
earlier of March 31, 1997 or upon the consummation of a debt or equity
financing by the Company of at least $10 million. The Company has also agreed
to assume obligations relating to certain pension benefits afforded to Mr.
Vail and to pay MOSCOM for: (i) certain costs incurred by MOSCOM related to
the Formation and the hiring of executive officers of the Company, including
recruiting fees and compensation-related expenses and (ii) costs and expenses
incurred by MOSCOM in connection with the organization and funding of the
Company. Pursuant to the Formation Agreement, the Company's obligations to
reimburse MOSCOM for the costs and expenses referred to in items (i) and (ii)
above shall not exceed $200,000.
Pursuant to the License Agreement (the "License Agreement"), the Company
has granted MOSCOM a non-exclusive, non-transferable worldwide license to
continue selling the TeleVoice System, certain computer board products and
other products incorporating the Company's algorithms. MOSCOM and the Company
have also agreed to promptly disclose and license to each other on a
non-exclusive,
42
<PAGE>
royalty-free basis, all improvements to the licensed technologies and products
which they make or acquire during the term of the license. MOSCOM has the
right to grant sublicenses to end-users and distributors without prior
consent, but must obtain the Company's prior written consent for sublicenses
to other VARs. MOSCOM is required to pay one, and only one, of the following
royalties to the Company for each sale or license of the products and
technologies covered by the License Agreement: (i) $50 for each copy of the
licensed algorithms sublicensed to an end-user or distributor; (ii) $50 per
sale of a product incorporating a licensed algorithm; (iii) $50 for each
functional port on each computer board sold, if such board incorporates a
licensed algorithm and is sold with application software; or (iv) $50 for each
board or other computer board sold, if such board incorporates a licensed
algorithm but is not sold with application software. The license shall
continue in effect until terminated, with the Company having the right to
terminate in the event of MOSCOM's breach or bankruptcy and MOSCOM having the
right to terminate for any reason. The Company may terminate the license upon
30 days prior written notice to MOSCOM. MOSCOM must provide the Company with
180 days prior written notice of termination of the license. If MOSCOM
terminates because of a material breach by the Company, MOSCOM's licenses
shall survive such termination and no further royalties shall be due to the
Company.
Pursuant to the Service and Supply Agreement, MOSCOM has agreed to sell to
the Company certain speech recognition and voice verification boards for an
amount equal to 1.25 times MOSCOM's cost for each such board. In addition,
pursuant to the Service and Supply Agreement, MOSCOM has agreed to provide the
Company with certain administrative and accounting services, as the Company
may from time to time require, for a fee equal to four times the gross hourly
salary paid by MOSCOM to any employee who performs such administrative and
accounting services for Votan, multiplied by the actual number of hours
expended by each such employee to perform such services. The services to be
provided to the Company by Mr. Montevecchio as Chairman of the Board of
Directors are excluded from the Service and Supply Agreement and therefore,
the Company will not be obligated to pay any fees to MOSCOM for Mr.
Montevecchio's services in such capacity. See "Management --Director
Compensation." In the event that MOSCOM, upon Votan's request, pays premiums
on group employee benefit plans for the benefit of Votan employees, Votan has
agreed to reimburse MOSCOM in an amount equal to 105% of such premiums paid by
MOSCOM. Finally, MOSCOM has agreed to provide space at its facilities for
certain Votan employees who will perform services for Votan at such facilities
until their relocation to Votan's facilities in California. Votan is required
to pay 1.25 times MOSCOM's cost of occupancy for that portion of MOSCOM's
facilities allocated to occupancy by such Votan employees.
Pursuant to a Value Added Reseller Agreement (the "VAR Agreement"), the
Company has granted MOSCOM non-exclusive rights to sublicense the Company's
application software for the bank teller verification system (the "Products")
worldwide (except for the United States). MOSCOM may use its own VARs or
subdistributors to sublicense the Products to end-users pursuant to the terms
of the VAR Agreement. MOSCOM is obligated to pay a royalty to the Company for
each end-user sublicensed to use the Products, calculated at a rate based on
either (i) the number of bank branches where the end-user is sublicensed to
use the Products or (ii) the number of personal computers on which the
end-user is licensed to use the Products, whichever results in the greater
aggregate royalty to the Company. The Company has also agreed to provide to
MOSCOM sales, installation, system administration, technical support and
engineering and customization services at specified charges. The term of the
VAR Agreement is two years commencing September, 1996 unless terminated
earlier by either party without cause upon 180 days prior written notice or by
the Company in the event of MOSCOM's material breach upon five business days
prior written notice. All royalty payments payable to MOSCOM pursuant to the
VAR Agreement are supplemental to MOSCOM's payment obligations under the
License Agreement.
The Company believes that all transactions between the Company and MOSCOM
have been and will be on terms no less favorable to the Company than could be
obtained from unaffiliated parties. Pursuant to the Company's Bylaws, all such
future transactions before the Company's Board of Directors will be approved
by a majority of the independent members of the Company's Board of Directors.
These Bylaw provisions shall remain in effect until such time as MOSCOM holds
less than 20% of the Common Stock and may only be amended by a vote of the
stockholders of the Company, excluding MOSCOM.
43
<PAGE>
After the completion of this offering, MOSCOM will own approximately 62% of
the outstanding shares of common stock of the Company (56% if the
Underwriters' over-allotment option is exercised in full).
VAIL LOAN
MOSCOM has previously extended an employment-related relocation loan to Mr.
Vail in the principal amount of $100,000 (the "Note"). The Note bears interest
at a rate equal to the rate of appreciation of Mr. Vail's home and is due and
payable to MOSCOM on the earlier of March 23, 1997 or the sale of Mr. Vail's
residence. Currently, there is no appreciation in the value of Mr. Vail's home
and, therefore, the Note is not bearing any interest.
For information regarding employment agreements with Named Executive
Officers, see "Management --Employment Agreements." For information regarding
compensation of directors, see "Management --Director Compensation." For
information regarding options granted to executive officers, see "Management
- --1996 Stock Option Plan."
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 31, 1996, as
adjusted to reflect the Company's 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 OFFERING(1) NUMBER OF AFTER THIS OFFERING(1)
------------------------ SHARES BEING -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------ ------------ ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
MOSCOM Corporation
3750 Monroe Ave. Pittsford, NY 14534 5,500,000 100% 850,000 4,650,000 62%
Albert J. Montevecchio (2)
3750 Monroe Ave. Pittsford, NY 14534 -- -- -- --
John A. White
7020 Koll Center Parkway,
Pleasanton, California 94566 ........ -- -- -- --
Richard C. Vail
7020 Koll Center Parkway,
Pleasanton, California 94566 ........ -- -- -- --
Donald G. Heitt (3)
48634 Milmont Drive, Fremont,
California 94538 .................... -- -- -- --
All executive officers and directors
as a group (6 persons) .............. -- -- -- --
</TABLE>
- ------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which attribute beneficial ownership
of securities to persons who possess sole or shared voting power and/or
investment power with respect to these securities.
(2) Does not include shares owned by MOSCOM. Mr. Montevecchio is Chairman of
the Board, President and Chief Executive Officer and a controlling
stockholder of MOSCOM and, as a result, may be deemed to beneficially own
the shares of Common Stock owned by MOSCOM. Mr. Montevecchio disclaims
beneficial ownership of such shares.
(3) Mr. Heitt has agreed to join the Board of Directors upon the consummation
of the offering.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the Company's authorized capital
stock will consist of 20,000,000 shares of Common Stock, par value $0.01 per
share, and 1,000,000 shares of Preferred Stock, par value $0.01 per share. All
of the issued and outstanding shares of Common Stock will be fully paid and
nonassessable. In addition, upon consummation of this offering there will be
reserved for issuance 285,000 shares of Common Stock issuable upon the
exercise of the Representatives' Warrants.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to
the Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and Bylaws, as amended (the "Bylaws"), copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. Immediately following this offering, MOSCOM
will own approximately 62% of the outstanding shares of Common Stock (56% if
the Underwriters' over-allotment is exercised in full). As a result, MOSCOM
will retain the voting power required to elect all directors and approve other
matters required to be voted upon by the stockholders of the Company. See
"Risk Factors --Control by MOSCOM; Potential Conflicts of Interest" and
"Certain Transactions --MOSCOM Relationship." There are no cumulative voting
rights. Holders of Common Stock are entitled to receive ratable dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. Upon the liquidation, dissolution or winding up of the
Company, holders of Common Stock share ratably in the assets of the Company
available for distribution to its stockholders, subject to the preferential
rights of any then outstanding shares of Preferred Stock. No shares of
Preferred Stock will be outstanding immediately following the consummation of
this offering. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. All shares of Common Stock outstanding upon
the effective date of this Prospectus, and the shares offered hereby will,
upon issuance and sale, be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 1,000,000
shares of Preferred Stock in one or more series and to fix the relative
rights, preferences, privileges, qualifications, limitations and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting any series or the designation of such
series, without further vote or action by the stockholders. The Board of
Directors could, without the approval of the stockholders, issue Preferred
Stock having voting or conversion rights that could adversely affect the
voting power of the holders of Common Stock, and the issuance of Preferred
Stock could be used, under certain circumstances, to render more difficult or
discourage a hostile takeover of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
After this offering, the Representatives and/or their assigns
(collectively, with the Representatives, the "Holders"), will hold certain
warrants pursuant to which they will be entitled to certain rights with
respect to the registration of the shares of Common Stock underlying such
warrants under the Securities Act. Under the terms of such warrants, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other stockholders of the
Company, the Holders are entitled to notice of such registration and are
entitled to include the shares of Common Stock underlying such warrants in
such registration. Further, the Holders may require the Company to file one
registration statement under the Securities Act at the Company's expense with
respect to their shares of Common Stock underlying such warrants. These rights
are subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration. See "Underwriting."
46
<PAGE>
CERTAIN PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a broad range of "business combinations" with an
"interested stockholder" (defined generally as a person owning 15% of more of
a corporation's outstanding voting stock) for three years following the date
such person became an interested stockholder unless (i) before the person
becomes an interested stockholder, the transaction resulting in such person
becoming an interested stockholder or the business combination is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares owned by directors who are
also officers of the corporation or shares held by employee stock plans that
do not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender offer or exchange
offer), or (iii) on or after such date on which such person became an
interested stockholder the business combination is approved by the board of
directors and authorized at an annual or special meeting, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock excluding shares owned by the interested stockholders. The restrictions
of Section 203 do not apply, among other reasons, if a corporation, by action
of its stockholders, adopts an amendment to its certificate of incorporation
or by-laws expressly electing not to be governed by Section 203, provided
that, in addition to any other vote required by law, such amendment to the
certificate of incorporation or by-laws must be approved by the affirmative
vote of a majority of the shares entitled to vote. Moreover, an amendment so
adopted is not effective until twelve months after its adoption and does not
apply to any business combination between the corporation and any person who
became an interested stockholder of such corporation on or prior to such
adoption. The Certificate of Incorporation and Bylaws do not currently contain
any provisions electing not to be governed by Section 203 of the DGCL.
Section 203 of the DGCL may discourage persons from making a tender offer
for or acquisitions of substantial amounts of the Common Stock. This could
have the effect of inhibiting changes in management and may also prevent
temporary fluctuations in the Common Stock that often result from takeover
attempts.
Section 228 of the DGCL allows any action that is required to be or may be
taken at a special or annual meeting of the stockholders of a corporation to
be taken without a meeting with the written consent of holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, provided that the certificate of
incorporation of such corporation does not contain a provision to the
contrary. The Certificate of Incorporation contains no such provision, and
therefore stockholders holding a majority of the voting power of the Common
Stock will be able to approve a broad range of corporate actions requiring
stockholder approval without the necessity of holding a meeting of
stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company. American Stock Transfer & Trust Company is located
at 40 Wall Street, New York, New York 10005, and its telephone number is (212)
936-5100.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,500,000 shares of
Common Stock outstanding. Of these shares, the 2,850,000 shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 ("Rule 144") under the
Securities Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below. The remaining 4,650,000 shares of
Common Stock held by MOSCOM upon consummation of this offering will be
"restricted" securities within the meaning of Rule 144 (the "Restricted
Shares") and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no assurance can be given that a significant public
market for the Common Stock can be developed or sustained after this offering.
Future sales of substantial amounts of Common Stock in the public market could
have a material effect on the market price of Common Stock from time to time.
SALES OF RESTRICTED SHARES
Beginning one year after the date of this Prospectus, 4,650,000 shares of
Common Stock held by MOSCOM and subject to a lockup ("Lockup") agreement
between the Underwriters and MOSCOM will become eligible for sale in the
public market if registered or pursuant to an exemption, from registration
such as Rule 144. Pursuant to the Lockup, MOSCOM has agreed not to, directly
or indirectly, offer, pledge, sell, contract to sell, transfer or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of one
year after the date of this Prospectus without the prior written consent of
Ladenburg, Thalmann & Co. Inc., on behalf of the Representatives. In addition,
MOSCOM has the right to require registration of its shares under certain
circumstances.
In general, under Rule 144 as currently in effect, Affiliates who have
beneficially owned shares for at least two years (including the holding period
of certain prior owners) will be entitled to sell in "brokers' transactions"
or to market makers, within any three-month period commencing 90 days after
the Company becomes subject to the reporting requirements of Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks immediately preceding such
sale, subject, generally, to the filing of a Form 144 with respect to such
sales and certain other limitations and restrictions. In addition, a person
(or person whose shares are aggregated) who is not deemed to have been an
Affiliate at any time during the 90 days immediately preceding the sale and
who has beneficially owned the shares proposed to be sold for at least three
years is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above. Further, Rule 144A under the Securities Act as
currently in effect permits the immediate sale of restricted shares to certain
qualified institutional buyers without regard to the volume restrictions
described above.
SHARES RESERVED FOR ISSUANCE
Options. As of the date hereof, the Board of Directors and the stockholders
have authorized the issuance of an aggregate of up to 825,000 shares of Common
Stock for issuance pursuant to the 1996 Stock Option Plan. As of August 31,
1996, no options were outstanding under the 1996 Stock Option Plan, however,
the Company intends to grant each of Mr. White, the Company's Chief Executive
Officer, and Mr. Vail, the Company's Executive Vice President, options to
purchase 120,000 and 50,000 shares of Common Stock, respectively. The Company
also intends to grant each of Mr. O'Connor, the Company's Chief Financial
Officer, and Mr. Rutherford, the Company's Vice President of Sales and
Marketing, options to purchase 20,000 shares of Common Stock, respectively.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act approximately 90 days after the date of this
Prospectus to register the 825,000 shares available for issuance under the
1996 Stock Option Plan.
48
<PAGE>
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 285,000 shares reserved for issuance upon
exercise of the Representatives' Warrants. See "Underwriting."
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriters named below (the "Underwriters"),
have severally, and not jointly, agreed, through Ladenburg, Thalmann & Co.
Inc. and Kaufman Bros., L.P., the Representatives of the Underwriters (the
"Representatives"), to purchase from the Company and the Selling Stockholder,
and the Company and the Selling Stockholder have agreed to sell to the
Underwriters, the aggregate number of shares set forth opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ------------------- ---------
<S> <C>
Ladenburg, Thalmann & Co. Inc. ........................
Kaufman Bros., L.P. ...................................
-----------
Total .............................................. 2,850,000
===========
</TABLE>
The Underwriters are committed to take and to pay for all of the shares of
Common Stock offered hereby (other than the shares covered by the
over-allotment option described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer all or
part of the Common Stock offered hereby directly to the public initially at
the price to the public set forth on the cover page of this Prospectus, that
they may offer shares to certain dealers at a price which represents a
concession of not more than $ per share, and that the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the commencement of this offering, the price to
the public and the concessions may be changed.
The Selling Stockholder has granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up
to 427,500 additional shares of Common Stock at the same price per share as
the initial 2,850,000 shares to be purchased by the Underwriters. The
Underwriters may exercise this option only to cover over-allotments, if any.
To the extent the Underwriters exercise this option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase the
same percentage thereof as the percentage of the initial 2,850,000 shares to
be purchased by that Underwriter.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act of 1933, as amended, and to contribute to payments the
Underwriters may be required to make in respect thereof.
The Company has agreed to issue to the Representatives, for their own
account, warrants (the "Representatives' Warrants") to purchase 285,000 shares
of Common Stock, exercisable for a period of four years commencing one year
from the date of this offering, at a price equal to the greater of (i) $10.00
per share or (ii) 125% of the initial public offering price, subject to
adjustment in certain events. The Representatives' Warrants contain customary
antidilution provisions and certain registration rights relating to the
securities issuable upon exercise of the Representatives' Warrants.
Upon consummation of the offering, the Company has agreed to pay an amount
equal to the lesser of (i) 1% of the gross proceeds from this offering or (ii)
$250,000 to Grady & Hatch, Inc., an advisor to MOSCOM and the Company, for
services rendered to the Company.
50
<PAGE>
The Company and MOSCOM have agreed, pursuant to the Lockup, not to,
directly or indirectly, offer, pledge, sell, contract to sell, transfer or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock for a period
of one year after the date of this Prospectus without the prior written
consent of Ladenburg, Thalmann & Co. Inc., on behalf of the Representatives.
Prior to this offering, there has been no public market for the Common
Stock. The proposed initial public offering price has been determined by
negotiations among the Company, the Selling Stockholder and the
Representatives. Among the factors considered in such negotiations were the
Company's results of operations and financial condition, the prospects for the
Company and for the industry in which the Company operates, the Company's
capital structure and the general condition of the securities market. The
estimated offering price set forth on the cover of this Prospectus is subject
to change as a result of market conditions and other factors.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby and that the Underwriters do not intend to confirm sales
of shares to any account over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Brobeck, Phleger & Harrison LLP, New
York, New York. Certain legal matters in connection with the sale of the
shares of Common Stock offered hereby will be passed upon for the Underwriters
by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports thereon and included in
reliance upon the authority of such firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549 (the "Commission") a Registration Statement on Form S-1
(including all amendments and exhibits thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement, including exhibits, schedules and
reports filed as a part thereof. Statements contained in this Prospectus as to
the contents of any contract or other document filed as an exhibit to the
Registration Statement referred to herein set forth the material terms of such
contract or other document but are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission in Washington, D.C. and copies of all or any part of which
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at The Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Registration Statement, including the exhibits and schedules
thereto, can also be accessed through the EDGAR terminals in the Commission's
Public Reference Rooms in Washington, Chicago and New York or through the
World Wide Web at http://www.sec.gov.
51
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants ......................... F-2
Balance Sheets .................................................... F-3
Statements of Operations .......................................... F-4
Statements of Changes in Stockholder's Equity .................... F-5
Statements of Cash Flows .......................................... F-6
Notes to Financial Statements ..................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholder of Votan Corporation:
We have audited the accompanying balance sheets of Votan Corporation
(formerly a division of MOSCOM Corporation) as of December 31, 1995 and 1994,
and the related statements of operations, changes in stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of MOSCOM's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Votan Corporation as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Rochester, N.Y.
June 28, 1996
F-2
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................... $ 2,000 $ 8,000 $ 32,000
Accounts receivable ................................ 108,000 2,000 --
Other assets ....................................... 1,000 -- 340,000
---------- ---------- -----------
Total current assets .............................. 111,000 10,000 372,000
---------- ---------- -----------
PROPERTY AND EQUIPMENT, net ......................... 87,000 63,000 54,000
---------- ---------- -----------
CAPITALIZED SOFTWARE, net of accumulated
amortization of $216,000 and $195,000 in 1994 and
1995, respectively, and $265,000 at June 30, 1996 . 415,000 269,000 252,000
---------- ---------- -----------
Total assets ..................................... $613,000 $342,000 $678,000
========== ========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accrued payroll, commissions and related taxes .... $ 16,000 $ 17,000 $ 33,000
Deferred compensation .............................. 189,000 207,000 --
Due to MOSCOM Corporation .......................... -- -- 88,000
Other accrued liability ............................ -- -- 340,000
---------- ---------- -----------
Total current liabilities ......................... 205,000 224,000 461,000
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES .......................
STOCKHOLDER'S EQUITY:
Preferred stock; 100,000 shares authorized, none
issued and outstanding at June 30, 1996, $.01 par
value ............................................. -- -- --
Common stock; 10,000,000 shares authorized,
5,500,000 shares issued and outstanding at June
30, 1996, $0.01 par value ......................... -- -- 55,000
Additional paid-in capital ......................... -- -- 162,000
Divisional equity .................................. 408,000 118,000 --
---------- ---------- -----------
Total stockholder's equity ........................ 408,000 118,000 217,000
---------- ---------- -----------
Total liabilities and stockholder's equity ...... $613,000 $342,000 $678,000
========== ========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these balance sheets.
F-3
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ -------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES ................................ $ 517,000 $ 593,000 $ 572,000 $ 225,000 $ 183,000
COST OF SALES:
Direct costs ........................ 181,000 122,000 132,000 50,000 67,000
Amortization of software development
costs .............................. 126,000 183,000 197,000 128,000 70,000
------------ -------------- ------------ ------------ ------------
307,000 305,000 329,000 178,000 137,000
------------ -------------- ------------ ------------ ------------
Gross profit ........................ 210,000 288,000 243,000 47,000 46,000
OPERATING EXPENSES:
Engineering and software
development, net ................... 342,000 579,000 424,000 212,000 227,000
Selling and marketing ............... 223,000 293,000 323,000 148,000 91,000
General and administrative .......... 490,000 418,000 386,000 187,000 290,000
------------ -------------- ------------ ------------ ------------
1,055,000 1,290,000 1,133,000 547,000 608,000
------------ -------------- ------------ ------------ ------------
Loss from operations ................ (845,000) (1,002,000) (890,000) (500,000) (562,000)
PROVISION FOR TAXES .................. 1,000 1,000 1,000 -- --
------------ -------------- ------------ ------------ ------------
NET LOSS ............................. $ (846,000) $(1,003,000) $ (891,000) $(500,000) $ (562,000)
============ ============== ============ ============ ============
UNAUDITED PRO FORMA NET LOSS PER
SHARE ............................... $ (0.16) $ (0.10)
============ ============
Weighted average shares outstanding . 5,500,000 5,500,000
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-4
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
DIVISIONAL PREFERRED COMMON PAID-IN
EQUITY STOCK STOCK CAPITAL
------------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Balance --January 1, 1993 ......................... $ 262,000 -- -- --
Net loss .......................................... (846,000) -- -- --
Contribution from MOSCOM Corporation .............. 1,079,000 -- -- --
------------- ----------- --------- ------------
Balance --December 31, 1993 ....................... 495,000 -- -- --
Net loss .......................................... (1,003,000) -- -- --
Contribution from MOSCOM Corporation .............. 916,000 -- -- --
------------- ----------- --------- ------------
Balance --December 31, 1994 ....................... 408,000 -- -- --
Net loss .......................................... (891,000) -- -- --
Contribution from MOSCOM Corporation .............. 601,000 -- -- --
------------- ----------- --------- ------------
Balance --December 31, 1995 ....................... 118,000 -- -- --
Net loss (unaudited) .............................. (562,000) -- -- --
Contribution from MOSCOM Corporation (unaudited) . 661,000 -- -- --
Transfer to common stock (unaudited) .............. (55,000) -- 55,000 --
Transfer to additional paid-in capital (unaudited) (162,000) -- -- 162,000
------------- ----------- --------- ------------
Balance --June 30, 1996 (unaudited) ............... $ -- $ -- $55,000 $162,000
============= =========== ========= ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-5
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ -------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $ (846,000) $(1,003,000) $(891,000) $(500,000) $(562,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation ...................................... 22,000 28,000 26,000 14,000 13,000
Amortization of capitalized software .............. 126,000 183,000 197,000 128,000 70,000
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable .............................. (26,000) (41,000) 106,000 76,000 2,000
Other assets ..................................... (1,000) -- 1,000 1,000 --
Increase (decrease) in:
Accrued payroll, commissions and related taxes .. -- -- 1,000 6,000 16,000
Deferred compensation ............................ 13,000 (4,000) 18,000 (16,000) (207,000)
Due to MOSCOM Corporation ........................ -- -- -- -- 88,000
------------ -------------- ------------ ------------ ------------
Net cash used in operating activities .......... (712,000) (837,000) (542,000) (291,000) (580,000)
------------ -------------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, furniture and fixtures ..... (54,000) -- (2,000) (1,000) (4,000)
Capitalized software expenditures .................. (308,000) (104,000) (51,000) -- (53,000)
------------ -------------- ------------ ------------ ------------
Net cash used in investing activities .......... (362,000) (104,000) (53,000) (1,000) (57,000)
------------ -------------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net contribution from MOSCOM Corporation .......... 1,079,000 916,000 601,000 299,000 661,000
------------ -------------- ------------ ------------ ------------
Net cash provided by financing activities ...... 1,079,000 916,000 601,000 299,000 661,000
------------ -------------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH ..................... 5,000 (25,000) 6,000 7,000 24,000
CASH, beginning of period ........................... 22,000 27,000 2,000 2,000 8,000
------------ -------------- ------------ ------------ ------------
CASH, end of period ................................. $ 27,000 $ 2,000 $ 8,000 $ 9,000 $ 32,000
============ ============== ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-6
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND BASIS OF PRESENTATION:
Votan Corporation ("Votan" or the "Company"), formerly a division of MOSCOM
Corporation ("MOSCOM"), a Delaware corporation, was incorporated in Delaware
in June 1996 and is a wholly-owned subsidiary of MOSCOM. Votan's business and
operations were acquired by MOSCOM in September 1991 from a predecessor
company which had been engaged in speech recognition and voice verification
research and development since 1979. As discussed in Note 10, effective June
26, 1996, MOSCOM transferred substantially all of the voice verification and
speech recognition business, operations (including research and development),
assets and liabilities of its Votan division to the Company. The financial
statements have been prepared on a stand-alone basis in accordance with
generally accepted accounting principles as if the Company were a separate
entity for all periods presented. The net assets for the Company as of June
30, 1996 have been transferred to common stock and additional paid-in capital,
reflecting MOSCOM's initial capitalization of the Company. The Company will
begin accumulating its retained earnings as of July 1, 1996. Earnings for the
period June 26, 1996 through June 30, 1996 were not significant. Votan's sales
in the accompanying financial statements have been determined based upon
existing sales of Votan's Speech Recognition and Voice Verification Boards and
VoiceLock products, certain of which are not currently being marketed.
Hereafter, the "Company" or "Votan" refers to the Votan division prior to June
26, 1996 and to Votan Corporation on and subsequent to June 26, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of the Business
Votan is a developer of advanced speech technologies utilized in speech
recognition and voice verification applications used to ensure the security of
financial transactions, databases and physical facilities. The Company's
products are manufactured by contract computer board manufacturers, one of
which, historically, has been MOSCOM.
Interim Financial Information
Unaudited interim financial information as of June 30, 1996 and for the six
month periods ended June 30, 1995 and 1996, have been prepared in accordance
with generally accepted accounting principles for interim financial
information. In the opinion of management, the interim financial information
included herein contains all normal and recurring adjustments necessary to
present fairly the financial position of the Company as of June 30, 1996, and
the results of operations and cash flows for the six month periods ended June
30, 1995 and 1996. Results for interim periods are not indicative of annual
results. The unaudited interim financial statements have been prepared on a
basis consistent with the audited statements as of December 31, 1995. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission.
Management's Use of Estimates and Judgment
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reflected at fair value because of
the short-term maturity of these instruments.
F-7
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Cash Equivalents
All highly liquid investments with a remaining maturity of three months or
less at the date of acquisition are classified as cash equivalents.
Inventories
The Company does not maintain inventory. Inventories are manufactured on a
contract basis as required. Cost of sales on Votan products are reflected
herein at MOSCOM's costs. See Note 9 for a further description of related
party transactions.
Other Assets
As of June 30, 1996, the Company has reflected approximately $340,000
(unaudited) as other assets, which represents costs incurred as of that date
relating to the proposed initial public offering of its Common Stock. Upon
successful completion of the initial public offering, these costs will reduce
the net proceeds from the offering and be recorded as a reduction of paid in
capital. Otherwise, these costs will be paid by MOSCOM. These costs have also
been reflected as other accrued liabilities on the accompanying balance sheet
at June 30, 1996.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed on a
straight-line basis using the following estimated useful lives:
Computer hardware and software .... 3-5 years
Machinery and equipment ............ 4-7 years
Furniture and fixtures ............. 5-10 years
Software Development Costs
Software development costs meeting recoverability tests are capitalized and
amortized on a product-by-product basis over their economic lives, generally
three years, or the ratio of current revenues to current and anticipated
revenues from such software, whichever provides the greater amortization. The
Company continually evaluates, based upon cash flow projections on a product
basis and other factors as appropriate, whether events and circumstances have
occurred that indicate that the remaining estimated useful life of the
applicable asset warrants revision or that the remaining balance of the asset
may not be recoverable. Software development costs and related accumulated
amortization are written off when fully amortized.
Stockholder's Equity
Stockholder's equity represents a summary of all intercompany activity
between Votan and MOSCOM as well as the accumulation of losses. The Company
will begin accumulating retained earnings as of July 1, 1996. The Company's
earnings from June 26, 1996 to June 30, 1996 were not significant.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. The accompanying financial statements do not reflect the sales of
the Company's products as part of products or systems sold by MOSCOM. Upon
completion of the transaction referred to in Note 10, the Company will receive
royalty income relative to such sales.
F-8
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income Taxes
MOSCOM Corporation files a consolidated federal income tax return in the
United States. Votan is not a separate taxable entity. Its results have been
included in MOSCOM's consolidated federal tax return. Income taxes have been
provided herein as if the Company had filed a separate return. The Company
accounts for income taxes under the liability method. Under this method, any
deferred income taxes recorded are provided for at current statutory rates to
reflect the impact of "temporary" differences between the amounts of assets
and liabilities for financial reporting purposes and such amounts as measured
by tax laws and regulations. Net operating loss tax carryforwards reflected
herein have been utilized by MOSCOM and will not be available for use in
future periods.
Unaudited Pro Forma Net Loss Per Share
Pursuant to Securities and Exchange Commission requirements, losses per
share and share disclosures of the Company are presented on a pro forma basis
for the most recent year presented and the most recent interim period
presented, giving retroactive effect to the capitalization (see Note 10) of
the Company and the 5,499 per share stock dividend on the Common Stock (see
Note 11).
Deferred Compensation Plan
The Company provides certain management employees with the opportunity to
participate in an unfunded, deferred compensation program. One management
employee was covered under this Plan. Under the Plan, employees can defer a
portion of their salary.
New and Pending Accounting Pronouncements
Effective January 1, 1996, the Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
requires long-lived assets as well as identified intangibles be reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of the assets may not be recoverable. The impact of implementation of
this statement was insignificant.
In October 1993, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." Although the statement
encourages entities to adopt the fair value based method of accounting for
stock options, the Company intends to continue to measure compensation for
such plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Adoption of
SFAS No. 123 in 1996 will require the Company to disclose additional
information relative to issued stock options and the Company's pro forma net
income and earnings per share, as if the options granted were expensed at
their estimated fair value at the time of grant.
F-9
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
3. PROPERTY AND EQUIPMENT:
The major classifications of property and equipment as of December 31, 1994
and 1995 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment .......... $ 16,000 $ 18,000 $ 18,000
Computer hardware and software .. 84,000 84,000 88,000
Furniture and fixture ............ 58,000 58,000 58,000
--------- --------- -----------
Property and equipment, at cost . 158,000 160,000 164,000
Less: Accumulated depreciation .. 71,000 97,000 110,000
--------- --------- -----------
Total property and equipment, net $ 87,000 $ 63,000 $ 54,000
========= ========= ===========
</TABLE>
4. ENGINEERING AND SOFTWARE DEVELOPMENT EXPENDITURES:
Engineering and software development expenditures incurred during the years
ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995
and 1996 were recorded as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Engineering and software development
expense included in the statements of
operations ............................ $342,000 $579,000 $424,000 $212,000 $227,000
Amounts capitalized and included in the
balance sheets ........................ 308,000 104,000 51,000 -- 53,000
---------- ---------- ---------- ---------- ----------
Total expenditures for engineering and
software development ................. $650,000 $683,000 $475,000 $212,000 $280,000
========== ========== ========== ========== ==========
</TABLE>
5. FINANCING:
MOSCOM has utilized a centralized cash management system. As such, cash had
not been allocated on a divisional level. All of the Company's receipts were
collected by MOSCOM and MOSCOM was liable for all of the Company's purchases.
Cash collected or paid on behalf of the Company by MOSCOM was accounted for as
dividends or capital contributions, respectively, against divisional equity.
The Company has not reflected either interest income or interest expense on
centralized cash balances or borrowings.
The Company has been dependent on MOSCOM for its liquidity needs. MOSCOM
has committed to continue to meet the Company's capital requirements until the
earlier of March 31, 1997 or the consummation of debt or equity financing by
the Company of at least $10 million. MOSCOM has no further obligation to
provide the Company with additional capital resources beyond such time.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Sales to three customers were approximately 28%, 12% and 11% of the
Company's total sales in 1993. Sales to one customer was approximately 21% of
the Company's total sales in 1994. Sales to two customers amounted to
approximately 56% and 12% of the Company's total sales in 1995.
F-10
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK: (Continued)
Export sales to European companies amounted to $83,000, $359,000 and
$397,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
7. INCOME TAXES:
The accompanying financial statements reflect an effective tax rate of 40%,
which reasonably reflects what the Company's tax rate would have been as a
separate taxable entity. No net tax benefit has been reflected in the
accompanying financial statements for losses incurred in the years ended
December 31, 1993, 1994 and 1995, as the tax loss carryforwards generated in
those years by Votan are fully offset by increases in the valuation allowance.
The income tax provision for the years ending December 31, 1993, 1994 and
1995 includes the following:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ........................ $ -- $ -- $ --
State .......................... 1,000 1,000 1,000
Deferred:
Federal ........................ (277,000) (324,000) (286,000)
State .......................... (30,000) (49,000) (48,000)
Increase in valuation allowance 307,000 373,000 334,000
</TABLE>
The income tax provision differs from those computed using the statutory
federal rate of 34%, for the years ended December 31, 1993, 1994 and 1995 due
to the following:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate .................. $(287,000) $(341,000) $(303,000)
State taxes, net of federal tax benefit (20,000) (32,000) (31,000)
Increase in valuation allowance ....... 307,000 373,000 334,000
Other .................................. 1,000 1,000 1,000
------------ ------------ ------------
Total ................................ $ 1,000 $ 1,000 $ 1,000
============ ============ ============
</TABLE>
The deferred income tax asset (liability) recorded in the accompanying
balance sheets results from temporary differences between financial statement
and tax basis of assets and liabilities at December 31, 1994 and 1995 as
follows:
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Net operating loss carryforwards $1,051,000 $ 1,318,000
Fixed assets ............................. (10,000) (9,000)
Capitalized software ..................... (166,000) (107,000)
Deferred compensation .................... 78,000 85,000
Valuation allowance ...................... (953,000) (1,287,000)
------------ -------------
Deferred asset (liability) ............. $ -- $ --
============ =============
</TABLE>
Net operating loss tax carryforwards reflected herein have been utilized by
MOSCOM and will not be available for use in future periods.
F-11
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases its office facilities under an operating lease which
expires in 1998. Rent expense under this operating lease (exclusive of real
estate taxes and other expenses payable under this lease) was $79,000, $69,000
and $23,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. The future minimum payments under this operating lease for the
years ending December 31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 .......................... $31,000
1997 .......................... 34,000
1998 .......................... 21,000
---------
Total minimum lease payments $86,000
=========
</TABLE>
MOSCOM rent expense allocated to the Company was $9,000, $17,000 and
$13,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
This is included within the allocations discussed in Note 9.
Subsequent to June 30, 1996, the Company entered into a new operating
lease. See Note 11.
Employment Agreements
In June 1996, the Company entered into a two year employment agreement with
one key executive. This agreement entitles the executive to bonuses of $25,000
upon execution of the employment agreement, $25,000 upon completion of a
successful initial public offering and a salary of $180,000 per annum.
Furthermore, in the event of a successful initial public offering, the Company
intends to grant the executive options to purchase an aggregate amount of
120,000 shares of the Company's common stock at an exercise price equal to the
initial public offering price in the case of incentive stock options or 85% of
the initial public offering price in the case of non-qualified stock options
under the terms of the 1996 Stock Option Plan. See Note 10. The options will
have a maximum term of 10 years, subject to earlier termination upon cessation
of the employee's employment with the Company. Pending the successful
completion of the initial public offering, the options will become exercisable
in the following fiscal years:
<TABLE>
<CAPTION>
<S> <C>
1996 ........................ --
1997 ........................ --
1998 ........................ --
1999 ........................ 60,000
2000 ........................ --
2001 ........................ 60,000
</TABLE>
Legal Matters
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability
will not have a material adverse effect on the Company's financial condition
or results of operations.
F-12
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
9. RELATED PARTY TRANSACTIONS:
MOSCOM has provided services to Votan including, but not limited to, cash
management, financial services, management information systems and legal
services, as well as executive administration. MOSCOM has also provided
engineering technical support relative to some of the technology utilized in
Votan's products. These financial statements include an allocation of MOSCOM's
expenses for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Engineering and software development ... $161,000 $405,000 $249,000 $131,000 $139,000
Marketing ............................... 63,000 66,000 62,000 25,000 19,000
Selling ................................. 21,000 101,000 135,000 60,000 3,000
Administrative .......................... 125,000 118,000 132,000 57,000 88,000
---------- ---------- ---------- ---------- ----------
Total allocation of operating expenses $370,000 $690,000 $578,000 $273,000 $249,000
========== ========== ========== ========== ==========
</TABLE>
The above charges have been allocated based upon relative sales levels of
Votan products as a percentage of MOSCOM sales, headcount and other methods as
appropriate. Votan division employees are reflected directly in the
accompanying financial statements.
Reflected in the unaudited balance sheet as of June 30, 1996 is $88,000 due
to MOSCOM. This amount relates to certain costs reimbursable to MOSCOM
incurred on behalf of Votan in accordance with the Subsidiary Formation
Agreement (the "Formation Agreement") discussed in Note 10. These amounts will
be repaid to MOSCOM upon successful completion of the initial public offering.
Management believes that the method of allocation is reasonable. The
charges are not necessarily representative of the amounts that would have been
incurred had Votan been an unaffiliated entity. Management estimates that had
Votan been operating as an unaffiliated entity, it would have incurred total
operating expenses of $1.5 million, $2.1 million and $2.2 million for the
years ended December 31, 1993, 1994 and 1995, respectively (unaudited). The
Company anticipates that certain of these services will be outsourced in the
future to MOSCOM or some other provider if deemed to be cost efficient.
10. CAPITALIZATION:
Effective June 26, 1996, MOSCOM transferred substantially all of the voice
verification and speech recognition business, operations (including research
and development), assets and liabilities of the Votan division to the Company.
In connection with the Formation, the Company has entered into certain
agreements with MOSCOM which govern the continuing relationship between MOSCOM
and the Company, including a (i) the Formation Agreement; (ii) License
Agreement and (iii) Service and Supply Agreement.
Reflected in the unaudited balance sheet as of June 30, 1996 is the
transfer of such assets and assumption of such liabilities from MOSCOM in
accordance with the Formation Agreement. The net amount transferred to the
Company from MOSCOM has been accounted for herein as a capital contribution.
Pursuant to the Formation Agreement, MOSCOM has agreed to transfer all of
the assets of its Votan division to the Company in consideration for the
issuance to MOSCOM of 5,500,000 fully paid, non-assessable shares of Common
Stock of the Company. The Company has agreed to assume and pay, perform and
discharge all debts, obligations, contracts and liabilities of MOSCOM related
to these assets. In addition, pursuant to the Formation Agreement, MOSCOM has
agreed to meet all of the capital
F-13
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
10. CAPITALIZATION: (Continued)
requirements of the Company until the earlier of March 31, 1997 or upon the
consummation of a debt or equity financing by the Company of at least $10
million. The Company has also agreed to assume obligations relating to certain
pension benefits afforded to Mr. Vail and to pay MOSCOM for: (i) certain costs
incurred by MOSCOM related to the Formation and the hiring of executive
officers of the Company, including recruiting fees and compensation-related
expenses and (ii) costs and expenses incurred by MOSCOM in connection with the
organization and funding of the Company. The costs and expenses referred to in
(i) and (ii) above shall not exceed $200,000. In addition, the Company
authorized 100,000 shares of preferred stock and 10,000,000 shares of Common
Stock. Subsequent to June 30, 1996 the Company amended its Certificate of
Incorporation in order to increase both the authorized shares of its Preferred
Stock and Common Stock. See Note 11.
Pursuant to the License Agreement, the Company has granted MOSCOM a
non-exclusive, non-transferable worldwide license to continue selling the
TeleVoice System, certain computer board products and other products
incorporating the Company's algorithms. MOSCOM and the Company have also
agreed to promptly disclose and license to each other on a non-exclusive,
royalty-free basis, all improvements to the licensed technologies and products
which they make or acquire during the term of the license. MOSCOM has the
right to grant sublicenses to end-users and distributors without prior
consent, but must obtain the Company's prior written consent for sublicenses
to other VARs. MOSCOM is required to pay one, and only one, of the following
royalties to the Company for each sale or license of the products and
technologies covered by the License Agreement: (i) $50 for each copy of the
licensed algorithms sublicensed to an end-user or distributor; (ii) $50 per
sale of a product incorporating a licensed algorithm; (iii) $50 for each
functional port on each computer board sold, if such board incorporates a
licensed algorithm and is sold with application software; or (iv) $50 for each
board or other computer board sold, if such board incorporates a licensed
algorithm but is not sold with application software. The license shall
continue in effect until terminated, with the Company having the right to
terminate in the event of MOSCOM's breach or bankruptcy and MOSCOM having the
right to terminate for any reason. The Company may terminate the license upon
30 days' prior written notice to MOSCOM. MOSCOM must provide the Company with
180 days' prior written notice of termination of the license. If MOSCOM
terminates because of a material breach by the Company, MOSCOM's licenses
shall survive such termination and no further royalties shall be due to the
Company.
Pursuant to the Service and Supply Agreement, MOSCOM has agreed to sell to
the Company certain speech recognition and voice verification boards for an
amount equal to 1.25 times MOSCOM's cost for each such board. In addition,
pursuant to the Service and Supply Agreement, MOSCOM has agreed to provide the
Company with certain administrative and accounting services, as the Company
may from time to time require, for a fee equal to four times the gross hourly
salary paid by MOSCOM to any employee who performs such administrative and
accounting services for Votan, multiplied by the actual number of hours
expended by each such employee to perform such services. In the event that
MOSCOM, upon Votan's request, pays premiums on group employee benefit plans
for the benefit of Votan employees, Votan has agreed to reimburse MOSCOM in an
amount equal to 105% of such premiums paid by MOSCOM. Finally, MOSCOM has
agreed to provide space at its facilities for certain Votan employees who will
perform services for Votan at such facilities until their relocation to
Votan's facilities in California. Votan is required to pay 1.25 times MOSCOM's
cost of occupancy for that portion of MOSCOM's facilities allocated to
occupancy by such Votan employees.
The Company, on June 26, 1996, also adopted the 1996 Stock Option Plan.
Under this Plan, up to 825,000 shares of Common Stock have been initially
authorized for issuance. The 1996 Plan includes a Discretionary Option Grant
Program under which employees and consultants may be granted options and
F-14
<PAGE>
VOTAN CORPORATION
(FORMERLY A DIVISION OF MOSCOM CORPORATION)
NOTES TO FINANCIAL STATEMENTS --(CONTINUED)
10. CAPITALIZATION: (Continued)
an Automatic Option Grant Program under which option grants will automatically
be made to eligible non-employee members of the Board of Directors of the
Company. All options under this Plan will be at an exercise price of not less
than 85% of their fair market value at the date of grant.
11. SUBSEQUENT EVENTS (UNAUDITED):
Operating Lease
On July 8, 1996, the Company entered into a new lease for a 12,587 square
foot facility commencing December 1, 1996 and ending November 30, 2001. This
lease superseded the Company's current lease which was to expire in 1998. The
future minimum payments under these operating leases for the years ending
December 31 are as follows:
1996 ........................................ $ 54,000
1997 ........................................ 173,000
1998 ........................................ 179,000
1999 ........................................ 184,000
2000 ........................................ 191,000
2001 ........................................ 175,000
Stockholder's Equity
On September 6, 1996 the Company amended its Certificate of Incorporation
to increase the total number of authorized shares of its Preferred Stock to
1,000,000 and the total number of authorized shares of its Common Stock to
20,000,000.
On September 20, 1996 the Company declared a dividend on each issued and
outstanding share of Common Stock payable in the form of 5,499 additional
shares of Common Stock. All per share amounts have been retroactively restated
to give effect to the stock dividend.
F-15
<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
PAGE
----
Prospectus Summary .................................................. 3
Risk Factors ........................................................ 6
Use of Proceeds ..................................................... 16
Dividend Policy ..................................................... 16
Capitalization ...................................................... 17
Dilution ............................................................ 18
Selected Financial Data ............................................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ......................................................... 20
Business ............................................................ 24
Management .......................................................... 36
Certain Transactions ................................................ 42
Principal and Selling Stockholders ................................. 45
Description of Capital Stock ........................................ 46
Shares Eligible for Future Sale ..................................... 48
Underwriting ........................................................ 50
Legal Matters ....................................................... 51
Experts ............................................................. 51
Available Information ............................................... 51
Index to Financial Statements ....................................... F-1
-------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
===============================================================================
===============================================================================
2,850,000 SHARES
[LOGO]
Votan Corporation
Common Stock
-------------------
PROSPECTUS
-------------------
LADENBURG, THALMANN & CO. INC.
KAUFMAN BROS., L.P.
, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC registration fee ................................ $ 13,562
NASD filing fee ..................................... 4,433
Nasdaq National Market listing fee .................. 20,813
Printing and engraving expenses ..................... 100,000
Legal fees and expenses ............................. 275,000
Accounting fees and expenses ........................ 150,000
Blue sky fees and expenses (including counsel fees) 20,000
Transfer agent and registrar fees and expenses ..... 10,000
Financial Advisor Fees .............................. 250,000
Miscellaneous ....................................... 46,192
-----------
Total ............................................. $890,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Registrant
to, and Article 9 of the Certificate of Incorporation provides that the
Registrant may, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Registrant, or is or was serving, or has agreed to serve, at
the request of the Registrant, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities during the past
three years:
On September 20, 1996, the Registrant declared a dividend on each issued
and outstanding share of Common Stock payable in the form of 5,499
additional shares of Common Stock.
On June 26, 1996, the Registrant issued 1,000 shares of Common Stock to
MOSCOM Corporation in connection with the transfer of all of the assets of
the Votan Division of MOSCOM Corporation to the Registrant, which assets
had a book value of $217,000.
The above securities were offered by the Registrant in reliance upon an
exemption from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering or (ii)
Rule 701 under the Securities Act. No underwriters were involved in
connection with the sales of securities referred to in this Item 15.
B-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
NUMBER DESCRIPTION
------ -----------
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
4.1* Specimen certificates for shares of the Registrant's Common Stock.
4.2* Provisions of the Certificate of Incorporation and Bylaws of the
Registrant defining rights of holders of Common Stock of the
Registrant (included in Exhibits 3.1 and 3.2 to this Registration
Statement).
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Lease dated May 23, 1995 between Bernal Avenue Associates and the
Registrant.
10.2* Lease dated July 8, 1996 between Bernal Avenue Associates and the
Registrant.
10.3* Subsidiary Formation Agreement dated June 26, 1996 between the
Registrant and MOSCOM.
10.4* License Agreement dated June 26, 1996 between the Registrant and
MOSCOM.
10.5* Service and Supply Agreement dated June 26, 1996 between the
Registrant and MOSCOM.
10.6* Employment Agreement dated June 19, 1996 between the Registrant
and Mr. John A. White.
10.7 Form of Representatives' Common Stock Purchase Warrant.
10.8* 1996 Stock Option Plan.
10.9* Value Added Reseller Agreement dated September 6, 1996 between the
Registrant and MOSCOM.
10.10* Letter Agreement dated September 4, 1996 between Grady & Hatch,
Inc. and MOSCOM.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1 to this Registration Statement).
23.3* Consent of Donald G. Heitt (Director Designee).
24.1* Powers of Attorney (see Signature page).
27.1* Financial Data Schedule.
- ------------
* Previously filed.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
Financial Statements or notes thereto.
B-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.
B-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of New York, State of New York, on this 1st day of October, 1996.
VOTAN CORPORATION
By: /s/ John A. White
-------------------------------------
John A. White
President and Chief Executive Officer
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON THE 1ST DAY OF OCTOBER, 1996:
SIGNATURE TITLE(S)
- --------- --------
By: * Chairman of the Board of Directors
-------------------------
Albert J. Montevecchio
By:/s/ John A. White President, Chief Executive Officer
------------------------- and Director (Principal Executive
John A. White Officer)
By: * Executive Vice President
------------------------- and Director
Richard C. Vail
By:/s/ William E. O'Connor Chief Financial Officer, Treasurer and Secretary
------------------------- (Principal Financial and Accounting Officer)
William E. O'Connor
*By:/s/ John A. White
-------------------------
John A. White as
Attorney-in-Fact
B-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of
the Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
4.1* Specimen certificates for shares of the Registrant's
Common Stock.
4.2* Provisions of the Certificate of Incorporation and
Bylaws of the Registrant defining rights of holders of
Common Stock of the Registrant (included in Exhibits
3.1 and 3.2 to this Registration Statement).
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Lease dated May 23, 1995 between Bernal Avenue
Associates and the Registrant.
10.2* Lease dated July 8, 1996 between Bernal Avenue
Associates and the Registrant.
10.3* Subsidiary Formation Agreement dated June 26, 1996
between the Registrant and MOSCOM.
10.4* License Agreement dated June 26, 1996 between the
Registrant and MOSCOM.
10.5* Service and Supply Agreement dated June 26, 1996
between the Registrant and MOSCOM.
10.6* Employment Agreement dated June 19, 1996 between the
Registrant and Mr. John A. White.
10.7 Form of Representatives' Common Stock Purchase Warrant.
10.8* 1996 Stock Option Plan.
10.9* Value Added Reseller Agreement dated September 6, 1996
between the Registrant and MOSCOM.
10.10* Letter Agreement dated September 4, 1996 between Grady
& Hatch, Inc. and MOSCOM.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1 to this Registration Statement).
23.3* Consent of Donald G. Heitt (Director Designee).
24.1* Powers of Attorney (see Signature page).
27.1* Financial Data Schedule.
</TABLE>
- ------------
* Previously filed.
F&J DRAFT
September 30, 1996
2,850,000 Shares
VOTAN CORPORATION
Common Stock
UNDERWRITING AGREEMENT
New York, New York
September 30, 1996
Ladenburg, Thalmann & Co. Inc.
Kaufman Bros., L.P.
As Representatives of the several Underwriters
named in Schedule A hereto
c/o Ladenburg, Thalmann & Co. Inc.
540 Madison Avenue
New York, New York 10022
The undersigned, Votan Corporation, a Delaware corporation
(the "Company"), and Moscom Corporation, a Delaware corporation (the "Selling
Stockholder"), hereby confirm their agreement with you and the other
underwriters named in Schedule A annexed hereto.
Section 1. Underwriters and Representatives. The term
"Underwriters", as used herein, will mean and refer collectively to you and the
other underwriters named in Schedule A annexed hereto and the term
"Representatives" will refer to you in your capacity as the representatives of
the Underwriters. Except as may be expressly set forth below, any reference to
"you" in this Agreement shall be solely in your capacity as the
Representatives.
Section 2. Shares Offered. The Company proposes to issue and
sell to the Underwriters an aggregate of 2,000,000 shares of its authorized and
unissued common stock, $0.01 par value per share (the "Common Stock"), and the
Selling Stockholder proposes to sell to the Underwriters an aggregate of
850,000 issued and outstanding shares of Common Stock (collectively, the "Firm
Shares"). The Selling Stockholder also proposes to grant to the Underwriters an
Option (hereinafter defined) to purchase up to an
<PAGE>
additional aggregate of 427,500 shares (the "Option Shares") of Common Stock on
the terms and for the purposes set forth in Section 4(b) hereof. The Firm
Shares and the Option Shares are hereinafter sometimes together called the
"Shares."
Section 3. Representations and Warranties. (a) The Company
and the Selling Stockholder, jointly and severally, represent and warrant to
each Underwriter that:
(i) A registration statement (File No. 333-07137) on
Form S-1 relating to the Shares, including a preliminary
prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules, regulations and
instructions (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder and has
been filed by the Company with the Commission. One or more
amendments to such registration statement, including in each
case a revised preliminary prospectus, have been so prepared
and filed. If such registration statement has not become
effective as of the execution and delivery of this Agreement,
and the filing of a further amendment (the "Final Amendment")
to such registration statement is necessary to permit such
registration statement to become effective, such amendment
will promptly be filed by the Company with the Commission. If
such registration statement has become effective and any
post-effective amendment has been filed with the Commission
prior to the execution and delivery of this Agreement, the
most recent such amendment has been declared effective by the
Commission. If such registration statement has become
effective, either (A) if the Company relies on Rule 434 under
the Act, a Term Sheet (hereinafter defined) relating to the
Shares, that shall identify the preliminary prospectus
(hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A
and 424(b) under the Act, will be promptly filed with the
Commission by the Company or (B) if the Company does not rely
on Rule 434 under the Act, a final prospectus (the "Rule 430A
Prospectus") containing information permitted to be omitted
at the time of effectiveness by Rule 430A of the Rules and
Regulations will promptly be filed by the Company pursuant to
Rule 424(b) of the Rules and Regulations. The term
"preliminary prospectus" as used herein means each prospectus
subject to completion included at any time as part of such
registration statement or any amendment thereto or filed with
the Commission pursuant to Rule 424(a) of the Rules and
Regulations; such registration statement, as amended at the
time that it becomes or became effective, or, if
-2-
<PAGE>
applicable, as amended at the time the most recent
post-effective amendment to such registration statement filed
with the Commission prior to the execution and delivery of
this Agreement became effective, including financial
statements and all exhibits and information deemed to be a
part thereof at such time pursuant to Rule 430A of the Rules
and Regulations is herein called the "Registration
Statement"; the term "Term Sheet" as used herein means any
term sheet that satisfies the requirements of Rule 434 under
the Act; and the term "Prospectus" as used herein means (x)
if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Shares that is first filed pursuant to
Rule 424(b)(7) under the Act, together with the preliminary
prospectus identified therein that such Term Sheet
supplements; (y) if the Company does not rely on Rule 434
under the Act, the final prospectus relating to the Shares in
the form first filed with the Commission pursuant to Rule
424(b)(1) or (4) of the Rules and Regulations; or (z) if no
such filing is required, the form of final prospectus
included in the Registration Statement at the Effective Date
(as hereinafter defined). The date on which the Registration
Statement becomes effective is hereinafter called the
"Effective Date." Any reference herein to the "date" of a
Prospectus that includes a Term Sheet shall mean the date of
such Term Sheet.
(ii) When the Registration Statement becomes effective,
and at all subsequent times to and including the Closing Time
(hereinafter defined), and at each Option Exercise Time
(hereinafter defined), or for such longer period as the
Prospectus may be required to be delivered in connection with
sales of the Shares by the Underwriters or a dealer, the
Registration Statement and the Prospectus, including any Term
Sheet that is a part thereof (as amended or as supplemented
if the Company shall have filed with the Commission any
amendment thereof or supplement thereto; provided, that no
amendment or supplement to the Registration Statement or the
Prospectus, including as a result of the filing of a Term
Sheet, shall be made without prior consultation with you, and
your approval), will comply with the requirements of the Act
and the Rules and Regulations, will contain all statements
required to be stated therein in accordance with the Act and
the Rules and Regulations, will not contain an untrue
statement of a material fact and will not omit to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in
this
-3-
<PAGE>
subsection (ii) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon and
made in conformity with written information furnished to the
Company by or on behalf of any Underwriter specifically for
inclusion therein.
(iii) The Commission has not issued an order preventing
or suspending the use of any preliminary prospectus with
respect to the Shares and has not instituted or threatened to
institute any proceedings with respect to such an order. Each
preliminary prospectus, when filed with the Commission,
conformed in all material respects with the requirements of
the Act and the Rules and Regulations and, as of its date,
did not include any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the
representations and warranties in this sentence do not apply
to statements or omissions in each such preliminary
prospectus based upon and made in conformity with written
information furnished to the Company through the
Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(iv) The Company is, and at the Closing Time, and at
each Option Exercise Time will be, a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has, and at the
Closing Time and at each Option Exercise Time will have, the
power and authority (corporate, governmental, regulatory and
otherwise) and all necessary approvals, orders, licenses,
certificates, permits and other governmental authorizations
to conduct all of the activities conducted by it, to own or
lease all of the assets owned or leased by it and to conduct
its business as described in the Registration Statement and
the Prospectus; and is, and at the Closing Time and at each
Option Exercise Time will be, duly qualified to do business
and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted
by it and/or the character of the assets owned and leased by
it makes such qualification necessary, or in which the
failure to so qualify would have a material adverse effect on
the business, results of operations or financial condition of
the Company. The Company does not own, and at the Closing
Time and at each Option Exercise Time will not own, any
shares of stock or any other securities of any corporation or
have any equity interest in any firm, partnership,
association or other entity, except as otherwise set forth in
the Prospectus. A
-4-
<PAGE>
complete and correct copy of the certificate of incorporation
of the Company and by-laws of the Company as currently in
effect have been delivered to you and no changes therein will
be made subsequent to the date hereof and prior to the
Closing Time or each Option Exercise Time.
(v) The Company is, and at the Closing Time and at the
Option Exercise Time will be, authorized to issue only
20,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock, $0.01 par value (the "Preferred Stock"), and
has heretofore validly issued, and has outstanding, and at
the Closing Time and at each Option Exercise Time will have
outstanding, fully paid and nonassessable, 5,500,000 shares
of the Common Stock, without giving effect to the issuance of
Shares by the Company pursuant to this Agreement, and has no
shares of Preferred Stock outstanding. The Company has, and
at the Closing Time and at each Option Exercise Time will
have, reserved for issuance 825,000 shares
of Common Stock under the Company's 1996 Stock Option Plan,
of which no options to purchase shares are outstanding on the
date hereof. Except for options to be granted under the
Company's 1996 Stock Option Plan, as disclosed in the
Prospectus, subsequent to the date hereof and prior to the
Closing Time and each Option Exercise Time, the Company will
not issue or acquire any securities. Except the Warrants (as
hereinafter defined) and options under the Company's 1996
Stock Option Plan, the Company does not have outstanding, and
at the Closing Time and at each Option Exercise Time the
Company will not have outstanding, any options to purchase,
or any rights or warrants to subscribe for, or any securities
or obligations convertible into, or any contracts or
commitments to issue or sell shares of capital stock or any
warrants, convertible securities or obligations.
(vi) The financial statements of the Company (including
the footnotes thereto) filed with and as part of the
Registration Statement and the Prospectus present fairly the
financial position of the Company as of the respective dates
thereof and the statements of operations, statements of
changes in stockholder's equity and statements of cash flows
of the Company for the respective periods covered thereby,
all in conformity with generally accepted accounting
principles applied on a basis consistent with prior periods.
Arthur Anderson L.L.P. (the "Company's accountants"), who
have reported on certain of such financial statements, are
independent accountants with respect to the Company as
required by the Act and the Rules and Regulations.
-5-
<PAGE>
(vii) The Company has a duly authorized and outstanding
capitalization as disclosed in the Prospectus under
"Capitalization" and will have the adjusted capitalization
set forth therein at the Closing Time (based on the
assumptions set forth therein). The financial and numerical
information and data set forth in the Prospectus under
"Prospectus Summary," "Risk Factors," "Capitalization,"
"Dilution," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" are fairly presented and prepared
on a basis consistent with the audited financial statements
of the Company.
(viii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and prior to the Closing Time and to each Option
Exercise Time, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (A) the Company
has and will have conducted its business in substantially the
same manner as on June 30, 1996; (B) the Company has not
incurred and will not incur any material liabilities or
obligations, direct or contingent, or enter into any material
transactions not in the ordinary course of business; (C) the
Company has not paid or declared and will not pay or
declare any dividends or other distributions on its capital
stock; and (D) there has not been and will not have been any
change in the capitalization of the Company or any material
adverse change in the business, business prospects, financial
condition or results of operations of the Company.
(ix) Except as set forth in or contemplated by the
Registration Statement and the Prospectus, the Company has
not, at the Closing Time and at each Option Exercise Time
will not have, any material contingent obligations.
(x) Except as set forth in the Registration Statement
and the Prospectus, there are no actions, suits or
proceedings at law or in equity pending, or to the knowledge
of the Company, threatened, against the Company, any of its
assets or any of its officers or directors, which have not
been disclosed to you, before or by any federal, state,
county or local commission, regulatory body, administrative
agency or other governmental body, domestic or foreign,
wherein an unfavorable ruling, decision or finding would
materially adversely affect the Company or its business,
business prospects, financial condition or results of
operations. The Company is not involved in any labor dispute
and, to
-6-
<PAGE>
its knowledge, no such dispute is threatened, which dispute
would have a material adverse effect upon the business,
financial condition or results of operations of the Company.
(xi) The Company has, and at the Closing Time and at
each Option Exercise Time will have, complied in all respects
with all laws, regulations and orders applicable to it or its
business, the violation of which would have a material
adverse effect upon its legal existence or its business,
financial condition or results of operations. The Company
has, at the Closing Time and at each Option Exercise Time
will have, in all respects performed all of the material
obligations required to be performed by it, and is not, and
at the Closing Time and at each Option Exercise Time will not
be, in default under (there being no existing state of facts
which with notice or lapse of time or both would constitute a
default under) any indenture, mortgage, deed of trust, voting
trust agreement, loan agreement, letter of credit agreement,
bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or
instrument to which it is a party or by which it or any of
its property is bound which would have a material adverse
effect upon the business, financial condition or results of
operations of the Company, and, to the knowledge of the
Company and the Selling Stockholder, no other party under any
such agreement or instrument to which the Company is a party
is in default in any respect thereunder which would have a
material adverse effect upon the business, financial
condition or results of operations of the Company.
(xii) The Company (i) keeps books, records and accounts
that, in reasonable detail, accurately and fairly reflect the
transactions and disposition of the assets of the Company and
(ii) maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's
general or specific authorization, (B) transactions are
recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (C)
access to assets is permitted only in accordance with
management's general or specific authorization and (D) the
recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company
has not made any payment to any state, federal or foreign
governmental officer or official or other person charged
-7-
<PAGE>
with similar public or quasi-public duties (other than
payments required or permitted by the laws of the United
States or any jurisdiction thereof).
(xiii) The Company is not in violation of its
certificate of incorporation or by-laws, in each case as
amended as of the date hereof.
(xiv) The outstanding shares of the Common Stock
(including the Shares to be sold by the Selling Stockholder)
have been, and all of the Shares, and the shares of Common
Stock issuable upon exercise of the Warrants, will, upon
issuance and payment therefor, be, duly authorized, validly
issued, fully paid and nonassessable and not subject to
preemptive rights or similar contractual rights to purchase
securities issued by the Company. The shares of Common Stock
issuable upon exercise of the Warrants have been duly and
validly reserved for issuance. The Common Stock and the
Shares conform, and when the Registration Statement becomes
effective and at the Closing Time and at each Option Exercise
Time will conform, to all statements with regard thereto
contained in the Registration Statement and the Prospectus;
and the issuance and sale of the Shares to be issued and sold
by the Company have been duly and validly authorized.
(xv) The Company has the power and authority to execute
and deliver the Warrants on the terms and conditions set
forth herein and in the Warrants, and has taken all corporate
action necessary therefor; no consent, approval,
authorization or other order of any regulatory agency is
required for such execution or delivery except as may be
required under the Act; and when executed and delivered
pursuant to the provisions of this Agreement, the Warrants
will constitute the valid, binding and legally enforceable
obligation of the Company.
(xvi) This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and
binding agreement of the Company enforceable in accordance
with its terms; the performance of the obligations of the
Company under this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms and
provisions of, or constitute a default under (there being no
existing state of events which with notice or lapse of time
or both would constitute a default) or result (or with the
giving of notice or lapse of time or both will result) in the
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creation or imposition of any lien, charge or encumbrance
upon the assets or properties of the Company pursuant to any
indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, letter of credit agreement, bond, debenture,
note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the
Company is a party or by which the Company or any of its
properties is bound, or under the certificate of
incorporation or by-laws of the Company or under any statute
or under any order, rule or regulation applicable to the
Company or its business or properties or of any court or
other governmental body; and no consent, approval,
authorization or order of any court or governmental agency or
body is required for the consummation by the Company of the
transactions on its part herein contemplated, except such as
may be required under the Act or under state securities or
blue sky laws.
(xvii) The Company has good and marketable title to all
properties and assets owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as
are described in or referred to in the Prospectus or are not
material or important in relation to the business of the
Company. The Company has valid, subsisting and enforceable
leases for the properties described in the Prospectus as
leased by it, with such exceptions as are not material and do
not interfere with the use made, and proposed to be made, of
such properties by it.
(xviii) There is no document or contract of a character
required to be described in the Prospectus or to be filed as
an exhibit to the Registration Statement which is not
described or filed as required; and no statement,
representation, warranty or covenant made by the Company in
this Agreement or in any certificate or document required by
this Agreement to be delivered to you is, was when made, or
as of the Closing Time or any Option Exercise Time will be,
inaccurate, untrue or incorrect. No transaction has occurred
between or among the Company and the Selling Stockholder and
any of their officers, directors or stockholders or any
affiliate of any such officer, director or stockholder that
is required to be described in and is not described in the
Registration Statement and the Prospectus.
(xix) The Company has sufficient trademarks, trade names,
registered service marks, patents, patent applications,
patent rights, licenses, permits, copyright protection and
governmental or other authorizations currently required for
the conduct of its business, and
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the Company is in all material respects complying therewith
and, to the best knowledge of the Company and the Selling
Stockholder and except as otherwise set forth in the
Prospectus, the products and services, and the marks
associated therewith, used by the Company do not violate or
infringe any trademarks, trade names, registered service
marks, patents, patent rights, licenses, permits or
copyrights held or owned by any other party. Other than as
disclosed in the Prospectus, the Company has not received any
notice of violation or infringement of or conflict with
asserted rights of others with respect to any trademarks,
trade names, registered service marks, patents, patent
rights, licenses, permits, copyrights or authorizations owned
or used by the Company, or any other person. Other than as
disclosed in the Prospectus, the expiration of any such
trademarks, trade names, registered service marks, patents,
patents rights, licenses, permits, copyrights and
governmental or other authorizations would not materially
adversely affect the business, financial condition or results
of operations of the Company.
(xx) The Company intends to apply its proceeds from the
sale of the Shares for the purposes set forth in the
Prospectus under "Use of Proceeds."
(xxi) The Company is not, and does not intend to conduct
its business in a manner in which it would become, an
"investment company" as defined in Section 3(a) of the
Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xxii) All issuances and sales of securities by the
Company heretofore have been exempt from registration under
the Act and complied in all respects with the provisions of
all applicable federal and state securities laws. No holder
of any securities of the Company has the right to require
registration of shares of the Common Stock or other
securities of the Company because of the filing or
effectiveness of the Registration Statement.
(xxiii) Neither the Company nor any of its officers or
directors or affiliates (as defined in the Rules and
Regulations) has taken or will take, directly or indirectly,
any action designed to stabilize or manipulate the price of
any security of the Company, or which has constituted or
which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the
Shares.
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(xxiv) Other than its obligations to Grady & Hatch, Inc.
("Grady & Hatch") pursuant to the letter agreement dated as
of September 4, 1996 between the Selling Stockholder and
Grady & Hatch, and as set forth in the Prospectus, the
Company has not, and at the Closing Time and at each Option
Exercise Time will not have, incurred any liability for
finder's or brokerage fees or agent's commissions in
connection with the offer and sale of the Shares, this
Agreement or the transactions hereby contemplated, except for
the Underwriters' discounts and commissions provided for in
this Agreement.
(xxv) The Company has filed all federal, state and local
income and franchise tax returns required to be filed through
the date hereof and have paid all taxes due thereon, and no
tax deficiency has been, nor does the Company have any
knowledge of any tax deficiency which might be asserted
against the Company which could materially adversely affect
the business, financial condition or results of operations of
the Company.
(b) The Selling Stockholder represents and warrants
to each Underwriter that:
(i) The Selling Stockholder (A) has the power and
authority to execute and deliver this Agreement on the terms
and conditions set forth herein; (B) is, and when the
Registration Statement shall become effective and at the
Closing Time will be, the owner of the Shares to be sold by
the Selling Stockholder to the respective Underwriters
pursuant to the terms hereof, in each case free and clear of
all liens, charges, encumbrances and restrictions; (C) has
paid to the Company the full purchase price or consideration
required to be paid for such Shares; and (D) has, and when
the Registration Statement shall become effective and at the
Closing Time will have, the power and authority to convey
good and valid title to such Shares, in each case free and
clear of all liens, charges, encumbrances and restrictions.
(ii) The Selling Stockholder is, and at the Closing Time, and
at each Option Exercise time will be, a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware.
(iii) Neither the execution and delivery or performance of
this Agreement or the consummation of the transactions herein
contemplated nor the compliance with the terms hereof by the
Selling Stockholder will conflict with, or result in a
material breach of any of the terms
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or provisions of, or constitute a material default under, any
indenture, mortgage, deed of trust, guaranty, purchase
agreement or other agreement or instrument to which the
Selling Stockholder or any of such Selling Stockholder's
property is bound, or under the certificate of incorporation
or by-laws of the Selling Stockholder or under any statute,
order, rule or regulation applicable to the Selling
Stockholder or any of the Selling Stockholder's property of
any court or other governmental agency; and no consent,
approval, authorization or order of any court or governmental
agency or body is required for the consummation by the
Selling Stockholder of the transactions on the Selling
Stockholder's part herein or therein contemplated, except
such as may be required under the Act or under state
securities or blue sky laws.
(iv) At the Closing Time, all stock transfer or other
taxes (other than income taxes) which are required to be paid
in connection with the sale and transfer of the Shares to be
sold by the Selling Stockholder to the several Underwriters
hereunder will have been fully paid or provided for by the
Selling Stockholder and all laws imposing such taxes will
have been fully complied with.
(v) The Selling Stockholder has not, and at the Closing
Time will not have, taken, directly or indirectly, any action
to cause or result in, or which has constituted, or might
reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of the Common Stock
to facilitate the sale or the resale of any of the Shares.
Section 4. (a) Purchase, Sale and Delivery of the Firm
Shares; Closing Time. (i) On the basis of the representations and warranties
contained in this Agreement, and subject to the terms and conditions herein set
forth, (A) the Company agrees to sell to the Underwriters, and the Underwriters
agree to purchase from the Company, 2,000,000 Shares at and for a price of $___
per Share; and (B) the Selling Stockholder agrees to sell to the Underwriters,
and the Underwriters agree to purchase from the Selling Stockholder, 850,000
Shares at and for a price of $____ per Share. The number of Shares to be
purchased from the Company and the number of Shares to be purchased from the
Selling Stockholder, respectively (as adjusted by the Representative to
eliminate fractions), by each of the Underwriters shall be determined by
multiplying the aggregate number of such Shares to be sold by the Company or
the Selling Stockholder, as set forth above by a fraction, the numerator of
which is the total number of Firm Shares set forth opposite the name of such
Underwriter in Schedule A hereto and the denominator of which is the aggregate
number of Firm Shares. The obligations of the Underwriters under this Agreement
are several and not joint.
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<PAGE>
(ii) Delivery of the Firm Shares shall be made to you for the
accounts of the respective Underwriters, at your offices at 540 Madison Avenue,
New York, New York, or such other location in the New York metropolitan area as
you shall advise the Company by at least one full business days' notice in
writing, against payment by you on behalf of the respective Underwriters of the
purchase price therefor to the Company and the Selling Stockholder by wire
transfer in immediately available funds to the Company or the Selling
Stockholder of the respective amounts to which they are entitled, at 10:00
A.M., New York City Time, on October 8, 1996, or on such other time and
business day (Saturdays, Sundays and legal holidays in the City or State of New
York not being considered business days for the purposes of this Agreement), as
the Representatives and the Company may agree upon or as the Representatives
may determine pursuant to Section 12 hereof, which time and date are herein
called the "Closing Time." Delivery of the Firm Shares shall be made in
registered form in such name or names and in such denominations as you shall
request by at least two full business days' notice in writing. The cost of
original issue tax stamps and transfer stamps, if any, in connection with the
issuance and delivery or sale of the Firm Shares by the Company to the
respective Underwriters shall be borne by the Company; the cost of transfer
stamps, if any, in connection with the sale of the Firm Shares by the Selling
Stockholder to the respective Underwriters shall be borne by the Selling
Stockholder. The Company and the Selling Stockholder will, severally, pay and
save each Underwriter or its nominees, and any subsequent holder of the Firm
Shares, harmless from any and all liabilities with respect to or resulting from
any failure or delay in paying federal or state stamp and other transfer taxes,
if any, which may be payable or determined to be payable in connection with the
sale by the Company or the Selling Stockholder to such Underwriter of the Firm
Shares or any portion thereof.
(iii) The Company and the Selling Stockholder will make the
certificates for the Firm Shares available to you for examination at the
offices of Ladenburg, Thalmann, & Co., Inc., at 540 Madison Avenue, New York,
New York, or at such other place as you shall request, not later than 2:00
P.M., New York City Time, on the business day next preceding the Closing Time.
(b) Purchase, Sale and Delivery of the Option Shares. (i) The
Selling Stockholder hereby grants to the respective Underwriters an option (the
"Option") to purchase from the Selling Stockholder up to 427,500 Option Shares,
in the same proportion as each Underwriter has agreed to purchase the Firm
Shares, at and for a price of $______ for each Option Share; provided, however,
that the Option may be exercised only for the purpose of covering any
over-allotments which may be made by you in connection with the distribution
and sale of the Firm Shares.
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<PAGE>
(ii) The Option is exercisable by you in whole or in part at
any time or times on or before 12:00 noon, New York City time, on the day prior
to the Closing Time, and at any time or times thereafter during the period
ending 30 days after the date of the Prospectus (or if such thirtieth day shall
be a Saturday, Sunday or holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), in each case by giving notice to
the Company in the manner provided in Section 13 hereof, setting forth the
number of Option Shares as to which the Option is being exercised, the name or
names in which the certificates for such Option Shares are to be registered,
the denominations of such certificates and the date of delivery of such Option
Shares, which date, if not the Closing Time, shall not be less than two nor
more than three business days after such notice.
(iii) Upon each exercise of the Option, the Selling
Stockholder shall sell to the respective Underwriters the aggregate number of
Option Shares specified in the notice exercising the Option and the
Underwriters, on the basis of the representations and warranties of the Company
and the Selling Stockholder contained herein and in each certificate and
document contemplated under this Agreement to be delivered to you, but subject
to the terms and conditions of this Agreement, shall purchase from the Selling
Stockholder the aggregate number of Option Shares specified in such notice.
(iv) Delivery of the Option Shares with respect to which the
Option shall have been exercised shall be made to you for the account of the
respective Underwriters, at your offices at 540 Madison Avenue, New York, New
York, or such other location in the New York metropolitan area as you shall
determine and advise the Selling Stockholder, against payment by you, on behalf
of the respective Underwriters, of the purchase price therefor to the Selling
Stockholder by wire transfer in immediately available funds to the Selling
Stockholder in the amount to which the Selling Stockholder is entitled, at
10:00 A.M., New York City Time, on the date designated in the notice given by
you as above provided for, unless some other place, time and date is agreed
upon (such time and date being herein called an "Option Exercise Time"). The
cost of original issue tax stamps or transfer stamps, if any, in connection
with each issuance and delivery of the Option Shares by the Selling Stockholder
to the respective Underwriters shall be borne by the Selling Stockholder. The
Company and the Selling Stockholder will, severally, pay and save each
Underwriter, and any subsequent holder of Option Shares, harmless from any and
all liabilities with respect to or resulting from any failure or delay in
paying federal and state stamp taxes, if any, which may be payable or
determined to be payable as a result of the sale by the Selling Stockholder to
such Underwriter of the Option Shares or any portion thereof.
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<PAGE>
(v) The Selling Stockholder will make the certificates for
the Option Shares to be purchased at each Option Exercise Time available to you
for examination at the offices of Ladenburg, Thalmann & Co., Inc., at 540
Madison Avenue, New York, New York, or such other place as you shall request,
not later than 2:00 P.M., New York City time, on the business day next
preceding each Option Exercise Time.
(vi) The obligation of the respective Underwriters to
purchase and pay for Option Shares at each Option Exercise Time shall be
subject to compliance as of such date with all the conditions specified in
Section 9 hereof and the delivery to you of opinions, certificates and letters,
each dated the respective Option Exercise Time, substantially similar in scope
to those specified in Section 9 hereof, and to the absence of any occurrence
referred to in Section 11 hereof.
(c) Wire Transfer Payment; Closing. The Company hereby
acknowledges that the wire transfer by or on behalf of the Underwriters of the
purchase price for any Shares does not constitute closing of a purchase and a
sale of the Shares. Only execution and delivery of a receipt for Shares by the
Representatives indicates completion of the closing of a purchase of the Shares
from the Company. Furthermore, in the event that the Underwriters wire funds to
the Company prior to the completion of the closing of a purchase of Shares, the
Company hereby acknowledges that until the Underwriters execute and deliver a
receipt for the Shares, by facsimile or otherwise, which receipt shall be
promptly executed and delivered by the Representatives to the Company upon the
receipt of the Shares, the Company will not be entitled to the wired funds and
shall return the wired funds to the Underwriters as soon as practicable (by
wire transfer of same-day funds) upon demand. In the event that the closing of
a purchase of Shares is not completed and the wire funds are not returned by
the Company to the Underwriters on the same day the wired funds were received
by the Company, the Company agrees to pay to the Underwriters in respect of
each day the wire funds are not returned by it, in same-day funds, interest on
the amount of such wire funds in an amount representing the Underwriters' cost
of financing as reasonably determined by Ladenburg, Thalmann & Co., Inc.
Section 5. Warrants. In order to induce you to enter into
this Agreement, the Company shall execute and deliver to you, in your
individual capacity and not as the Representatives, for an aggregate purchase
price of $2,850, five-year warrants (the "Warrants") to purchase an aggregate
of 285,000 shares of the Common Stock at an exercise price per share equal to
the greater of $10.00 or 125% of the initial public offering price per share
set forth on the cover page of the Prospectus. The Warrants shall be
exercisable beginning one year from the date of the Prospectus. The Warrants
shall be in the form of Exhibit 10.7 to the
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Registration Statement. Execution and delivery of Warrants, registered in your
name or the names of such of your officers as you shall notify the Company in
writing, shall be made to you, c/o Ladenburg, Thalmann & Co., Inc., at their
offices at 540 Madison Avenue, New York, New York, at the Closing Time. The
cost of original issue tax stamps, if any, in connection with the execution and
delivery of the Warrants shall be borne by the Company.
Section 6. Registration Statement and Prospectus. (a) The
Company will deliver to you, without charge, four fully signed copies of the
Registration Statement and of each amendment thereto, including all financial
statements and exhibits, and to each Underwriter the number of conformed copies
of the Registration Statement and of each amendment thereto, including all
financial statements, but excluding exhibits, as each Underwriter may
reasonably request.
(b) The Company has delivered to each Underwriter, and each
of the Selected Dealers (hereinafter defined), without charge, as many copies
as you have requested of each preliminary prospectus heretofore filed with the
Commission and will deliver to each Underwriter and to others whose names and
addresses are furnished by such Underwriter or a Selected Dealer, without
charge, on the Effective Date, and thereafter from time to time during the
period in which the Prospectus is required by law to be delivered in connection
with sales of Shares by an Underwriter or a dealer, as many copies of the
Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of such amended or supplemented Prospectus) as you may reasonably
request; without limiting the application of this Section 6(b), the Company,
not later than (i) 6:00 PM, New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 12:00
Noon, New York City time, on such date or (ii) 9:00 AM, New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 12:00 Noon, New York City time, on
such date, will deliver to the Representatives, without charge, as many copies
of the Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming orders that
are expected to settle at the Closing Time.
(c) The Company has authorized the Underwriters to use, and
make available for use by prospective dealers, the preliminary prospectuses,
and authorizes each Underwriter, all dealers (the "Selected Dealers") selected
by you in connection with the distribution of the Shares and all dealers to
whom any of such Shares may be sold by the Underwriters or by any Selected
Dealer, to use the Prospectus, as from time to time amended or supplemented, in
connection with the sale of the Shares in accordance with the applicable
provisions of the Act, the applicable Rules and Regulations and applicable
state law until
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completion of the public offering of the Shares and for such
longer period as you may request if the Prospectus is required to be delivered
in connection with sales of the Shares by an Underwriter or a dealer.
Section 7. Covenants. (a) The Company covenants and agrees
with each Underwriter that:
(i) After the execution and delivery of this Agreement,
the Company will not, at any time, whether before or after
the Effective Date, file any Term Sheet or any amendment of
or supplement to the Registration Statement or the Prospectus
of which you shall not previously have been advised and
furnished with a copy, or which you or Fulbright & Jaworski
L.L.P. ("counsel for the Underwriters") shall not have
approved, or which is not in compliance with the Act or the
Rules and Regulations.
(ii) If the Registration Statement has not become
effective, the Company will promptly file the Final Amendment
with the Commission and will use its best efforts to cause
the Registration Statement to become effective. If the
Registration Statement has become effective, the Company will
file the Rule 430A Prospectus or other Prospectus or any Term
Sheet that constitutes a part thereof with the Commission as
promptly as practicable, but in no event later than that
permitted by Rules 434 and 424(b). The Company will promptly
advise you (A) when the Registration Statement, or any post
effective amendment thereto, shall have become effective, or
any Term Sheet or any amendments or supplements to the
Prospectus shall have been filed with the Commission; (B) of
any request of the Commission or any state or other
regulatory body for any amendment or supplement of the
Registration Statement or the Prospectus or for additional
information and the nature and substance thereof; (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary
prospectus or prohibiting the offer or sale of any of the
Shares or of the initiation of any proceedings for such
purpose; (D) of any receipt by the Company of any
notification with respect to the suspension of qualification
of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose; and (E) of
the happening of any event during the periods in which the
Prospectus is to be used in conjunction with the offer or
sale of Shares which makes any material statement made in the
Registration Statement or the
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Prospectus untrue or which requires the making of any
changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. The
Company will use its best efforts to prevent the issuance of
any stop order or any order preventing or suspending the use
of the Registration Statement or Prospectus and, if such
order is issued, to obtain the lifting thereof as promptly as
possible.
(iii) The Company will prepare and file with the
Commission, upon your request, any such amendments of or
supplements to the Registration Statement or the Prospectus,
in form and substance reasonably satisfactory to Brobeck,
Phleger & Harrison L.L.P. ("special counsel for the
Company"), as in the reasonable opinion of counsel for the
Underwriters may be necessary or advisable, and will use its
best efforts to cause the same to become effective as
promptly as possible.
(iv) The Company will comply with the Act and the Rules
and Regulations and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations
thereunder so as to permit the continuance of sales of and
dealings in the Shares under the Act and the Exchange Act. If
at any time when a prospectus is required to be delivered
under the Act an event shall have occurred as a result of
which it is necessary to amend or supplement the Prospectus
in order to make the statements therein, in light of the
circumstances existing at the time of delivery of the
Prospectus not untrue or misleading or to make the Prospectus
comply with the Act, the Company will notify you promptly
thereof and will, subject to the provisions of Section
7(a)(i) hereof, furnish to you an amendment or supplement
which will correct such statement in accordance with the
requirements of Section 10 of the Act.
(v) The Company will comply with all of the provisions of
any undertakings contained in the Registration Statement.
(vi) The Company will take all reasonable and necessary
actions to furnish to whomever you direct, when and as
requested by you, all necessary documents, exhibits,
information, applications, instruments and papers as may be
required or, in the opinion of counsel for the Underwriters,
reasonably required to permit or facilitate the sale of the
Shares. The Company will use its best efforts to qualify or
register the Shares for sale under the so-called blue sky
laws of such
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jurisdictions as you shall request, to make such
applications, file such documents and furnish such
information as may be required for such purpose and to comply
with such laws so as to continue such qualification in effect
so long as required for the purposes of the distribution of
the Shares; provided, however, that the Company shall not be
required to qualify as a foreign corporation in any
jurisdiction or to file a consent to service of process in
any jurisdiction in any action other than one arising out of
the offering or sale of the Shares.
(vii) During the period of five years commencing on the
Effective Date, the Company will furnish to each
Representative, in such number of copies as such
Representative may reasonably request, (A) within 120 days
after the end of each fiscal year of the Company, either (1)
a consolidated balance sheet of the Company and its then
consolidated subsidiaries, and a separate balance sheet of
each subsidiary, if any, of the Company the accounts of which
are not included in such consolidated balance sheet, as of
the end of such fiscal year, and consolidated statements of
income and stockholders' equity of the Company and its
consolidated subsidiaries, and separate statements of income
and stockholders' equity of each of the subsidiaries, if any,
of the Company the accounts of which are not included in such
consolidated statements, for the fiscal year then ended, all
in reasonable detail, prepared in accordance with generally
accepted accounting principles, consistently applied, and all
certified by independent accountants (within the meaning of
the Act and the Rules and Regulations), or (2) the Company's
Form 10-K for such fiscal year as filed with the Commission
in accordance with the Exchange Act; (B) within 60 days after
the end of each of the first three fiscal quarters of each
fiscal year, either (1) similar balance sheets as of the end
of such fiscal quarter and similar statements of income and
stockholders' equity for the fiscal quarter then ended, all
in reasonable detail, and all certified by the Company's
principal financial officer or the Company's principal
accounting officer as having been prepared in accordance with
generally accepted accounting principles, consistently
applied, or (2) the Company's Form 10-Q for such fiscal
quarter as filed with the Commission in accordance with the
Exchange Act; (C) as soon as available, each report furnished
to or filed with the Commission or any securities exchange
and each report and financial statement furnished to the
Company's stockholders generally; and (D) as soon as
available, such other material as such Underwriter may from
time to
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time reasonably request regarding the financial condition
and operations of the Company and its subsidiaries; provided,
however, nothing contained in this subsection (D) shall
require the Company to disclose any material to any
Underwriter to the extent that disclosure is prohibited under
applicable federal or state securities laws, rules or
regulations.
(viii) The Company will make generally available to its
security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date occurs (or 90
days, if such 12-month period coincides with the Company's
fiscal year), an earnings statement of the Company, which
will be in reasonable detail, but need not be audited, and
will cover a period of twelve months commencing after the
Effective Date. Such earnings statement shall comply with the
requirements of Section 11(a) of the Act or Rule 158 of the
Rules and Regulations. During the period of five years
commencing on the Effective Date, the Company will furnish to
its stockholders (A) within 75 days after the end of the
first three fiscal quarters of each fiscal year, quarterly
reports containing unaudited financial information, and (B)
within 120 days after the end of each fiscal year, an annual
report containing audited financial information.
(ix) Counsel for the Company, counsel for the Selling
Stockholder, the Company's accountants and the officers of
the Company will respectively furnish the opinions, the
letters and the certificates referred to in subsections (e),
(f), (g), (h), (i) and (j) of Section 9 hereof, and, in the
event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Shares
or any amendment or supplement to the Prospectus relating to
the offering of the Shares subsequent to the Effective Date,
whether pursuant to subsection (iii) of this Section 7(a) or
otherwise, such counsel, such accountants and such officers
will, at the time of such filing or at such subsequent time
as you shall specify, respectively, furnish to you such
opinions, letters and certificates, each dated the date of
its delivery, of the same nature as the opinions, the letters
and the certificates referred to in said subsections (e),
(f), (g), (h), (i) and (j) respectively, as you may
reasonably request, or, if any such opinion, letter or
certificate cannot be furnished by reason of the fact that
such counsel or such accountants or any such officer believes
that the same would be inaccurate,
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such counsel or such accountants or any such officer will
furnish an accurate opinion, letter or certificate with
respect to the same subject matter.
(x) Prior to the later to occur of the termination of the
Option and the Option Exercise Time, the Company will not
issue, directly or indirectly, without your prior consent and
that of counsel for the Underwriters, any press release or
other communication or hold any press conference with respect
to the Company or its activities or this offering.
(xi) The Company will not, without your prior written
consent, sell, contract to sell or otherwise dispose of any
securities, including shares of Common Stock, except the sale
of the Shares, the issuance of options pursuant to the
Company's 1996 Stock Option Plan (as described in the
Prospectus) or the issuance of the Warrants as described in
the Prospectus, for a period of one year after the date of
this Agreement; and the Company has caused the Selling
Stockholder and any affiliate thereof, to deliver to you on
or before the date of this Agreement an agreement,
satisfactory in form and substance to you and counsel for the
Underwriters, whereby each agrees, for a period of one year
after the date of this Agreement, not to offer, pledge, sell
or contract to sell, transfer or otherwise dispose of any
shares of Common Stock, directly or indirectly, without your
prior written consent, except for the sale of Shares to the
Underwriters pursuant to this Agreement.
(xii) The Company will not at any time, directly or
indirectly, take any action designed to or which will
constitute or which might reasonably be expected to cause or
result in the stabilization of the price of the Shares to
facilitate the sale or resale of any of the Shares.
(xiii) The Company will apply the net proceeds from the
sale of the Shares in the manner set forth under "Use of
Proceeds" in the Prospectus. Prior to the application of such
net proceeds, the Company will invest or reinvest such
proceeds only in Eligible Investments (hereinafter defined).
"Eligible Investments" shall mean the following investments
so long as they have maturities of one year or less: (A)
obligations issued or guaranteed by the United States or by
any person controlled or supervised by or acting as an
instrumentality of the United States pursuant to authority
granted by Congress; (B) obligations issued or guaranteed by
any state or political subdivision thereof rated either Aa or
higher, or MIG 1 or higher, by Moody's Investors Service,
Inc. or
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AA or higher, or an equivalent, by Standard & Poor's
Corporation, both of New York, New York, or their successors;
(C) commercial or finance paper which is rated either Prime-1
or higher or an equivalent by Moody's Investors Service, Inc.
or A-1 or higher or an equivalent by Standard & Poor's
Corporation, both of New York, New York, or their successors;
and (D) certificates of deposit or time deposits insured by
the Federal Deposit Insurance Corporation or issued by banks
or trust companies, organized under the laws of the United
States, having a minimum equity of $500,000,000.
(xiv) During the period of 180 days commencing on the date
hereof, the Company will not, without the prior written
consent of the Representatives, grant options to purchase
shares at a price less than (i) the initial public offering
price per share set forth on the cover page of the
Prospectus, or (ii) in the case of stock options granted
pursuant to the Company's 1996 Stock Option Plan, 85% of the
initial public offering price per share set forth on the
cover page of the Prospectus.
(xv) The Company has caused the Common Stock to be duly
included for quotation on the Nasdaq Stock Market's National
Market (the "National Market").
(b) The Selling Stockholder covenants and agrees with each
Underwriter that:
(i) The Selling Stockholder will not, directly or
indirectly, take any action designed to or which will
constitute or which might reasonably be expected to cause or
result in the stabilization of the price of the Shares to
facilitate the sale or the resale of any of the Shares.
(ii) If, subsequent to the date hereof, the Selling
Stockholder shall believe or have any reasonable grounds to
believe that the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any
amendment thereof or supplement thereto) contains any untrue
statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading, or that any of
the representations and warranties of the Company or the
Selling Stockholder contained herein or in any certificate or
document contemplated under this Agreement to be delivered to
you are false, the Selling Stockholder will immediately
notify you, as the Representatives, to such effect.
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(iii) The Selling Stockholder will not, without your prior
written consent, directly or indirectly, offer, pledge, sell,
contract to sell, transfer or otherwise dispose of any shares
of Common Stock or any securities convertible into, or
exchangeable or exchangeable for shares of Common Stock,
except the sale of Shares to the Underwriters pursuant to
this Agreement, for a period of one year after the Effective
Date.
(iv) The Selling Stockholder will furnish the certificates
referred to in subsections (i) and (j) of Section 9 hereof.
Section 8. Expenses. Except as otherwise set forth herein,
the Company will pay and bear all costs, fees, taxes and expenses incident to
the performance of the obligations of the Company and the Selling Stockholder
under this Agreement, including, but not limited to: (a) the costs incident to
the issuance, sale and delivery to the Underwriters of the Shares (except that
the Company will not be responsible for the underwriting discounts and
commissions with respect to shares of Common Stock being sold by the Selling
Stockholder); (b) the costs incident to the preparation, printing and filing
under the Act of each preliminary prospectus, the Prospectus, the Registration
Statement and any amendments or supplements thereof and exhibits thereto; (c)
the costs of distributing the Registration Statement and any post-effective
amendments thereto; (d) the costs of printing and distributing to the
Representatives, the other Underwriters and any Selected Dealers copies of any
preliminary prospectus, the Prospectus, the Registration Statement and any
amendment or supplement to the Prospectus or Registration Statement required by
this Agreement or the Act; (e) the costs of preparation, printing, mailing,
delivery, filing and distribution of preliminary and final blue sky memoranda,
Underwriter's Questionnaires and Powers of Attorney, letters to prospective
Underwriters, the Agreement Among Underwriters, the Selling Agreement, this
Agreement and all documents related thereto; (f) the filing fees of the
Commission; (g) the costs of qualification or registration of the Shares in the
jurisdictions referred to in subsection (a)(vi) of Section 7 hereof, including
the legal fees and expenses of counsel for the Underwriters in connection
therewith, and all filing fees in connection therewith; (h) the cost of
preparation, excluding the legal fees and expenses of counsel for the
Underwriters in connection therewith, of all filings with the National
Association of Securities Dealers, Inc. ("NASD") and all filing fees in
connection therewith; (i) fees and expenses of counsel for the Company, the
Company's accountants and the Company's consultants; (j) fees in connection
with the quotation of the Common Stock on the National Market; and (k) all
other costs and expenses incurred or to be incurred by the Company in
connection with the transactions contemplated by this Agreement.
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If the Firm Shares are not sold to the Underwriters because the conditions in
Section 9 are not satisfied or this Agreement is terminated pursuant to Section
11 or Section 12, or by reason of any failure, refusal or inability on the part
of the Company or the Selling Stockholder to perform any undertaking or satisfy
any condition of this Agreement or to comply with any of the terms hereof on
their part to be performed, unless such failure to satisfy the condition or to
comply with said terms be due to the default of any Underwriter, then (and only
then) the Company will pay all reasonable accountable out-of-pocket expenses
which you may incur in connection with this Agreement and the transactions
hereby contemplated, including all fees and expenses of counsel for the
Underwriters in connection therewith. The provisions of this Section 8 are
intended to relieve the Underwriters from payment of the costs and expenses
which the Company hereby agrees to pay and shall not effect any agreement
between the Company and the Selling Stockholder for the sharing of such costs
and expenses.
Section 9. Conditions of the Underwriters' Obligations. The
Underwriters' obligations hereunder to purchase and pay for the Shares are
subject (as of the date hereof, the Closing Time and each Option Exercise Time)
to the accuracy of and compliance with the representations and warranties of
the Company and the Selling Stockholder herein and in each certificate and
document contemplated under this Agreement to be delivered, to the accuracy of
the statements of the Company, of the Selling Stockholder and of the officers
of the Company made pursuant to the provisions hereof, to the performance by
the Company and the Selling Stockholder of their respective covenants and
agreements hereunder and under each such certificate and document, and to the
following additional conditions:
(a) (i) The Registration Statement shall have become
effective not later than 5:00 P.M., New York City time, on the date of this
Agreement, or at such later time or on such later date as you may agree to in
writing; (ii) if required, the Prospectus or any Term Sheet that constitutes a
part thereof shall have been filed with the Commission pursuant to Rules 434
and 424(b)(1) or (4) of the Rules and Regulations within the applicable time
period prescribed for such filing thereunder and in accordance with the
provisions of Section 7(a)(ii) hereof; (iii) at or prior to the
Closing Time, no stop order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Shares under the blue sky
laws of any jurisdiction (whether or not a jurisdiction which you shall have
specified) shall have been issued and no proceeding for that purpose shall have
been initiated or shall be threatened or contemplated by the Commission or the
authorities of any such jurisdiction; (iv) any request for additional
information on the part of the Commission or any such authorities shall have
been complied with to the satisfaction of the Commission or such authorities
and counsel for the
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Underwriters; (v) the NASD, upon review of the terms of the public offering of
Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same; and (vi) after the date hereof, no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed without your prior consent.
(b) You shall not have advised the Company, and the
Selling Stockholder shall not have advised any Underwriter or the Company, that
the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto contains an untrue statement of a fact which is material, or
omits to state a fact which is material and is required to be stated therein or
is necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) Between the time of the execution and delivery
of this Agreement and the Closing Time, there shall be no litigation instituted
against the Company or any of its officers or directors, and between such dates
there shall be no proceeding instituted or threatened against the Company or
any of its officers or directors before or by any federal, state, county or
local commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, in which litigation or proceeding an unfavorable
ruling, decision or finding could materially adversely affect the Company or
its business, financial condition or results of operations.
(d) Each of the representations and warranties of
the Company and the Selling Stockholder contained herein and in each
certificate and document contemplated under this Agreement to be delivered
shall be true and correct at the Closing Time as if made at the Closing Time,
and all covenants and agreements contained herein, and in each such certificate
and document, to be performed on the part of the Company or the Selling
Stockholder and all conditions contained herein and in each such certificate
and document to be fulfilled or complied with by the Company or the Selling
Stockholder at or prior to the Closing Time shall have been duly performed,
fulfilled or complied with.
(e) At the Closing Time, special counsel for the
Company shall furnish to you an opinion, in form and substance satisfactory to
you, dated as of the date of its delivery, to the effect that:
(i) The Company is a corporation duly
organized, validly existing and in good standing
under the laws of the state of its incorporation.
The Company has the corporate power and authority to
conduct all of the activities conducted by it, own
or lease all of the assets owned or leased by
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<PAGE>
it, and conduct its business as described in the
Registration Statement and the Prospectus; and is
duly qualified to do business and in good standing
as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it
and/or the character of the assets owned and leased
by it makes such qualification necessary.
(ii) No authorization, approval, consent or
license of any governmental or regulatory body,
except as may be required under the Act or the blue
sky laws of the various jurisdictions (with respect
to which such counsel need express no opinion), is
required in connection with the (A) authorization,
issuance, transfer, sale or delivery of the Shares
to be sold by the Company; (B) authorization,
issuance or delivery of the Warrants or issuance of
shares of Common Stock upon exercise of the
Warrants; or (C) taking of any action contemplated
herein or if so required all such authorizations,
approvals, consents and licenses have been obtained
and are in full force and effect.
(iii) The Company has authorized and
outstanding capital stock, stock options and
warrants as set forth in the Registration Statement
and the Prospectus. The outstanding shares of the
Common Stock (including the Shares to be sold by the
Selling Stockholder) have been, and all of the
Shares will, upon sale or issuance, and payment
therefor, be, duly authorized, validly issued, fully
paid and nonassessable, are not subject to
pre-emptive rights and have not been issued in
violation of any statutory pre-emptive rights or, to
the best of such counsel's knowledge, similar
contractual rights. The issue and sale of the Shares
by the Company have been duly and validly
authorized. The Common Stock has been duly
authorized for quotation on the National Market. All
issuances of securities by the Company were exempt
from, or complied in all respects with, the
provisions of all applicable federal and state
securities laws. Such opinion delivered at the
Closing Time shall state that each of the Shares is
duly and validly issued, fully paid and
nonassessable and not subject to preemptive rights.
(iv) To the best of such counsel's
knowledge, no holder of any securities of the
Company has the right to require registration of
shares of the Common Stock or other securities of
the Company
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<PAGE>
because of the filing or effectiveness of the
Registration Statement. The description of the
Common Stock and the Shares contained in the
Registration Statement and the Prospectus conforms
to the rights set forth in the instruments defining
the same and is in conformity with the requirements
of Item 9 of the Registration Statement.
(v) The Company is not an "investment
company" as defined in Section 3(a) of the
Investment Company Act and, if the Company conducts
its business as set forth in the Registration
Statement and the Prospectus, will not become an
"investment company" and will not be required to
register under the Investment Company Act; the
Company has not been required to make any filings
pursuant to the Exchange Act.
(vi) The Company has full corporate power
and authority to enter into the Warrants. The
Warrants have been duly authorized, and upon due
execution, issuance and delivery, will constitute
the valid, binding and legally enforceable
obligation of the Company. Such opinion delivered at
the Closing Time shall state that the Warrants have
been duly executed, issued and delivered and
constitute the valid and legally enforceable
obligation of the Company. The shares of Common
Stock required to be sold or issued by the Company
upon exercise of the Warrants have been duly
authorized and reserved for sale or issuance, and,
when sold or issued and delivered upon payment of
the exercise price therefor as provided in the
Warrants, will be duly and validly issued, fully
paid and nonassessable.
(vii) The Company has full corporate power
and authority to enter into this Agreement and this
Agreement has been duly authorized, executed and
delivered by the Company.
(viii) The Registration Statement and the
Prospectus, and each amendment thereof or supplement
thereto, comply as to form with, and appear on their
face to be appropriately responsive in all material
respects, to the requirements of the Act and the
Rules and Regulations (except that no opinion need
be expressed as to financial statements and other
financial data contained in the Registration
Statement or the Prospectus).
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<PAGE>
(ix) All contracts filed as exhibits to the
Registration Statement and the Prospectus have been
fairly summarized or described therein, conform in
all material respects to the descriptions thereof
contained therein and such counsel does not know of
any contracts or documents required to be so
summarized or disclosed or so filed which have not
been so summarized or disclosed or so filed, and
such counsel does not know of any statutes or
regulations or pending or threatened legal or
governmental proceedings required to be disclosed in
the Prospectus which have not been described as
required.
(x) The Registration Statement has become
effective under the Act, and, to the knowledge of
such counsel, no stop order suspending the
effectiveness of the Registration Statement or use
of the Prospectus has been issued and no proceedings
for that purpose have been instituted or are
threatened, pending or contemplated. The opinion
delivered at the Closing Time shall state that all
filings required by Rule 434, Rule 424 and Rule 430A
of the Rules and Regulations have been made.
(xi) The execution and delivery of this
Agreement by the Company and the Warrants by the
Company, the consummation by the Company of the
transactions herein or therein contemplated, as
applicable, and the compliance with the terms of
this Agreement, the Warrants do not and will not
conflict with or result in a breach of any of the
terms or provisions of or violate or constitute a
default under, the certificate of incorporation or
by-laws of the Company or any indenture, mortgage or
other agreement or instrument known to such counsel
to which the Company is a party or by which the
Company or any of its properties is bound.
(xii) To the best knowledge of such
counsel, the Company has obtained all trademarks,
trade names, patents, patent rights, licenses,
permits and governmental or other authorizations as
set forth in the Prospectus; to the best knowledge
of such counsel, such trademarks, trade names,
patents, patent rights, licenses, permits and
governmental or other authorizations are in full
force and effect and the Company is in all material
respects complying therewith.
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<PAGE>
(xiii) The real properties described in the
Registration Statement and the Prospectus as being
leased by the Company are held under valid,
subsisting and enforceable leases with only such
exceptions as are not material.
Such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the preliminary prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus, on the basis of the
foregoing, nothing has come to the attention of such counsel which leads them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective or the
Prospectus or any amendment or supplement thereto as of its date or the date of
such opinion contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that such counsel
need express no opinion with respect to the financial statements and schedules
and other financial and accounting data included in the Registration Statement
or Prospectus).
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Shares
hereunder as counsel for the Underwriters may reasonably request. In rendering
the opinions set forth above, such counsel may rely upon certificates of the
Selling Stockholder, officers of the Company and public officials as to matters
of fact. In rendering such opinion, such counsel may rely as to all matters of
law other than the law of the United States or of the States of New York and
Delaware upon opinions of counsel satisfactory to you, in which case the
opinion shall state that they have no reason to believe that you and they are
not entitled so to rely.
(f) At the Closing Time, Harris, Beach & Wilcox, counsel for
the Selling Stockholder shall furnish you an opinion, in the form and substance
satisfactory to you, dated as of the date of its delivery, to the effect that:
(i) The Selling Stockholder is a corporation, validly
existing and in good standing under the laws of the State of
Delaware.
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<PAGE>
(ii) No authorization, approval, consent or license of
any governmental or regulatory body, except as may be
required under the Act or the blue sky laws of the various
jurisdictions (with respect to which such counsel need
express no opinion), is required in connection with (A) the
transfer, sale or delivery of the Shares to be sold by the
Selling Stockholder; (B) the execution, delivery and
performance of this Agreement by the Selling Stockholder; or
(C) the taking of any action contemplated herein by the
Selling Stockholder, or if so required all such
authorizations, approvals, consents and licenses have been
obtained and are in full force and effect.
(iii) Upon delivery of the certificates for the Shares to
be sold by the Selling Stockholder, duly endorsed or
accompanied by duly executed stock powers, and payment
therefor in accordance with the terms hereof, each of the
Underwriters will acquire good title thereto free and clear
of any adverse claim assuming that such Underwriters
purchased such Shares in good faith and without notice (in
each case as such term is defined in the Uniform Commercial
Code in effect in the State of New York) of such adverse
claim.
(iv) The Selling Stockholder has full corporate power and
authority to execute and deliver this Agreement and to sell,
transfer and deliver the Shares being sold by the Selling
Stockholder in accordance with the terms hereof and all
actions necessary to effect the transfer of title to such
Shares, free and clear of all claims, encumbrances and
defects in title, in accordance with this Agreement, have
been duly completed; and such opinion delivered at the
Closing Time shall state that the Selling Stockholder has
taken all corporate action necessary to authorize the
execution and delivery of this Agreement and the transactions
contemplated hereby.
(v) The execution and delivery of this Agreement by the
Selling Stockholder, the consummation by the Selling
Stockholder of the transactions herein contemplated and the
compliance with the terms of this Agreement do not result in
a breach of any of the terms or provisions of or violate or
constitute a default under, the certificate of incorporation
or by-laws of the Selling Stockholder.
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<PAGE>
In rendering such opinions, Harris, Beach & Wilcox may rely
as to factual matters on the representations and warranties contained in this
Agreement and on certificates of the Selling Stockholder, officers of the
Company and public officials.
(g) Concurrently with the execution and delivery of this
Agreement and at the Closing Time, the Company's accountants shall have
furnished to you a letter, dated as of the date of its delivery, addressed to
you and in form and substance satisfactory to you, to the effect that:
(i) Such accountants are independent certified
public accountants with respect to the Company as
required by the Act and the Rules and Regulations, and
the answer to Item 10 of the Registration Statement is
correct insofar as it relates to them.
(ii) In their opinion the financial statements and
schedules and notes examined by them and included in the
Registration Statement and the Prospectus comply as to
form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations with respect to registration statements on
Form S-1.
(iii) On the basis of inquiries and procedures
conducted by them, including a reading of the latest
available unaudited interim financial statements of the
Company inquiries of officials of the Company and the
Selling Stockholder responsible for operational,
financial and accounting matters, a reading of the minute
books of the Company and other specified procedures and
inquiries, nothing has come to their attention that
caused them to believe that (A) any unaudited financial
statements of the Company set forth in the Registration
Statement and the Prospectus do not comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or
are not fairly presented in conformity with generally
accepted accounting principles applied on a basis
consistent with that of the audited financial statements;
and (B) during the period from June 30, 1996 to a
specified date not more than five days prior to the date
of such letter there was any change in the capital stock
or debt of the Company, or any decrease in the total
assets or stockholder's equity of the Company, each as
compared with the amounts shown in the balance
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sheet as of June 30, 1996 included in the
Registration Statement or any decrease from July 1, 1996
to the specified date, on a proportional basis with the
fiscal quarter ended June 30, 1996 in sales, loss from
operations, net loss and net income per share, except in
all instances for changes, decreases or increases which
the Registration Statement and the Prospectus disclose
have occurred or may occur and except for such other
changes, decreases or increases which you shall in your
sole discretion accept.
(iv) In addition to their examination referred to in
their reports included in the Registration Statement and
the Prospectus and the inquiries and limited procedures
referred to in clause (iii) above, they have performed
other procedures, not constituting an audit, with respect
to certain numerical data and financial information
appearing in the Registration Statement and the
Prospectus, requested by you and specified in such letter
and have compared such data and information with the
accounting records of the Company and found them to be in
agreement.
(h) At the Closing Time, there shall be furnished to you,
on behalf of the Company, an accurate certificate, dated the date of its
delivery, signed by each of the chief executive officer and the chief financial
officer of the Company, in form and substance satisfactory to you, to the
effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus
and (A) to his knowledge, as of the date of such
certificate, the statements in the Registration Statement
and the Prospectus are and were true and correct and
neither the Registration Statement nor the Prospectus
omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances
under which they were made, not misleading; (B) in the
case of a certificate delivered after the date of this
Agreement, since the Effective Date, no event has
occurred of which he has knowledge and which was required
by the Act or the Rules and Regulations to be set forth
in a supplement to or amendment of the Prospectus but
which has not been so set forth; and (C) since the dates
as of which and the periods for which information is
given in the Registration Statement and the Prospectus,
there has not been to his knowledge any adverse
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<PAGE>
change in the business, business prospects,
financial condition or results of operations of the
Company from that set forth in the Registration Statement
and the Prospectus, other than changes which the
Registration Statement and the Prospectus specifically
disclose have occurred or may occur subsequent to the
Effective Date.
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no
proceedings for such purpose have been commenced or are,
to the knowledge of each signer of such certificate,
threatened or contemplated by the Commission.
(iii) No stop order suspending the qualification or
registration of any of the Shares under the blue sky laws
of any jurisdiction (whether or not a jurisdiction you
shall have specified) has been issued, and no proceedings
for such purpose have been commenced or are, to the
knowledge of each signer of such certificate, threatened
or contemplated by any jurisdiction.
(iv) The conditions, separately set forth in such
certificate, contained in subsections (a), (c) and (k) of
this Section 9 have been complied with.
(v) There has been no breach of any of the terms or
provisions of the agreements referred to in Section
7(a)(xi) and 7(b)(iii) hereof.
(vi) Each of the representations and warranties of
the Company contained in this Agreement and in each
certificate and document contemplated under this
Agreement to be delivered to you was, when originally
made and is, at the time such certificate is dated, true
and correct.
(vii) Each of the covenants required herein to be
performed by the Company on or prior to the date of such
certificate has been duly, timely and fully performed and
each condition herein required to be complied with by the
Company on or prior to the date of such certificate has
been duly, timely and fully complied with by the Company.
(i) The Selling Stockholder shall have performed all of
the covenants contained herein and in any certificate or document contemplated
under this Agreement to be delivered to you
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and required to be performed by the Selling Stockholder at or prior to the
Closing Time, and you shall have received at the Closing Time a certificate of
the Selling Stockholder, dated as of the Closing Time, to the effect that the
representations and warranties of the Selling Stockholder contained in this
Agreement and in each such certificate and document are true and correct in all
respects on and as of the date of such certificate as if made on and as of such
date, and each of the covenants and conditions required to be performed or
complied with by the Selling Stockholder on or prior to the date of such
certificate has been duly, timely and fully performed or complied with.
(j) The Company and the Selling Stockholder shall
have furnished to you such certificates, in addition to those specifically
mentioned herein, as you may have reasonably requested in a timely manner as to
the accuracy and completeness, at the Closing Time, of any statement in the
Registration Statement or the Prospectus; as to the accuracy, at the Closing
Time, of the representations and warranties of the Company and the Selling
Stockholder herein and in each certificate and document contemplated under this
Agreement to be delivered to you; as to the performance by the Company and the
Selling Stockholder of their respective obligations hereunder and under each
such certificate and document; or as to the fulfillment of the conditions
concurrent and precedent to your obligations hereunder.
(k) Except as contemplated by the Registration
Statement and the Prospectus, since the date hereof, there shall not have been
any change in the capitalization of the Company or any material adverse change
in the business, financial condition or results of operations of the Company or
in the value of the assets of the Company, or any material change, without your
consent, in the conduct of the business of the Company, arising for any reason
whatsoever.
(l) Each of the agreements referred to in Section
7(a)(xi) and 7(b)(iii) hereof shall have been delivered to you and there shall
have been no breach of any such agreement.
(m) All corporate proceedings and other legal
matters relating to the sale and transfer of the Shares, this Agreement, the
Warrants, the Registration Statement, the Prospectus and other related matters
shall be reasonably satisfactory in all material respects to counsel for the
Underwriters, who shall have furnished to you at the Closing Time such opinion,
in form and substance reasonably satisfactory to you, with respect to the
sufficiency of the aforementioned corporate proceedings and other legal matters
as you may reasonably require; and the Company shall have furnished to such
counsel such records and documents as such counsel may have reasonably
requested in a timely manner for the purpose of enabling them to pass upon such
matters.
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(n) The Common Stock shall be authorized for
quotation on the National Market.
All of the opinions, letters, evidence and certificates
mentioned above or elsewhere in this Agreement shall be deemed to be in
compliance with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel for the Underwriters. You reserve the right
to waive any condition hereinabove set forth. Each opinion, certificate, letter
or other document required to be delivered at the Closing Time shall also be
required to be delivered at each Option Exercise Time.
Section 10. Indemnification and Contribution. (a) The Company and the
Selling Stockholder, jointly and severally, agree to indemnify and hold
harmless each Underwriter and each person who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act and each
and all of them, from and against any and all losses, claims, damages,
liabilities or actions, joint or several (including any investigation, legal or
other expense incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted), to which an
Underwriter or they or any of them may become subject under the Act, the
Exchange Act or otherwise but only insofar as such losses, claims, damages,
liabilities or actions arise out of, or are based upon, (i) any untrue
statement or alleged untrue statement made by the Company or the Selling
Stockholder in Section 3 of this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto or in any application or other document executed by the
Company or the Selling Stockholder based upon written information furnished by
or on behalf of the Company or the Selling Stockholder filed in any
jurisdiction in order to register or qualify the Shares under the securities
laws thereof or filed with the Commission, or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; or (iii) the employment by the Company or the
Selling Stockholder of any device, scheme or artifice to defraud, or the
engaging by the Company or the Selling Stockholder in any act, practice or
course of business which operates or would operate as a fraud or deceit, or any
conspiracy with respect thereto, in which the Company or the Selling
Stockholder shall participate, in connection with the issuance and sale of any
of the Shares; provided, however, that the indemnity agreement contained in
this subsection shall not extend to any Underwriter in respect of any such
losses, claims, damages, liabilities or actions (including any investigation,
legal or other expense incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted) arising
out of, or based upon,
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<PAGE>
any such untrue statement or alleged untrue statement or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information furnished in writing to the Company through you or on behalf of any
Underwriter specifically for use in connection with the preparation of the
Registration Statement, any preliminary prospectus or the Prospectus or any
such amendment or supplement thereto, and provided, further, that if any
preliminary prospectus or Prospectus contained any alleged untrue statement or
allegedly omitted to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and such
statement or omission shall have been corrected in a revised preliminary
prospectus or in the Prospectus or in an amended or supplemented Prospectus,
the Company and the Selling Stockholder shall not be liable to any Underwriter
or controlling person under this subsection (a) with respect to such alleged
untrue statement or alleged omission to the extent that any such loss, claim,
damage or liability of such Underwriter or controlling person results from the
fact that such Underwriter sold Shares to a person to whom there was not sent
or given, at or prior to the written confirmation of such sale, such revised
preliminary prospectus or Prospectus or amended or supplemented Prospectus. The
Company and the Selling Stockholder agree to pay any legal and other expenses
for which it is liable under this subsection (a) from time to time (but not
more frequently than monthly) within 30 days after its receipt of a bill
therefor.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who shall have signed the Registration Statement, each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act and the Selling Stockholder to the same extent as the
foregoing indemnity from the Company and the Selling Stockholder to such
Underwriter, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto was made in reliance upon information furnished in writing
to the Company by such Underwriter specifically for use in connection with the
preparation of the Registration Statement, any preliminary prospectus or the
Prospectus or any such amendment or supplement thereto; provided, however, that
the obligation of each Underwriter to indemnify the Company and the Selling
Stockholder under the provisions of this subsection (b) shall be limited to the
product of the number of Shares purchased by such Underwriter and the initial
public offering price set forth on the cover page of the Prospectus. Each
Underwriter agrees to pay any legal and other expenses for which it is liable
under this subsection (b) from time to time (but not more frequently than
monthly) within 30 days after receipt of a bill therefor.
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(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing subsections (a) or (b) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
subsections, such indemnified party shall promptly notify such indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party of any such action shall not release the indemnifying party
from any liability it may have to such indemnified party otherwise
than on account of the indemnity agreement contained in subsection (a) or (b)
of this Section 10. In case any such action is brought against an indemnified
party and it notifies an indemnifying party of the commencement thereof, the
indemnifying party against which a claim is to be made will be entitled to
participate therein at its own expense and, to the extent that it may wish, to
assume at its own expense the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that (i) if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
based upon advice of counsel that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party and representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them, the indemnified party shall have the right to select
separate counsel to assume such legal defenses and otherwise to participate in
the defense of such action on behalf of such indemnified party or parties; and
(ii) in any event, the indemnified party shall be entitled to have counsel
chosen by such indemnified party participate in, but not conduct, the defense
at such indemnified party's own expense. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 10 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel); (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action; or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. An indemnifying party shall not be liable
for any settlement of any action or proceeding effected without its written
consent.
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(d) In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in subsection
(a) or (b) of this Section 10 is unavailable in accordance with its terms, the
Company, the Selling Stockholder and, subject to the limitations set forth
below, the Underwriters shall contribute to the aggregate losses, claims,
damages and liabilities, of the nature contemplated by said indemnity
agreement, incurred by the Company, the Selling Stockholder and one or more
Underwriters, in such proportions as are applicable to reflect the relative
benefits received by the Company and the Selling Stockholder, on the one hand,
and the Underwriters, on the other hand, from the offering of the Shares;
provided, however, that if such allocation is not permitted by applicable law
or if the indemnified party failed to give the notice required under subsection
(c) of this Section 10, then the relative fault of the Company and the Selling
Stockholder, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages and liabilities and other
relevant equitable considerations will be considered together with such
relative benefits. The relative benefits received by the Company and the
Selling Stockholder, on the one hand, and the Underwriters, on the other hand,
shall be deemed to be in such proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Stockholder bear to the total
underwriting discount received by the Underwriters, in each case as set forth
in the table on the cover page of the Prospectus and in the notes thereto. The
relative fault of the Company and the Selling Stockholder, on the one hand, and
of the Underwriters, on the other, shall be determined by reference to, among
other things, whether in the case of an untrue statement or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact, such statement or omission relates to information supplied by
the Company or the Selling Stockholder, on the one hand, or by the
Underwriters, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company, the Selling Stockholder and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this subsection (d) were determined by pro-rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this subsection (d). The amount paid or payable by the
indemnified party as a result of the losses, claims, damages or liabilities
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending against or appearing as a third-party witness
in any such action or claim. Notwithstanding the provisions of this subsection
(d), (i) no Underwriter shall be required to
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<PAGE>
contribute any amount in excess of the amount by which the total price at which
the Shares purchased by it were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay in respect of
any loss, claim, damage, liability or action covered by this Section and (ii)
no person guilty of fraudulent misrepresentation within the meaning of Section
11(f) of the Act shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this subsection
(d), each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Underwriter. The Underwriters' obligations to
contribute pursuant to this subsection (d) are several in proportion to their
respective underwriting commitments and not joint.
(e) The respective indemnity and contribution agreements by
the Underwriters, the Selling Stockholder and the Company contained in
subsections (a), (b), (c) and (d) of this Section 10, and the respective
covenants, representations and warranties of the Company and the Selling
Stockholder set forth in Sections 2, 3, 4, 5, 6, 7 and 8 hereof, shall remain
operative and in full force and effect regardless of (i) any investigation made
by any Underwriter, on its behalf or by or on behalf of any person who controls
an Underwriter, the Company or any controlling person of the Company, any
director or officer of the Company or the Selling Stockholder; (ii) acceptance
of any of the Shares and payment therefor; or (iii) any termination of this
Agreement, and shall survive the delivery of the Shares, and any successor of
any Underwriter or the Company, or of any person who controls any Underwriter
or the Company, as the case may be, or the Selling Stockholder shall be
entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by the
Underwriters, the Company and the Selling Stockholder contained in subsections
(a), (b), (c) and (d) of this Section 10 shall be in addition to any liability
which the Underwriters, the Company and the Selling Stockholder may otherwise
have.
Section 11. Termination. This Agreement (except for the
provisions of Sections 8 and 10 hereof) may be terminated by you by notifying
the Company and the Selling Stockholder at any time:
(a) prior to the earliest of (i) 11:00 a.m., New
York City time, on the business day immediately following the date hereof, (ii)
the time of release by the Representatives for publication of the first
newspaper advertisement which subsequently is published with respect to the
Shares or (iii) the time when the Shares are first generally released by the
Representatives to dealers.
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<PAGE>
(b) at or prior to the Closing Time if any of the
conditions specified in Section 9 hereof shall not have been fulfilled when and
as required by this Agreement to be fulfilled or if any of the covenants,
representations or warranties contained herein or in any certificate or
document contemplated under this Agreement to be delivered to you shall not
have been satisfied or fulfilled within the respective times herein provided
for, unless compliance therewith or performance or satisfaction thereof shall
have been expressly waived by you in writing; or
(c) at or prior to the Closing Time if any one or
more of the following shall have occurred or have been established between the
time of your execution of this Agreement and the Closing Time and in your
judgment the same has made or makes it inadvisable or impracticable for you
generally to proceed with the offering, sale, delivery, or collection of
payment for, the Shares pursuant to the public offering contemplated by this
Agreement: (i) a general suspension of, or a general limitation on prices for,
trading in securities on the New York Stock Exchange, American Stock Exchange,
the National Market or in the over-the-counter market; (ii) any new legal or
regulatory restriction adversely affecting the distribution of securities
generally or of the Shares; (iii) a material adverse change in general market
or economic conditions, either domestic or foreign, from such conditions on the
date hereof; (iv) a declaration of a banking moratorium by Federal or New York
State authorities; (v) any outbreak of major hostilities or other national or
international calamity; (vi) a material interruption in the mail service or
other means of communications within the United States; (vii) an action by any
government in respect of its monetary affairs which, in your reasonable
opinion, has a material adverse effect on the United States securities markets;
or (viii) any material adverse change or any material adverse development
involving a prospective change not contemplated in the Registration Statement
in or affecting particularly the business or properties of the Company.
Section 12. Default of Underwriters. If any Underwriter or
Underwriters default in their obligation to take and pay for Firm or Option
Shares and the aggregate number of Firm or Option Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the aggregate number of Firm or Option Shares, as the case may be, the other
Underwriters shall be obligated severally in proportion to their respective
commitments hereunder to purchase the Firm or Option Shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase. If any
Underwriter or Underwriters so default and the aggregate number of Firm or
Option Shares with respect to which such default or defaults occur is more than
10% of the aggregate number of Firm or Option Shares, as the case may be, and
arrangements satisfactory to you for the purchase of such Firm or Option Shares
by other persons (who may include one or more of the
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<PAGE>
non-defaulting Underwriters including you) are not made within 36 hours after
such default, this Agreement may be terminated by you without liability on the
part of any non-defaulting Underwriter or the Company, except for the expenses
to be paid or reimbursed by the Company pursuant to Section 8 and except for
the provisions of Section 10 hereof. In the event of any default by one or more
Underwriters as described in this Section 12, the Representatives shall have
the right to postpone the Closing Time or the Option Exercise Time, as the case
may be, established as provided in Section 4 hereof for not more than seven
business days in order that any necessary changes may be made in the
arrangements or documents for the purchase and delivery of the Firm Shares or
Option Shares, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 12. Nothing herein shall relieve a defaulting Underwriter from
liability for its default.
Section 13. Notice. Except as otherwise expressly provided in
this Agreement, whenever advice or a notice, objection, designation, request or
report is given or is required by the provisions of this Agreement to be given,
such advice, notice, objection, designation, request or report shall be in
writing and shall be delivered by first-class mail, postage prepaid, nationally
recognized courier or by telecopy, (a) if to the Company, addressed to it and
delivered at Votan Corporation, 7020 Koll Center Parkway, Pleasanton,
California, 94566 (telecopier number (510) 426-6767), Attention: John A. White,
President and Chief Executive Officer, with a copy to Brobeck, Phleger &
Harrison L.L.P., 1301 Avenue of the Americas, New York, New York 10019
(telecopier number (212) 586-7878), Attention: Richard A. Plumridge, Esq.; (b)
if to the Selling Stockholder, addressed to it and delivered at Moscom
Corporation, 3750 Monroe Avenue, Pittsford, New York 14534 (telecopier number
(716) 383-6858), Attention: Albert J. Montevecchio, President and Chief
Executive Officer, with a copy to Robert L. Boxer, Esq., at the same address;
and (c) if to you or the Underwriters, addressed to Ladenburg, Thalmann & Co.
Inc., and delivered at 540 Madison Avenue, New York, New York 10022 (telecopier
number 212-872-1730), Attention: Peter M. Graham, with a copy to Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103
(telecopier number 212-752-5958), Attention: Richard H. Gilden, Esq.; or at
such other address or telecopier number as a party hereto may give notice in
accordance herewith.
Section 14. Miscellaneous. (a) This Agreement is made solely
for the benefit of the Underwriters, the Selling Stockholder and the Company,
the Company's directors, the Company's officers who shall have signed the
Registration Statement and any controlling person referred to in Section 10
hereof, and their respective successors and assigns, and no other person,
partnership, association or corporation shall acquire or have any right under
or by virtue of this Agreement. The term "successor" or
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<PAGE>
the term "successors and assigns" as used in this Agreement shall not include
any buyer, as such, of any of the Shares from the Underwriters. All of the
obligations of the Underwriters hereunder are several and not joint.
(b) The information in the Prospectus under the section
"Underwriting" with respect to (i) the names of, and number of Shares to be
purchased by, each of the Underwriters and (ii) the amounts of the selling
concession and reallowance shall constitute the only information furnished in
writing by or on behalf of the several Underwriters for use in connection with
the preparation of the Registration Statement as originally filed or in any
amendment thereto, any preliminary prospectus or the Prospectus as the case may
be.
(c) This Agreement shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company, the
Selling Stockholder and you relating to the sale of any of the Shares.
(d) No change, amendment or supplement to, or waiver of, this
Agreement or any term, provision or condition contained herein, shall be valid
or of any effect unless in writing and signed by the party against whom such is
asserted.
(e) This Agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to contracts made
and to be performed therein without giving effect to the principles of
conflicts of law thereof. If any action or proceeding shall be brought by any
of the Underwriters in order to enforce any right or remedy under this
Agreement, the Company and the Selling Stockholder hereby consent to and submit
to, the jurisdiction of the courts of the State of New York and of any federal
court sitting in the Borough of Manhattan, City of New York. The Company and
the Selling Stockholder agree that process in any such action or proceeding may
be served in the manner provided by New York law for service on foreign
persons, as appropriate.
(f) This Agreement may be signed in two or more counterparts
with the same effect as if the signatures to each counterpart were upon a
single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
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Please confirm that the foregoing correctly sets forth the
agreement between the Company, the Selling Stockholder and you.
Very truly yours,
Votan Corporation
By:___________________________
John A. White
President and Chief
Executive Officer
MOSCOM Corporation
By:________________________________
Albert J. Montevecchio
President and Chief
Executive Officer
Accepted as of the date
first above written
LADENBURG, THALMANN & CO. INC.
KAUFMAN BROS., L.P.
By: Ladenburg, Thalmann & Co. Inc.
By:___________________________________
Acting on behalf of itself and as the
Representative of the other Underwriters
named in Schedule A attached hereto.
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SCHEDULE A
Number
Name of Underwriter of Shares
Ladenburg, Thalmann & Co. Inc.
Kaufman Bros., L.P.
---------
Total 2,850,000
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F&J DRAFT: 9/30/96
VOTAN CORPORATION
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1 ______________ Shares
FOR VALUE RECEIVED, Votan Corporation, a Delaware corporation
(the "COMPANY"), hereby certifies that ____________________ or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing on October __, 1997 and prior to 5:00 P.M., New York City time,
on October __, 2001, ___________________________ Thousand (________) fully paid
and non-assessable shares of the common stock, $.01 par value per share, of the
Company for an aggregate purchase price of $__________ (computed on the basis
of $______1 per share). (Hereinafter, (i) said common stock, together with any
other equity securities which may be issued by the Company with respect thereto
or in substitution therefor, is referred to as the "COMMON STOCK," (ii) the
shares of the Common Stock purchasable hereunder or under any other Warrants
(as hereinafter defined) are referred to individually as a "WARRANT SHARE" and
collectively as the "WARRANT SHARES," (iii) the aggregate purchase price
payable for the Warrant Shares hereunder is referred to as the "AGGREGATE
WARRANT PRICE," (iv) the price payable for each of the Warrant Shares hereunder
is referred to as the "PER SHARE WARRANT PRICE," (v) this Warrant, all similar
Warrants issued on the date hereof and all Warrants hereafter issued in
exchange or substitution for this Warrant or such similar Warrants are referred
to as the "WARRANTS" and (vi) the holder of this Warrant is referred to as the
"HOLDER" and the holder of this Warrant and all other Warrants or Warrant
Shares issued upon the exercise of any Warrant are referred to as the
"HOLDERS.") The Aggregate Warrant Price is not subject to adjustment. The Per
Share Warrant Price is subject to adjustment as hereinafter provided; in the
event of any such adjustment, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
1. EXERCISE OF WARRANT. (a) The Holder may exercise this Warrant, in
whole or in part, as follows:
(i) By presentation and surrender of this Warrant to
the Company at the address set forth in Subsection 9(a) hereof, with
the Subscription Form annexed hereto (or a
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1 The greater of $10 or 125% of public offering price.
<PAGE>
reasonable facsimile thereof) duly executed and accompanied by payment
of the Per Share Warrant Price for each Warrant Share to be purchased.
Payment for Warrant Shares shall be made by certified or official bank
check payable to the order of the Company; or
(ii) By presentation and surrender of this Warrant
to the Company at the address set forth in Subsection 9(a) hereof,
with a Cashless Exercise Form annexed hereto (or a reasonable
facsimile thereof) duly executed (a "CASHLESS EXERCISE"). Such
presentation and surrender shall be deemed a waiver of the Holder's
obligation to pay all or any portion of the Aggregate Warrant Price.
In the event of a Cashless Exercise, the Holder shall exchange its
Warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares being exercised by a
fraction, the numerator of which shall be the difference between the
then current market price per share of the Common Stock and the Per
Share Warrant Price, and the denominator of which shall be the then
current market price per share of Common Stock. For purposes of any
computation under this Section 1(a)(ii), the then current market price
per share of Common Stock at any date shall be deemed to be the
average for the thirty consecutive business days immediately prior to
the Cashless Exercise of the daily closing prices of the Common Stock
on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted
to trading on any such exchange, the closing prices as reported by the
Nasdaq National Market, or if not then listed on the Nasdaq National
Market, the average of the highest reported bid and lowest reported
asked prices as reported by the National Association of Securities
Dealers, Inc. electronic inter-dealer quotation system ("NASDAQ") or
if not then publicly traded, the fair market price of the Common Stock
as reasonably determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must
be exercised for a number of whole shares of the Common Stock, and the Holder
is entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate
Warrant Price applicable to such Warrant Shares. Upon such surrender of this
Warrant, the Company will (i) issue a certificate or certificates, in such
denominations as are requested for delivery by the Holder, in the name of the
Holder for the largest number of whole shares of the Common Stock to which the
Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of
any fractional share of the Common Stock to which the Holder shall be entitled,
pay to the Holder cash in an amount equal to the fair value of such fractional
share (determined in such reasonable manner as the Board of Directors of the
Company shall determine), and (ii) deliver the
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<PAGE>
other securities and properties receivable upon the exercise of this Warrant,
or the proportionate part thereof if this Warrant is exercisable in part,
pursuant to the provisions of this Warrant. The Holder shall be deemed to be
the holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer and free and clear of all preemptive rights and rights of first
refusal and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of the Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall
hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share Warrant
Price shall be adjusted so that the Holder upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Subsection 3(a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification.
(b) If, at any time or from time to time after the date of
this Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common
Stock, referred to in Subsection 3(a), and also excluding cash dividends or
cash distributions paid out of net profits legally available therefor if the
full amount thereof, together with the value of other dividends and
distributions made substantially concurrently therewith or pursuant to a plan
which includes payment thereof, is equivalent to not more than 5% of the
Company's net worth) (any
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<PAGE>
such nonexcluded event being herein called a "SPECIAL DIVIDEND"), the
Per Share Warrant Price shall be adjusted by multiplying the Per Share Warrant
Price then in effect by a fraction, the numerator of which shall be the then
current market price of the Common Stock (defined as the average for the thirty
consecutive business days immediately prior to the record date of the daily
closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any
such exchange, the average of the closing prices as reported by Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ, or
if not then publicly traded, the fair market price as reasonably determined by
the Company's Board of Directors) less the fair market value (as reasonably
determined by the Company's Board of Directors) of the evidences of
indebtedness, cash, securities or property, or other assets issued or
distributed in such Special Dividend applicable to one share of Common Stock
and the denominator of which shall be such then current market price per share
of Common Stock. An adjustment made pursuant to this Subsection 3(b) shall
become effective immediately after the record date of any such Special
Dividend.
(c) In case of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Company as an entirety or substantially as an entirety,
or in the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section 3
with respect to the rights and interests thereafter of the Holder of this
Warrant to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant. The above provisions of this
Subsection 3(c) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other securities or property
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thereafter deliverable on the exercise of this Warrant shall be responsible for
all of the agreements and obligations of the Company hereunder. Notice of any
such reorganization, reclassification, consolidation, merger, statutory
exchange, sale or conveyance and of said provisions so proposed to be made,
shall be mailed to the Holders of the Warrants not less than thirty days prior
to such event. A sale of all or substantially all of the assets of the Company
for a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(d) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants representing
the right to purchase a majority of the Warrant Shares subject to all
outstanding Warrants may appoint a firm of independent public accountants of
recognized national standing reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Warrants. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
(e) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any adjustments
which by reason of this Subsection 3(e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment; provided
further, however, that adjustments shall be required and made in accordance
with the provisions of this Section 3 (other than this Subsection 3(e)) not
later than such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder of this Warrant or Common Stock issuable
upon exercise hereof. All calculations under this Section 3 shall be made to
the nearest cent or to the nearest 1/100th of a share, as the case may be.
Anything in this Section 3 to the contrary notwithstanding, the Company shall
be entitled to make such reductions in the Per Share Warrant Price, in addition
to those required by this Section 3, as it in its discretion shall deem to be
advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
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<PAGE>
(f) Whenever the Per Share Warrant Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall cause the
Chief Financial Officer of the Company to prepare a certificate setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or the effect of such modification, a brief statement of the facts
requiring such adjustment or modification and the manner of computing the same
and cause copies of such certificate to be mailed to the Holders of the
Warrants. At Holder's option, Holder may request that the certificate prepared
by the Chief Financial Officer be confirmed and verified, in writing, by
independent public accountants of recognized standing selected by the Board of
Directors (who may be the regular auditors of the Company). The cost of such
review shall be paid by Holder unless, as a result of the review, adjustments
are made in favor of Holder, in which case, the cost of the review shall be
paid by the Company.
(g) If the Board of Directors of the Company shall (i)
declare any dividend or other distribution with respect to the Common Stock,
other than a cash dividend subject to the first parenthetical in Subsection
3(b), (ii) offer to the holders of shares of Common Stock any additional shares
of Common Stock, any securities convertible into or exercisable for shares of
Common Stock or any rights to subscribe thereto, or (iii) propose a
dissolution, liquidation or winding up of the Company, the Company shall mail
notice thereof to the Holders of the Warrants not less than 15 days prior to
the record date fixed for determining stockholders entitled to participate in
such dividend, distribution, offer or subscription right or to vote on such
dissolution, liquidation or winding up.
(h) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not
subject to preemptive rights or rights of first refusal, and the Company will
take all such actions as may be necessary to assure that the par value or
stated value, if any, per share of the Common Stock is at
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all times equal to or less than the then Per Share Warrant Price. The Company
further covenants and agrees that it will pay, when due and payable, any and
all Federal and state stamp, original issue or similar taxes which may be
payable in respect of the issue of any Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
(a) The Company agrees that if, at any time during the period
commencing on October __, 1997, and ending on October __, 2001, the Holder
and/or the Holders of any other Warrants and/or Warrant Shares who or which
shall hold, as amended, not less than 50% of the Warrants and/or Warrant Shares
outstanding at such time and not previously sold pursuant to this Section 5
shall request that the Company file, under the Securities Act of 1933 (the
"ACT"), a registration statement under the Act covering not less than 50% of
the Warrant Shares issued or issuable upon the exercise of the Warrants and not
so previously sold, the Company will (i) promptly notify each Holder of the
Warrants and each holder of Warrant Shares not so previously sold that such
registration statement will be filed and that the Warrant Shares which are then
held, and/or may be acquired upon exercise of the Warrants by the Holder and
such Holders, will be included in such registration statement at the Holder's
and such Holders' request, (ii) cause such registration statement to be filed
with the Securities and Exchange Commission within forty-five days of such
request and to cover all Warrant Shares which it has been so requested to
include, (iii) use its best efforts to cause such registration statement to
become effective as soon as practicable and (iv) take all other action
reasonably necessary under any Federal or state law or regulation of any
governmental authority to permit all Warrant Shares which it has been so
requested to include in such registration statement to be sold or otherwise
disposed of, and will maintain such compliance with each such Federal and state
law and regulation of any governmental authority for the earlier of a period of
180 days or such other period necessary for such Holders to effect the proposed
sale or other disposition. The Company shall be required to effect a
registration or qualification pursuant to this Subsection 5(a) on one occasion
only.
(b) Notwithstanding anything to the contrary set forth in
Subsection 5(a), the Company shall not be obligated to register any Warrant
Shares hereunder if: (i) such Warrant Shares can be publicly sold by the Holder
thereof without registration under the Act and without any volume or other
material limitations, (ii) a registration statement covering such Warrant
Shares has been declared effective and they have been disposed of pursuant to
such effective registration statement, (iii) such Warrant Shares are
transferred on the open market pursuant to any available exemption under the
Act, (iv) such Warrant Shares have been otherwise transferred and the Company
has delivered new certificates or other
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<PAGE>
evidences of ownership for them not subject to any stop transfer order or other
restriction on transfer and not bearing any legend restricting transfer in the
absence of an effective registration or an exemption from the registration
requirements of the Act, (v) they have been sold, assigned, pledged,
hypothecated or otherwise disposed of by the Holder in a transaction in which
the Holder's rights hereunder are not assigned or assignable, or (vi) the
Holder acquired such Warrant Shares pursuant to a Cashless Exercise of this
Warrant, as described in Section 1(a) hereof. In addition, if the Company shall
furnish to Holders requesting a registration statement pursuant to Section
5(a), a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than 90 days after receipt of the request of the Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve-month period.
(c) The Company agrees that if, at any time and from time to
time during the period commencing on October __, 1997, and ending on October
__, 2003, the Board of Directors of the Company shall authorize the filing of a
registration statement (any such registration statement being hereinafter
called a "SUBSEQUENT REGISTRATION STATEMENT") under the Act (otherwise than
pursuant to Subsection 5(a) hereof, or other than a registration statement on
Form S-8 or other form which does not include substantially the same
information as would be required in a form for the general registration of
securities) in connection with the proposed offer of any of its securities by
it or any of its stockholders, the Company will (i) promptly notify the Holder
and each of the Holders, if any, of other Warrants and/or Warrant Shares not
previously sold pursuant to this Section 5 that such Subsequent Registration
Statement will be filed and that the Warrant Shares which are then held, and/or
which may be acquired upon the exercise of the Warrants, by the Holder and such
Holders, will, at the Holder's and such Holders' request, be included in such
Subsequent Registration Statement, (ii) upon the written request of a Holder
made within 15 days after the giving of such notice by the Company, include in
the securities covered by such Subsequent Registration Statement all Warrant
Shares which it has been so requested to include, (iii) use its best efforts to
cause such Subsequent Registration Statement to become effective as soon as
practicable and (iv) take all other action reasonably necessary under any
Federal or state law or regulation of any governmental authority to permit all
Warrant Shares which it has been so requested to include in such Subsequent
Registration Statement to be sold or otherwise disposed of, and will maintain
such compliance with each such Federal and state law and regulation of any
governmental authority
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<PAGE>
for the earlier of a period of 180 days or such other period necessary for the
Holder and such Holders to effect the proposed sale or other disposition.
Notwithstanding any other provision of this Section 5(c), if the managing
underwriters advise the Holders in writing that marketing factors require a
limitation of the number of shares to be registered in such Subsequent
Registration Statement, then the number of Warrant Shares that may be included
in the underwriting shall be allocated among all Holders thereof in proportion
(as nearly as practicable) to the amount of Warrant Shares owned by each
Holder.
(d) Whenever the Company is required pursuant to the
provisions of this Section 5 to include Warrant Shares in a registration
statement, the Company shall (i) furnish each Holder of any such Warrant Shares
and each underwriter of such Warrant Shares with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant Shares, (ii) use
its best efforts to register or qualify such Warrant Shares under the blue sky
laws (to the extent applicable) of such jurisdiction or laws (to the extent
applicable) of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold by such
Holders shall reasonably request and (iii) take such other actions as may be
reasonably necessary or advisable to enable such Holders and such underwriters
to consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold. Nothing contained in this Warrant shall be construed as requiring a
Holder to exercise its Warrant prior to the closing of an offering pursuant to
a registration statement referred to in Subsection 5(a) or 5(b).
(e) The Company shall furnish to each Holder participating in
an offering pursuant to a registration statement under this Section 5 and to
each underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under
the underwriting agreement), and (ii) a "comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
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<PAGE>
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(f) The Company shall enter into an underwriting agreement
with the managing underwriters selected by the Company, subject to the consent
of Holders holding 50% of the Warrant Shares requested to be included in a
registration statement filed pursuant to Section 5(a), such consent not to be
unreasonably withheld. Notwithstanding the foregoing, in the event that the
Company has not selected the managing underwriters within twenty (20) days of
receipt of request for registration pursuant to Section 5(a), the Holders
holding 50% of the Warrant Shares requested to be included in a registration
statement filed pursuant to Section 5(a) shall have twenty (20) days to select
the managing underwriters, subject to the consent of the Company, such consent
not to be unreasonably withheld. In the event that such Holders have not
selected an acceptable managing underwriter within such twenty (20) day period,
the parties shall follow the procedures herein set forth until such time as a
selection is made. Such agreement shall be reasonably satisfactory in form and
substance to the Company, each Holder and such managing underwriters, and shall
contain such representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Shares. Such
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(g) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, excluding the fees and expenses of counsel representing the
Holders of Warrant Shares included in any such registration statement and any
underwriting discounts and applicable transfer taxes relating to the Warrant
Shares.
(h) The Company will indemnify, and, if such indemnity is
unavailable, will agree to just and equitable contribution to, the Holders of
Warrant Shares which are included in each registration statement referred to in
Subsections 5(a) and 5(b), and the underwriters of such Warrant Shares,
substantially to the same extent as the Company has indemnified, and agreed to
just and equitable contribution to, the underwriters (the "UNDERWRITERS") of
its public offering of Common Stock pursuant to the Underwriting Agreement (the
"Underwriting Agreement"), dated September __, 1996, by and among the Company,
Ladenburg, Thalmann & Co. Inc., Kaufman Bros., L.P., MOSCOM Corporation, as the
Selling Stockholder, and
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<PAGE>
the other underwriters named in Schedule A thereto. Each selling Holder of
Warrant Shares, severally and not jointly, will indemnify and hold harmless the
Company, its directors, its officers who shall have signed any such
registration statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act to the same extent as the foregoing
indemnity from the Company, but in each case to the extent, and only to the
extent, that any statement in or omission from or alleged omission from such
registration statement, any final prospectus, or any amendment or supplement
thereto was made in reliance upon information furnished in writing to the
Company by such selling Holder specifically for use in connection with the
preparation of such registration statement, any final prospectus or any such
amendment or supplement thereto; provided, however, that the obligation of any
Holder of Warrant Shares to indemnify the Company under the provisions of this
Subsection (h) shall be limited to the product of (A) the number of Warrant
Shares being sold by the selling Holder and (B) the market price of the Common
Stock on the date of the sale to the public of such Warrant Shares.
6. LIMITED TRANSFERABILITY. This Warrant may not be sold, transferred,
assigned or hypothecated by the Holder (a) except in compliance with the
provisions of the Act, (b) until the first anniversary hereof except (i) to any
successor firm or corporation of Ladenburg, Thalmann & Co. Inc. or Kaufman
Bros., L.P., (ii) to any of the officers of Ladenburg, Thalmann & Co. Inc. or
Kaufman Bros., L.P. or of any such successor firm or (iii) in the case of an
individual, pursuant to such individual's last will and testament or the laws
of descent and distribution, and is so transferable only upon the books of the
Company which it shall cause to be maintained for the purpose. The Company may
treat the registered Holder of this Warrant as he or it appears on the
Company's books at any time as the Holder for all purposes. All Warrants issued
upon the transfer or assignment of this Warrant will be dated the same date as
this Warrant, and all rights of the Holder thereof shall be identical to those
of the Holder.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
8. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
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<PAGE>
9. NOTICES. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or by facsimile transmission, or sent
by recognized overnight courier or by certified mail, return receipt requested,
postage paid, to the parties hereto as follows:
(a) if to the Company at 7020 Koll Center Parkway,
Pleasanton, California 94566, Attn.: John A. White, facsimile
no. (510) 426-6767, or such other address as the Company has
designated in writing to the Holder, or
(b) if to the Holder at Attn.: _______________________,
facsimile no. __________________, at
____________________________________, or such other address
or facsimile number as the Holder has designated in writing
to the Company.
10. HEADINGS. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
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<PAGE>
IN WITNESS WHEREOF, Votan Corporation, has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Secretary this ____ day of October, 1996.
VOTAN CORPORATION
By:________________________________
John A. White
President and Chief Executive
Officer
ATTEST:
William E. O'Connor
Chief Financial Officer,
Treasurer and Secretary
[Corporate Seal]
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells,
assigns and transfers unto __________________________ the foregoing Warrant and
all rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
Votan Corporation.
Dated:_____________________________ Signature: ______________________________
Address:_________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns
and transfers unto ____________________________ the right to purchase
______________ shares of the Common Stock of Votan Corporation covered by the
foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer that part of said Warrant on the
books of Votan Corporation.
Dated:_____________________________ Signature: ______________________________
Address:_________________________________
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<PAGE>
SUBSCRIPTION FORM
To be executed upon exercise of Warrant pursuant to Section 1(a)(i))
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by the within Warrant for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section
1(a)(i), and tenders herewith payment of the purchase price in full in the form
of cash or a certified or official bank check in the amount of $___________.
Please issue a certificate or certificates for such Common
Stock in the name of, and pay any cash for any fractional share to:
Name______________________________________
(Please Print Name, Address and Social
Security No.)
Address___________________________________
__________________________________________
Social____________________________________
Security Number
Signature_________________________________
NOTE: The above signature
should correspond exactly
with the name on the first
page of this Warrant or
with the name of the
assignee appearing in the
assignment form below.
Date______________________________________
And if said number of shares shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned for the balance remaining of the shares purchasable
thereunder.
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<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender
_______ shares purchasable under this Warrant for such shares of Common Stock
issuable in exchange therefor pursuant to the Cashless Exercise provisions of
the within Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common
Stock in the name of, and pay cash for fractional shares to:
Name______________________________________
(Please Print Name, Address and Social
Security No.)
Address___________________________________
__________________________________________
Social____________________________________
Security Number
Signature_________________________________
NOTE: The above signature
should correspond exactly
with the name on the first
page of this Warrant or
with the name of the
assignee appearing in the
assignment form below.
Date______________________________________
And if said number of shares shall not be all the shares
exchangeable or purchasable under the within Warrant, a new Warrant is to be
issued in the name of the undersigned for the balance remaining of the shares
purchasable thereunder.
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Rochester, New York,
October 1, 1996
